Investors looking for the best stocks to invest in right now can get confused with all the possibilities available, especially in the energy sector. Here are a few candidates to help undecided investors better understand their options.
In this article:
- Important Disclaimers About Buying Energy Stocks
- Pattern Energy Group (PEGI): A Solar Energy and Dividend Income Portfolio Candidate
- Enable Midstream Partners (ENBL): For Portfolios Investing in Natural Gas
- Legacy Reserves Inc. (LGCY): An Aggressive Play for Funds
- Chevron (CVX): A Wall Street Oil Favorite
- Renewable Energy Group (REGI): A Natural and Green Portfolio Candidate
- Occidental Petroleum (OXY): Possible Option for Growth Stocks in Oil
- BP plc (BP): A Market Leader for Capital Gains and Dividends
- Chesapeake Energy (CHK): A Contrarian Play and Volatile Stocks Option
- Exxon Mobil (XOM): A Blue Chip Multinational Oil Company
Best Stocks to Invest in Right Now for an Energy Portfolio
Important Disclaimers About Buying Energy Stocks
Investing in the oil and energy industries requires research. Investors can listen to the advice of others about which energy stocks to invest in, but the decision on whether or not to buy these volatile stocks should lie solely on the investor.
Finding out which stocks to buy can require more effort from casual investors. While relying on other financial experts can cut down the time and effort needed, taking their analysis as gospel truth may not always be a good option.
Reading about financial analysis can function as a springboard to gather information and knowledge. To help investors pick candidates, this list contains analyses from Kiplinger Financial and Money US News.
The oil and energy industries have volatile stocks due to many factors, both nationally and internationally. This situation makes oil and energy investing a tad more unpredictable than most industries.
For example, a sudden discovery of oil reserves can transform an underperforming stock into a leading investment asset. On the other hand, new legislation introducing higher oil tariffs can cause higher expenses for companies, hurting their bottom line.
It is critical that investors research not only specific companies but also the industries as well. Investors may prefer to ride the waves of a growing sector since the probability of profit is higher when an industry or market is in a bull run.
Bull Run Definition: A term used by investors to describe a state wherein an asset, sector, or even a whole economy experiences high growth.
Pattern Energy Group (PEGI): A Solar Energy and Dividend Income Portfolio Candidate
Investing in green investments gives investors the opportunity to diversify their assets while fulfilling their social responsibility. One way to invest in both the growing green market and the already-established utility and energy sector is through Pattern Energy Group (PEGI), which focuses on solar and wind power.
Here are some of the company’s highlights:
- Acquisition — PEGI has acquired many power generating companies, like a 35-megawatt facility in Montana. This acquisition strategy ballooned PEGI’s revenues to more than double from 2013 to 2017.
- Dividend Yield — Their current dividend yield is at 7.99% as of February 23, 2019, and can change given the economic climate. This dividend yield shows promise, as most oil and energy companies yield lower.
- Stock Price Growth — Due to PEGI cutting costs, paying debt and efficient disposal of assets, the stock price has seen growth.
Enable Midstream Partners (ENBL): For Portfolios Investing in Natural Gas
Value investors looking at Enable Midstream Partners (ENBL) can see a well-oiled machine, figuratively and literally. This Oklahoma-based company has two main reasons for optimism:
- A united front as 50% of all shares are owned by insiders
- Robust financial system backed by its business operations
With insiders dominating the operations of ENBL, the business focus can see a united movement towards projects. A management board that can provide not only concrete goals but also better morale leads to more efficient operations.
ENBL hit 9.4% dividend rates in 2018, making this oil company an income portfolio sweetheart. Value investors can appreciate the efficiency shown by ENBL with its growing stock price.
Legacy Reserves Inc. (LGCY): An Aggressive Play for Funds
Legacy Reserves (LGCY) shows its strength through its wells and oil reserves. This Texas oil company has many high-quality wells, which can be an advantage for investors.
However, the many shallow and deep oil wells of LGCY is a double-edged sword, which follows the whims of the volatile oil market. This cause and effect magnify as LGCY has substantially more crude oil production than natural gas.
In 2018, this oil company restructured from an MLP to a C corporation, which gives investors more access to their financial health as per regulations. Also, this change jumpstarted the quest of LGCY in decreasing debt levels as well as securing capital.
In fact, recent events have given LGCY an extra boost in the public eye. New operations in the Permian Basin, as well as in East Texas, increased production by 31%.
If oil prices are high, LGCY usually sees real growth in fundamental value. However, if oil prices go down, valuation generally follows, as one would expect.
Due to its relatively small size, investors may find LGCY an aggressive option, as there is much upward space for the price. On the other hand, LGCY may not have the deep pockets as well as the history of its more popular counterparts, as it’s more of a local player.
