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Best Energy Stocks - Energy Stocks to Buy Now

Posted on Thursday, November 14th, 2019 by MarketBeat Staff

energy company utility towers

Energy stocks are issued by companies that are involved with producing or delivering energy—which can include everything from drilling for crude oil to supplying your home with electricity. The products these companies deliver are in high demand, which is why investing in energy companies can be a great way to enjoy financial growth and build equity.

Top Energy Companies in the World

Energy in all its forms helps the world go around, so some energy stocks are considered fairly stable investments. These stocks tend to be issued by utility companies that effectively monopolize power delivery in their region. On the other hand, some energy stocks are tied to the price of oil, which tends to be a volatile commodity affected by a variety of factors such as politics, geography, and the environment. Still other stocks are unproven opportunities for growth, especially in the clean energy sector. The type of energy company you invest in will depend on your risk tolerance.

What is the Energy Sector?

Did you put gas in your car this week? Have you charged the battery of your cell phone? Perhaps, you cooked a meal on a gas-powered stove. The average person cannot go a day without somehow being touched by the energy industry.

Some companies are involved with searching for and drilling petroleum, which will become refined into products like diesel fuel and gasoline. Other companies are involved with searching for natural gas or creating it from coal. Many energy companies are involved with delivering electricity to end consumers—whether those consumers are individual homeowners or an international resort hotel conglomerate.

Alternate sources of energy, such as wind power and solar power, are opening up new horizons in the industry, as are recently established methods like hydraulic power and nuclear power. Wind and solar power sources are considered renewable, while other energy sources are in limited supply—such as coal, oil, and natural gas. Another sector of the industry is involved with the research of more sustainable energy practices, which may yield huge windfalls for savvy investors.

Energy is a massive industry. In the United States alone, generating, transmitting, and distributing power to the public created over 390 billion dollars in revenue. Energy and fuel companies regularly rank in the top 10 list of Fortune 500 companies, and certainly in the top 100. Energy is not just a big business in the United States—the global oil industry is valued at almost $2 trillion.

Top Energy Companies in the World

It can be hard to know where to begin investing with energy stocks, and which stocks to buy in the energy sector. Many utility companies tend to be regional enterprises and are less familiar to global investors. Of course, the largest energy companies are internationally known. If you’re looking for some good energy stocks to buy, consider the following:

Duke Energy (DUK) is based in Charlotte, North Carolina. The company supplies energy to 7.4 million consumers across six states, including North Carolina, South Carolina, Florida, Ohio, Kentucky, and Indiana. Duke Energy also supplies natural gas to 1.5 million end consumers in Ohio, Kentucky, Tennessee, North Carolina, and South Carolina. Providing traditional fuel sources, such as coal, gas, and oil, the company boasts an estimated $133 billion in total assets and $23.9 billion in operating revenue. With its influence spread over the South and select parts of the Midwest, Duke Energy is already a solid investment—but the best part for investors is that they offer great dividends: 4.15% at the time of this article, which is almost double the industry standard.

Engie (ENGI) is an international utility company based in France. Engie generates and distributes electricity and natural gas, while also developing sources of renewable energy. Engie is also unique for developing itself both in the “upstream” areas of the sector (such as engineering, maintenance, and operations) and the “downstream” component (dismantling and waste management). This places the company in a great position to expand into undeveloped markets—such as African countries like Tanzania, Rwanda, and Kenya. Engie’s history goes back all the way to 1858 when one of its parent companies was formed to build the Suez Canal (hence its previous moniker of GDF Suez). The company has 160,000 employees and boasts annual revenues of 65 billion euro.

National Grid (NGG) is an international energy company based in Warwick. The company owns and operates the high-voltage network that runs through much of the United Kingdom (specifically, Wales and England). It also operates the grid in Scotland, although the network is owned by separate companies. National Grid also processes all the natural gas that’s distributed throughout the U.K. With the advent of the 21st century, it began to pursue aggressive expansion into the Northeastern United States, acquiring the New England Electric System, Eastern Utilities, and Niagara Mohawk Power Corporation. Today this international company owns many utility companies in New England and the Mid-Atlantic and boasts $20 billion in annual revenue.

