Investors looking to take advantage of the transition from fossil fuels to less carbon-intensive ways of generating electricity will probably have a smattering of holdings in both oil and gas companies and renewable energy firms.
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The big oil and gas companies themselves are beginning to make investments in greener energy, although their sales are still very much dependent on the continued use of natural gas and oil.
That means one of the things investors will want to keep an eye on is the price for these hydrocarbons, which fluctuate on a host of supply-and-demand reasons, with geopolitics not the least among them. Oil prices, for example, recently moved higher on worries about Israeli strikes on Iran’s oil infrastructure.
But there’s a larger supply theme to consider. The United States has been producing record amounts of oil and gas, which affords the market a stabilizing effect.
Turning to renewable energy, solar and wind are fast-growing components of the power-generation landscape.
“Renewable energy and new energy sources are major themes this year,” says Ollie Howie, managing partner with Mount Auburn Venture Partners. “There will be an influx of antiquated energy companies seeking to move to new energy to maintain viability and grow their market.”
One of the big themes for renewable energy and natural gas alike is the boom in data centers and artificial intelligence. Those data centers suck up a lot of energy and will be powered with an increasing amount of renewables like solar and wind. But they may also become a large source of demand for natural gas-generated electricity.
With that backdrop, investors can consider these eight energy stocks:
— NextEra Energy Inc. (ticker: NEE)
— Bloom Energy Corp. (BE)
— Gevo Inc. (GEVO)
— Quanta Services Inc. (PWR)
— Darling Ingredients Inc. (DAR)
— BP PLC (BP)
— HF Sinclair Corp. (DINO)
— Schlumberger Ltd. (SLB)
NextEra Energy Inc. (NEE)
Investors looking for a large, stable play on the energy transition should consider this company, as NextEra regularly shows up in experts’ top picks for renewable energy stocks.
Its regulated utility segment generates, transmits, distributes and sells electric energy in Florida. The company also produces electricity from renewable sources, including wind and solar, in another business unit.
That latter business segment in the second quarter added more than 3,000 megawatts of new renewables and storage projects to its project backlog, including 860 megawatts that come from agreements with Alphabet Inc.’s (GOOG, GOOGL) Google for data center power demand.
Howie says he likes NextEra’s track record for price-to-earnings and earnings before interest, taxes, depreciation and amortization. He says the stock is poised to continue its momentum higher to the end of the year.
Bloom Energy Corp. (BE)
Most hydrogen these days is produced using fossil fuels without carbon capture. But some companies are developing green hydrogen supply chains, in which the hydrogen is created using renewable energy.
Once hydrogen is separated from water using an electrolyzer powered by renewable energy, it can then be stored and used as fuel to power hard-to-abate sectors, such as shipping and steelmaking. In the case of steelmaking, hydrogen can also replace coal as the reductant for iron ore in blast furnaces. Hydrogen can also be used in fuel cells to power electric vehicles.
Bloom Energy is one of the blue chips of the green hydrogen sector. It makes fuel cell systems that can run on different inputs, including hydrogen. Its technology can be adopted by the utility and transportation industries.
Gevo Inc. (GEVO)
Another way to reduce carbon emissions is through sustainable aviation fuel, which is produced with non-petroleum inputs like food and yard waste, used cooking oil, soybean oil and ethanol from corn.
Gevo uses biomass to create aviation fuel. That biomass includes starch byproduct from high-protein animal feed that the company also produces.
The company also makes renewable natural gas. Natural gas — whether it’s extracted from the ground or, like Gevo’s, made from dairy farm manure and high-protein animal feed from non-edible corn — is expected to be a transition fuel for some time as nations around the world seek to use less coal for electricity production.
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Quanta Services Inc. (PWR)
Quanta Services designs, installs, repairs and maintains energy and communications infrastructure. It works with utility, renewable energy, communications, pipeline and energy companies.
This company stands to benefit from natural gas as a transition fuel in coming decades. It it also has a strong footprint in renewable energy, making it a player for the long-term trend of electrification as governments seek a smaller carbon footprint.
For that decarbonization to happen, a lot of investment will be required in upgrading and expanding the electric grid.
But until that electric grid can rely more on renewables with battery storage or nuclear energy for baseload power, natural gas will play a part in the world’s energy mix. Quanta’s expertise with natural gas pipelines means it has flexibility as renewable natural gas takes more market share.
Darling Ingredients Inc. (DAR)
This company turns edible by-products and food waste into sustainable products and renewable energy.
With more than 260 facilities in over 15 countries, the company says it repurposes about 15% of the world’s meat industry waste streams into green energy, renewable diesel, collagen, fertilizer, animal proteins and meals, and pet food ingredients.
Darling is involved in a joint venture with Valero Energy Corp. (VLO) called Diamond Green Diesel, which produces fuel from used cooking oil, inedible animal fats and corn oil.
BP PLC (BP)
Over the past year, shares of this oil and gas supermajor have declined about 10%. That may be creating an opportunity for bargain hunters who would want to hold BP shares for a long time.
The company is one of the biggest oil and gas firms in the world, giving it deep pockets to continue its traditional fossil fuel business while also moving into lower-carbon efforts.
The company is moving into renewable energy generation with solar and wind, as well as transforming those electrons into energy molecules with hydrogen, allowing it to sell both electricity and hydrogen to customers in addition to fossil fuels.
The company “has strong cash flow and has made a significant commitment to be net zero by 2050, which has made a traditional energy player also a viable contributor in the future,” Howie says.
HF Sinclair Corp. (DINO)
This company is involved in a wide swath of the energy industry, with refining, midstream and marketing units.
You might be familiar with the green dinosaur statues that adorn Sinclair gas stations, which are part of its marketing arm.
Its midstream unit transports and stores petroleum products and crude oil, while its refining business has an annual average crude oil capacity of about 680,000 barrels a day.
“HF Sinclair operates in multiple segments of the energy industry,” says Jay Young, author of The Upside of Oil and Gas Investing: How the New Model Works and Why It Puts the Traditional Model to Shame and CEO of King Operating Corp. “This diversification helps the company weather market fluctuations better than those focused solely on refining.”
Schlumberger Ltd. (SLB)
Schlumberger is one of the world’s largest international oilfield services companies. It helps oil and gas companies understand reservoirs, complete wells and optimize producing wells.
The company is also involved in the energy transition with geothermal, hydrogen, energy storage and lithium, and in June it closed an acquisition of Aker Carbon Capture.
Schlumberger is also in the process of buying ChampionX Corp. (CHX), a company involved in chemistry solutions, artificial lift systems, and highly engineered equipment and technologies for oil and gas drilling and production.
“Schlumberger has faced some ups and downs recently, but it’s still making smart moves by buying other companies to enhance its carbon capture and energy production services,” Young says.
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Update 10/04/24: This story was published at an earlier date and has been updated with new information.
