Home Traveling guide Energy Stocks: An Investing Guide – InvestorPlace

Energy Stocks: An Investing Guide – InvestorPlace

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  • Energy stocks include oil and gas stocks as well as clean energy stocks.
  • Many energy stocks have fairly low market capitalizations.
  • The energy sector has multiple powerful and positive catalysts.

In 2022, there are two types of energy values. On the one hand, there are stocks of oil and gas companies and, on the other hand, clean energy stocks.

Both types of energy actions have strong, positive drivers that should last for some time. Oil and natural gas stocks benefit from high oil and gas prices. These high prices were caused by a number of factors, including tight supplies following the coronavirus pandemic, sanctions against Russia and pent-up travel demand as consumers become less worried about the virus. Additionally, many oil and natural gas stocks are still relatively cheap, even though they have rallied a lot so far this year due to soaring oil and gas prices.

Meanwhile, clean energy stocks are boosted by Europe’s response to the Russian-Ukrainian war, the efforts of many governments to increase their countries’ use of clean energy, and the growing popularity of vehicles electrical.

What are energy stocks?

By buying shares of oil and gas companies, you acquire small percentages of energy companies that deal in some way with oil and/or natural gas. For example, there are companies that find and sell oil and natural gas, companies that sell equipment used to find and pump oil and natural gas, and companies that transport these fuels. Some large companies perform most or all of these activities.

When you buy shares of clean energy stocks, you are buying small amounts of companies that deal with one or more means of generating energy that emit little or no pollution. Among these energy sources are solar energy, wind energy, hydroelectricity, batteries and green hydrogen.

In the clean energy sector, there are companies that sell and install solar panels, wind turbines and hydrogen. Space companies also manufacture equipment used to develop and improve the efficiency of all these forms of clean energy.

Are energy stocks a good buy?

Due to various factors, oil and gas prices could decline significantly in the coming months. With President Joe Biden due to visit Saudi Arabia in July, the latter country could very well agree to pump a lot more oil. Moreover, several major EU countries appear to be seeking to promote a peace deal between Russia and Ukraine, and even Biden, for the first time in many months, recently said that the Ukrainians may have to make concessions. to the Russians.

Of course, a peace agreement between the Russians and the Ukrainians would probably lower energy prices. Additionally, as we head into the middle of summer, investors and traders will begin to look toward the end of the summer driving season and the warm weather that tends to drive up natural gas prices.

On the other hand, as I pointed out in the introduction, many oil and gas stocks have fairly low valuations. Even if oil and gas prices drop significantly, the market caps of many names in the space will continue to be quite attractive. Similarly, the market capitalizations of many clean energy stocks are very small. Therefore, many energy sector stocks would make attractive additions to investors’ portfolios.

Speaking of clean energy stocks, many of their market capitalizations are also very low and they should continue to benefit from governments’ efforts to promote renewable energy as a way to combat climate change.

Many stocks in the energy sector should get a significant boost from the growing popularity of electric vehicles. Specifically, due to the need for increased electricity generation to power these electric vehicles, producers of renewable energy and natural gas should get a big boost, because renewable energy and natural gas are frequently used to generate electricity.

In the longer term, however, the proliferation of electric vehicles risks hurting oil stocks. But in the shorter term, oil demand is expected to remain strong as pent-up travel demand remains strong.

When do energy stocks go up?

Stock prices of oil and gas companies generally rise when oil and gas prices rise. Oil and natural gas prices, in turn, may increase due to various supply and demand trends, as well as due to geopolitical events. In addition, potential changes in supply and demand, as well as potential geopolitical events, can drive up oil and natural gas prices. Finally, weather patterns can increase natural gas prices.

The primary method used by US traders and investors to track supply and demand trends for oil and gas is to follow US government reports on these fuels. And two of the main reports used by energy traders and investors are the weekly State of Oil report and the weekly Natural Gas Storage report. Both reports are published by the US Energy Information Administration. Typically, when oil and gas inventories are below analysts’ average expectations prior to the release of reports, oil and natural gas prices rise.

Among the types of potential supply and demand trends that can increase oil and gas prices are a possible decrease in fuel production in the future due to possible geopolitical events, developments potential weather or business decisions. For example, oil prices may rise following events such as a war in the Middle East or a hurricane in the Gulf of Mexico.

On the other hand, the main driver of clean energy stocks is government actions. For example, clean energy stocks have been boosted following a recent EU decision to seek to produce 45% of its energy from renewables by 2030, up from its previous target of 40 %. But other catalysts — including rising oil and gas prices, decisions to use renewables by big companies, and new contracts — can boost clean energy stocks.

Energy stocks and inflation

For two reasons, oil and gas stocks tend to perform well during periods of high inflation. First, during these periods, oil and natural gas traders typically drive commodity prices up in the markets at a rate faster than inflation. And since the profits of oil and gas companies are closely tied to the price level of oil and natural gas, the financial results of these energy companies tend to improve sharply during periods when the economy is in the throes of strong inflation.

Second, unlike luxuries like restaurants and vacations, consumers have no choice but to buy gas for their cars and oil for their homes. After all, consumers need electricity, heating, air conditioning and gasoline. However, this situation could change in the long term due to the diffusion of electric vehicles and renewable energies.

Clean energy stocks, however, may be less resilient to inflation, as renewable energy prices are set not by traders, but by companies themselves, which may be reluctant to lose market share. by raising prices.

Main energy actions

  • Enphase Energy (NASDAQ:ENPH): One of the world’s largest manufacturers of microinverters used to convert solar energy into electricity.
  • Devon Energy (NYSE:NDV): The company is a major oil and gas producer in the United States, with more than 5,100 wells and a good price/earnings ratio.
  • NextEra Energy (NYSE:BORN): NextEra’s subsidiary, NextEra Energy Resources, is “the world’s largest producer of renewable energy from wind and solar and a world leader in battery storage”.
  • Chevron (NYSE:CLC): The company has increased its dividend in each of the past six years and is heavily involved in nearly all phases of oil and natural gas development and transportation.
  • Exxon (NYSE:XOM): Like Chevron, Exxon benefits from its involvement in most of the oil and natural gas sectors.
  • APA Corporation (NASDAQ:PAA): The company has a relatively balanced mix of oil and natural gas production and a low price-to-earnings ratio.
  • JinkoSolar (NYSE:JKS): One of the world’s largest producers of solar modules, Jinko’s products have set many efficiency records and the company sells its equipment worldwide.
  • Benches (NASDAQ:SHLS): A maker of solar power equipment used in Shoals’ top line is set for rapid growth.

As of the date of publication, Larry Ramer held shares of JKS and SHLS. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Larry Ramer has researched and written about US stocks for 15 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry started writing columns for InvestorPlace in 2015. Some of his highly successful contrarian picks include GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer.