From oil derricks to wind farms, nuclear plants to solar panels, there’s a wide variety of energy out there in the world. Some of it is finite, other sources are renewable. There’s even a sector of alternative energy to consider as well!
That’s created a dynamic market sector that encompasses everything from power generating utilities to companies that explore and develop fossil fuels, with some exciting new technologies along the way. There are massive companies that are big players on Wall Street that trade on the New York Stock Exchange (NYSE), and penny stocks that just started up on the Toronto Stock Exchange (TSX).
Whatever and however you buy it, some of the best energy stocks on the stock market for investors today are the biggest, most profitable players in their sub-niche of the energy industry.
Best Energy Stock #1: ConocoPhillips (COP)
One of the biggest oil companies in the industry, ConocoPhillips explores, produces, transports and markets crude oil, natural gas, and other related fossil fuels. The company has conventional oil reservoirs, shale, heavy oil and oil sand operations across four continents.
The volatility of the oil market in the past year, to say nothing of the ongoing drop in natural gas, has been tough for shares, which are off 30 percent. Revenue has likewise dropped a similar amount. But the company is still profitable, sporting a profit margin of 12 percent.
Why recommend a big oil company now? Thanks to the selloff in shares, there’s a nice value here. And the company’s history of regular dividend increases has pushed the dividend yield on shares to just over 4 percent. That makes it one of the better players among oil stocks.
Finally, the company is a cash cow with a strong balance sheet containing just $7 billion in net debt. That’s a strong position for whatever uncertainty lies for the sector ahead.
Best Energy Stock #2: First Solar (FSLR)
One of the world’s leaders in manufacturing solar cells and other photovoltaic solar energy solutions, First Solar is a major player in the world of renewable energy, making it the top renewable energy stock and best among the solar companies right now.
The company manufactures modules that convert sunlight into electricity. Customers range from utility companies to independent power producers, as well as commercial companies as well.
The declining costs of solar panels in recent years have made it easier for the company to sell its clean energy products and increase solar energy’s market share. In turn, this has helped the company eke out a small profit in the last year and see growing cash flow and a rising net income. Over the past year, shares are down about 7 percent.
But with First Solar’s strong balance sheet, which has nearly $900 million in cash after all debt, as well as insider ownership of over 28 percent of shares, this is one company that’s well positioned to take advantage of the improvements in solar cells for the foreseeable future and see rising earnings.
Best Energy Stock #3: Brookfield Renewable Partners (BEP)
Here’s a truly international energy play, this time in the utility sector. Based out of Bermuda, this investment partnership generates 19,000 megawatts from wind, solar, biomass and hydroelectric sources across North America, Brazil, Europe, India and China.
The company’s partnership structure is a bit different from traditional utilities, but it means that the company has to pay out the majority of its earnings to the holders of shares.
That’s enough to push the yield up to 4.4 percent, making for a reasonably high dividend stock. The company has a policy of looking to raise its dividend payout ratio by at least 5 percent annually, so as a dividend growth play, this company looks truly impressive for long-term investors.
The stock price is also up 36 percent in the past year, showing that capital gains matter as well. Despite that overall return, shares are still well below highs set back before the market meltdown in March, so there’s room for further capital gains on this unique, international investment in the utility space.
Investors interested in companies that move and store energy may want to consider a close look at the sister company, Brookfield Infrastructure Partners (BIP).
Best Energy Stock #4: EOG Resources (EOG)
One of the larger producers that also has an exploration bent, EOG Resources is an energy company that produces crude oil and natural gas in the United States, with sizeable operations in Trinidad, Tobago, Canada and China.
EOG Resources is notable in the space for its robust free cash flow, as well as its ability to produce some of the lowest-cost shale oil in the industry. This is one company that’s likely to survive a prolonged period of low oil prices, while possibly picking up top assets from more leveraged players that went broke. Its natural gas exposure isn’t too bad for that part of the market to weigh on it.
Thanks to its exposure to the shale space, shares have dropped a whopping 42 percent over the past year. But revenues are down only 14 percent, and EOG Resources still has a 13 percent profit margin, a reasonably high one for the commodity space.
Investors are getting a near-three percent dividend yield right now, and the company just bumped up its annual dividend by 26 cents over the past year.
Best Energy Stock #5: ExxonMobil (XOM)
At one point, ExxonMobil was America’s largest stock by market capitalization. However, technology companies have long since surged ahead to take the top spots for total size.
Exxon produces crude oil and natural gas around the world, including the manufacture and transport of various oil-based products as well. It also makes specialty chemicals such as isopropyl alcohol.
The past year’s volatility in the energy space haven’t been kind to oil. Shares are off over 37 percent in the past year, even as revenue has declined by a mere 10 percent. But that’s helped push the dividend up to mouth-watering levels.
At present, shares yield 7.4 percent, with a $3.48 annual payout. That’s a bit lower than what the company has paid in previous years. The cut dividend payment, as well as the reduced share price, still present a high-yield opportunity today.
The company is currently paying out more in dividends than from its cash flow at the moment. That’s generally a concern, as a payout ratio over 100 percent isn’t sustainable. But with higher—and steadier—oil prices likely down the line, the company should be fine. It’s had to deal with this kind of uncertainty in the commodity space before.
In its long operating history, it’s already seen every market under the sun for oil, and will no doubt pull through this time as well, thanks in part to its strong balance sheet relative to competitors. That makes this high-yielder look like an attractive buy today ahead of an earnings recovery.
FAQ’s
Should I Invest in Energy Stocks?
Energy stocks are a part of every diversified investor’s portfolio. And with a mix of asset plays, utility plays, and potential growth plays from exploration or technologically-driven ones, there’s something for every investor’s comfort level.
The beauty of energy stocks is that investors can buy some of the biggest names in the space, or do some deep research and find some up-and-coming energy stocks likely to deliver better, but more volatile, long-term returns.
Of course, the downside is that some sectors can look great after a hot run, right before they start heading down again. The natural gas space is one example in recent years, as massive production has led to a surge in gas supplies.
Is Now a Good Time to Buy Energy Stocks?
In the past, the energy sector as a whole was far more cyclical, depending on moves in oil and natural gas. With today’s more diversified energy sources, the space as a whole is far less cyclical. Investors can still exercise patience and buy energy stocks in certain sectors when it’s appropriate to do so. For more tech-heavy or clean energy stocks like solar power, a market selloff tends to create a big sale in prices.
Meanwhile, oil and natural gas stocks are best bought when the price has been down and it looks like it will never go up. Why? As commodity plays, whenever the price is high, a lot of supply comes into play, which help lower prices. When prices are low, more resources head into the space, which in turn tends to give prices an overall boost.
Overall, it’s nearly always a good time to buy at least one of the many varieties of energy stocks.
Can I Buy an Energy ETF?
As with any sector or investment strategy, there’s an exchange traded fund (ETF) or mutual fund that caters to it. The energy sector is a rich space, thanks to all the variety between oil and natural gas companies, utilities, and renewable energy sources, among others. For those that want exposure to one part of the energy sector, or the sector as a whole, this is the place to go.