How To Buy Energy Stocks
Below are the best-performing energy stocks, which includes exclusively energy stocks from the Energy Select Sector SPDR Fund ETF (XLE). Last year was phenomenal for oil and gas stocks, and here are the top performers so far in 2023.
how to buy energy stocks
In response to the collapse of energy prices during the Covid-19 pandemic, Royal Dutch Shell cut its dividend, a blow to income investors who held its stock. It also shifted a sizable share of its spending away from capital projects for oil and gas and is now focusing more on the development of renewable energy projects.
Launched in 1924 as an oil and gas company, TotalEnergies is the largest energy company in France. Its current core business focuses on finding, drilling and refining oil and gas. In 2021, however, the company announced that it would like to dramatically shift to cleaner energy sources going forward, with half of its planned capital investment budget over the next four years going toward natural gas and renewable energy. As part of this strategy shift and rebranding, it changed its name from Total to TotalEnergies in May 2021.
This energy giant discovers new reserves of oil and gas around the world while also developing novel technologies to extract more energy from existing reserves. The rebound in oil demand has helped its stock performance and future prospects as it can now sell its production for more.
Enbridge Inc is a highly diversified energy infrastructure company based in Calgary, Canada. It operates oil and gas pipelines throughout the U.S. and Canada, and derives a large part of its revenue from natural gas refining, transport and storage. Enbridge also operates in the renewable power generation sector, with wind, solar and geothermal generation assets.
Energy sector stocks come from companies focused on the production and supply of energy products to the rest of the economy. They can also include companies providing services and equipment to energy producers. Some of the top categories for energy stocks include:
Huge markets that are crucial for the global economy. Energy is a major sector of the economy and accounts for trillions of dollars each year. The world economy needs power, creating sustained, long-term demand for the energy sector.
Potential for high dividends or company growth. When energy prices go up, energy companies can reap the benefits, like by earning significantly more per barrel of oil, even though their costs stay about the same. This is a chance for them to pay higher dividends to investors or to invest for future growth.
Growing global demand. As countries like China and India continue to develop, their need for energy will grow, too. This means there will be plenty of future demand both for existing energy sources like oil and gas as well as growing needs for alternative sources.
Possible rebound after a recession. The energy sector struggled throughout the Covid-19 pandemic, due to less travel and overall demand. Now that the world is beginning to reopen, there could be a new surge in travel, pushing up demand and prices for the best energy stocks.
Major environmental concerns. Oil, gas and coal companies are notorious for products that emit greenhouse gases, which worsen global warming. They also have other potential environmental issues, like oil spills. Not only is this an ethical concern, it also makes energy companies vulnerable to costly lawsuits, which can hurt your returns.
A volatile market. Energy prices can swing widely and rapidly, depending on the state of the global economy. For example, over the past 10 years the price of crude oil has gone from as high as nearly $110 a barrel to as low as less than $20 a barrel at the start of the Covid-19 pandemic. The value of energy stocks tends to track energy prices, making these investments more volatile and potentially riskier than stocks in other sectors.
Companies need to make big investments. It takes considerable resources to explore new sources of energy, like drilling for new oil wells, not to mention research and development for sustainable energy technology that may not always pan out. These financial drains can potentially harm your long-term returns if enough of them coalesce.
Innovation and technology may reduce long-term demand. New sources of green energy, like solar, have become dramatically less expensive over the past decade. This is cutting into the demand for coal and could also start hurting demand for oil, gas and other traditional energy sectors, potentially jeopardizing their long-term value.
If that sounds like a hassle, you can simplify things by investing in energy sector index funds and exchange-traded funds (ETFs). You can find these using fund screeners at your brokerage. Or consider those that track major energy sector indexes, like the S&P 500 Energy.
Recently energy stocks have the highest dividend yield of any stock market sector, as well as the highest free-cash flow. These two statistics are connected: Companies that generate a lot of cash flow can spend a lot on dividends.
The best way to invest in renewable energy is to buy mutual funds or exchange-traded funds that build portfolios of green energy companies. There are a wide variety of renewable energy funds managed according to different strategies.