Chevron (CVX): A Wall Street Oil Favorite
A successor of the historical American company Standard Oil, Chevron (CVX) ranks 13th in the 2018 Fortune 500 companies list. This massive corporation produces not just crude oil but also petrochemicals and additives.
Investors looking mainly for dividend income may be better suited elsewhere. Dividend rates, as well as payouts, remained stable as CVX reinvests profits back to itself.
This cycle of reinvesting provided Chevron the needed resources to focus on more than improving production efficiency. Chevron now has numerous business operations in alternative renewable energy as well as other products and services
Looking at the price charts, investors using technical analysis may perceive that the stock price has hit short-term support. Fundamental analysts can also see how Chevron has moved to a leaner more efficient business model as well as diversifying into other operations similar to the oil industry, like liquified natural gas and renewable energy.
Renewable Energy Group (REGI): A Natural and Green Portfolio Candidate
A relatively small energy company with a market valuation of $1 billion, Renewable Energy Group (REGI) provides investors a cleaner way to grow their IRA portfolios. True to its name, REGI is the biggest provider of diesel made from biomass in the massive North American market.
Interestingly, REGI still posted profits even without the federal tax credit in 2018. Investors got even more excited with this piece of news, as chances are high that a tax credit will be given retroactively in 2019. This will also further improve the financial health of the company.
Other than the great benefit that REGI gives to the environment, investors have another reason to love the company due to its high free cash flow of 5,000% and earning per share at more than 280%, as of February 2019.
Free Cash Flow Definition: The remaining amount (or percentage/multiple of cash compared to assets) when all costs and expenses of assets are subtracted from the total cash.
This free cash flow shows how good the company is at generating cash, rather than at inventory or asset growth, which can show the financial strength of sales.
Occidental Petroleum (OXY): Possible Option for Growth Stocks in Oil
An experienced old player in the oil sector, Occidental Petroleum has almost 100 years of operations in the US and has a market valuation of more than $49 billion, as of February 2019.
This company generally operates in oil exploration as well as oil production. Interestingly, the production focuses less on oil and petroleum and more on base plastics, which has higher profit margins.
While older than most of the companies on the list, OXY is not as big as Chevron or Exxon. However, the size of the corporation can work to its advantage.
OXY has quite the integrated business operation, as the flow of its raw materials to its finished products never leave their premises.
Fundamental analysts appreciate the lean business model as it shows efficiency. It also minimizes the risks associated with partnering with a competitor.
BP plc (BP): A Market Leader for Capital Gains and Dividends
While the public knows the company more for its oil spills, investors see the massive financial muscles that BP plc flexes when shareholders receive dividends. The company has paid around $62 billion in damages already, which shows its deep pockets without any comment on the morality of operations.
With that said, BP has a great history of sending dividends to its shareholders at usually above 4% dividend announcements.
Conservative mutual funds have higher chances of having BP as part of its dividend strategy, so investors may want to include BP as part of their income investment candidates.
Chesapeake Energy (CHK): A Contrarian Play and Volatile Stocks Option
This Oklahoma Oil company is a big fish in a small pond, which may turn off some investors and attract others. Clocking in at a $9-billion market cap, CHK is neither too big or too small a player in the competitive energy sector.
While profitable, some investors consider CHK as a penny stock due to its low stock price. Due to this relatively low price at $2.80 (as of February 2019), the stock can reach high levels of volatility.
On the other hand, investors who prioritize fundamental analysis, as well as portfolios which lean toward a social cause, will appreciate CHK. Around 74% of all energy produced is from natural gas, with the percentage of petroleum going down year after year.
One main reason why stock prices and the investing public shy away from this stock is the presence of debt. To expand production, CHK went on an ambitious acquisition spree and took on debt.
Now that the company’s debt levels have decreased, profit margins and net income have both experienced growth. This contrarian investing strategy paid off for early investors, and with its history of expanding efficiently, CHK may have a place in a moderate to an aggressive portfolio.
Exxon Mobil (XOM): A Blue Chip Multinational Oil Company
Lastly, Exxon Mobil (XOM) provided investors with a relatively stable return, both in the form of capital gains and dividends. This oil giant has started to move from being just a producer of oil to a more integrated company, as XOM currently reigns as the global leader for basic materials.
Averaging at around 4% dividend payout rate, investors who are in for the long haul can appreciate how XOM manages its business operations. Lately, XOM has also started oil exploration and production on newer and richer fields.
These nine investment candidates can liven up any energy sector portfolio. However, as with any investment decision, it’s advisable to exercise good judgment and align any transactions with investment goals and strategies.
What got you interested to invest in the energy sector? Share your reasons with us in the comments section below.
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