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Luca Nguyen
Luca Nguyen

Energy Shares To Buy

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.

energy shares to buy


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.

In this article, we will be taking a look at 12 cheap energy stocks to buy. To skip our detailed analysis of the energy sector, you can go directly to see the 5 Cheap Energy Stocks To Buy.

Energy stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP), among more, managed to remain top picks for investors in 2022 and through the start of 2023. Rising inflation has led to higher oil and gas prices, to the benefit of energy stocks. According to a Wall Street Journal article published in October, from June 2018 through June 2022, earnings per share for the energy sector rose by 93%. American energy indexes also jumped 58% in 2022 through October 24. This showed the steady rise of the energy sector in 2022, leading to renewed investor optimism for the sector in 2023.

For this article we used stock screeners to first list down energy stocks with P/E ratios less than 20 as of January 26. From this long list of stocks, we picked only those that had the most number of hedge funds invested in them. That means the stocks mentioned in this article are the most popular cheap energy stocks to buy according to hedge funds. On valuation, we added analyst price targets and compared the stocks' current share prices with these targets to show their upside potential in the long run.

Kinder Morgan, Inc. (NYSE:KMI) is currently extremely cheap, trading at $18.61 as of January 27. The company's exposure to natural gas drives about 60% of its operations. Natural gas is expected to continue playing a key role in the energy generation space since renewable energy is still a nascent and highly intermittent source. Kinder Morgan, Inc. (NYSE:KMI) is thus well-position to benefit from the increasing demand for natural gas, allowing the stock to get more valuable in the future.

Kinder Morgan, Inc. (NYSE:KMI) was found among the 13F holdings of 38 hedge funds in the third quarter, with a total stake value of $1.1 billion. Of these funds, Bourgeon Capital was the largest stakeholder in the company. It held 231,485 shares.

Kinder Morgan, Inc. (NYSE:KMI), like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP), is a top-tier energy stock with a great reputation and popularity among hedge funds.

Chevron Corporation (NYSE:CVX) is currently trading at 10.7x the expected earnings per share for 2023. It is among the cheapest energy stocks that are currently dominating the sector. Barclays holds a price target of $212 on the stock, compared to its current share price of $187.79. This shows the upside potential inherent in Chevron Corporation (NYSE:CVX).

Yacktman Asset Management was the largest stakeholder in Exxon Mobil Corporation (NYSE:XOM) in the third quarter, holding 150,100 shares. In total, 75 funds were long the stock, with a total stake value of $5.5 billion.

By the end of 2022, Suncor Energy Inc. (NYSE:SU) shares had risen about 28% throughout the whole year. Compared to the performance of peers like Exxon Mobil Corporation, which rose by 55% over the same period, the stock has underperformed. However, analysts see this underperformance as an indicator that Suncor Energy Inc. (NYSE:SU) has more upside potential than other energy stocks, since its shares have not risen as much as those of its peers, making its valuation below average and its upside potential above average.

Panview Capital was the largest stakeholder in Suncor Energy Inc. (NYSE:SU) in the third quarter, holding 454,000 shares. In total, 45 funds were long the stock, with a total stake value of $2.01 billion.

That means oil and especially natural gas will remain in the mix for some time. So, energy investors may want to have a portfolio that contains both traditional oil and gas companies, as well as pure-play renewable energy companies.

The U.S. can't just switch to renewable energy, such as that produced by solar and wind farms, overnight because there isn't enough storage capacity online, says Sam Horn, senior investment analyst with the Polaris Global Value Fund.

All of those companies, including Diamondback, should see their shares rise amid greater appreciation for companies with strong free cash flow in 2023, healthy balance sheets that could weather a potential recession, and disciplined management teams, he says.

And, as the world shifts toward renewable energy, so does this European integrated oil and gas producer. The French company is broadening its portfolio of energy generation, including developing large solar and wind farms.

With a market capitalization of $151 billion, NextEra Energy is the world's largest renewable energy company. Its regulated utility segment engages primarily in the generation, transmission, distribution and sale of electric energy in Florida. Another segment produces electricity from clean and renewable sources, including wind and solar. 041b061a72


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