Some energy stocks are a good bet during a recession, but not all energy companies do well in a downturn. Utility stocks that distribute electricity and natural gas have steady revenues and cash flow, making them great stocks to own during a recession.
Read on as we look at eight of the best energy stocks to buy now. To compile the list, we turned to the TipRanks database (opens in new tab). Each of the names featured here boasts either a Strong Buy or Moderate Buy rating from Wall Street analysts, and each offers major upside potential based on their consensus price targets.
Kinder Morgan (KMI (opens in new tab), $117.77) is a large energy infrastructure company in North America. The company owns an interest in or operates around 83,000 miles of pipelines, 141 terminals, and has 700 billion cubic feet of working natural gas storage capacity. KMI also has renewable natural gas generation capacity of approximately 2.2 billion cubic feet (Bcf) per year of gross production.
The Street is also bullish on one of the best energy stocks for 2023, with a unanimous 18 Buys among analysts that have sounded off over the past three months. TipRanks offers up a full analyst rundown of SLB shares (opens in new tab).
Phillips 66 (PSX (opens in new tab), $100.90) is a diversified energy company that processes and markets fuels worldwide. While the Houston, Texas-based firm's fuel products primarily come from petroleum refining, it is also active in the natural gas trade and supplies chemicals and specialty products to global markets.
Most Wall Street analysts are cautiously optimistic about the energy stock with a consensu rating of Moderate Buy based on nine Buys and four Holds. See the full rundown of analyst ratings for PSX on TipRanks (opens in new tab).
EOG is another of the Strong Buy-rated energy stocks featured here, thanks to 18 Buys and just two Holds among analysts who have released notes over the past three months. Check out other analysts' price targets and analysis for EOG at TipRanks. (opens in new tab)
LNG is another one of Wall Street's favorite energy stocks, as evidenced by the consensus Strong Buy rating and $211 price target. This average price target indicates that even after a rally of more than 66% in the past year, Wall Street pros see additional upside of roughly 25% for the shares. See the full rundown of analyst ratings for LNG on TipRanks (opens in new tab).
Shrilekha Pethe has been extensively covering and writing about the U.S. financial markets since 2015. Prior to writing about the world of finance, Shrilekha worked as an equity research analyst for a bulge-bracket client in investment banking, Credit Suisse. Her sole objective is to help investors make better and informed decisions. Her core competency lies in analyzing stocks across different sectors, from technology to mining, and banking to oil and gas. She holds a postgraduate degree in finance from ICFAI Business School, Pune, and is currently on her way to becoming a Certified Financial Planner. Shrilekha has been writing for TipRanks since January 2021. You can contact Shrilekha on LinkedIn."}; var triggerHydrate = function() window.sliceComponents.authorBio.hydrate(data, componentContainer); var triggerScriptLoadThenHydrate = function() if (window.sliceComponents.authorBio === undefined) var script = document.createElement('script'); script.src = ' -9-5/authorBio.js'; script.async = true; script.id = 'vanilla-slice-authorBio-component-script'; script.onload = () => window.sliceComponents.authorBio = authorBio; triggerHydrate(); ; document.head.append(script); else triggerHydrate(); if (window.lazyObserveElement) window.lazyObserveElement(componentContainer, triggerScriptLoadThenHydrate, 1500); else console.log('Could not lazy load slice JS for authorBio') } }).catch(err => console.log('Hydration Script has failed for authorBio Slice', err)); }).catch(err => console.log('Externals script failed to load', err));Shrilekha PetheSocial Links NavigationContributing Writer, Kiplinger.comShrilekha Pethe has been extensively covering and writing about the U.S. financial markets since 2015. Prior to writing about the world of finance, Shrilekha worked as an equity research analyst for a bulge-bracket client in investment banking, Credit Suisse. Her sole objective is to help investors make better and informed decisions. Her core competency lies in analyzing stocks across different sectors, from technology to mining, and banking to oil and gas. She holds a postgraduate degree in finance from ICFAI Business School, Pune, and is currently on her way to becoming a Certified Financial Planner. Shrilekha has been writing for TipRanks (opens in new tab) since January 2021. You can contact Shrilekha on LinkedIn (opens in new tab). 041b061a72