EDF is owned by the State of France (hence its expanded full name, Électricité de France SA). This international powerhouse boasts almost 82 billion euros in revenue and is operated by 155,000 employees. While consolidating its European presence, EDF has also expanded into developing markets like China, Russia, and Brazil. Three of the world’s top 10 energy-producing nuclear power plants are owned by EDF. The group owns 58 reactors across 19 sites in France alone. EDF is also the single biggest producer of low-carbon power in the United Kingdom. EDF was the world’s largest producer of electricity just ten years ago, but even now it’s the third-largest energy producer in the world, just behind Enel of Italy and the State Grid Corporation of China.

Southern Company (SO) is an Atlanta-based giant that operates in the wholesale energy market, selling what it produces through consumer-facing subsidiary vendors like Alabama Power, Georgia Power, Gulf Power, and Mississippi Power. It owns dozens of other vendors around the American Southeast. In terms of customers, Southern Company is the second largest utility company in the United States, serving over 9 million consumers in six different states. Southern Company works closely with the United States Department of Energy and other research institutions to develop sources of energy that are more environmentally friendly. Southern Company has also partnered with other utility companies around the world—like China’s Shenhua Group—to conduct similar research in developing markets.

Based in Illinois, Exelon (EXC) is in the top 100 Fortune 500 companies. It’s the largest electric company in the United States in terms of revenue ($33.5 billion annually) and the largest in terms of customer base, with 10 million consumers served. If you live in Illinois, Maryland, Pennsylvania, Delaware, New Jersey, or Washington, D.C., there’s a good chance your home is powered by Exelon—though the company also has select operations in 48 states and Canada. Exelon was born from a merger of Philadelphia-based PECO Energy Company and Chicago’s Unicom. Exelon is also the largest owner-operator of nuclear energy in the United States, with 23 reactors in 14 power plants.

Aramco is not yet publicly traded (at the time of this article), but an IPO is looming on the horizon. Its full name is the Saudi Arabian Oil Company, and it’s based in Saudi Arabia—a region rich in petroleum and natural gas. Aramco is one of the world’s most profitable companies, and according to reports seen by select new outlets, may be the world’s most profitable. Their cash flow is simply massive. They have the second-largest daily oil production in the world, and the second-largest reserve supply of oil (Venezuela has the world’s largest). Aramco has claimed recent revenues of a whopping $355.9 billion, but despite their cash intake, they have recently stepped up the process of raising additional capital, breaking records with a recent $100 billion in bond orders from foreign investors. The company is an international giant set to enter the publicly traded market.

NextEra Energy (NEE) is the third-largest utility company in the United States and the largest electric utility holding company in terms of market capitalization. The company is based in Florida, where it provides power to half the state, along with customers throughout the United States and Canada, totaling around 5 million accounts. Since 2014, NextEra Energy attempted to expand into other areas through purchasing Hawaiian Electric Industries, the Texas-based Oncor Electric Delivery, as well as utility companies in South Carolina. These attempts were all thwarted by the respective state legislatures, some of which were concerned about NextEra’s commitment (or lack thereof) to renewable energy development. However, NextEra did succeed in purchasing Gulf Power Company—the largest provider of electricity in Northwest Florida—from Southern Company, making NextEra the largest utility company in the state (if only slightly), serving 51% of the population.

Siemens (AG) is a German multinational conglomerate that specializes in several verticals, including healthcare, industrial production, and energy. The company has a long history, going back to 1848 when they built the first long-distance telegraph line in Europe—which went from Berlin to Frankfurt. Siemens went on to manufacture televisions, radios, airplanes, microscopes, and power plants.

Today, Siemens is a global player, making everything from medical equipment to high-speed bullet trains. The German government has previously opened investigations into their business tactics, discovering that Siemens paid large bribes to various countries in order to secure infrastructure, energy, and other types of projects. However, despite this scandal, Siemens remains a global player. The company not only builds power plants, but manages and delivers energy, and develops ways to harness renewable energy sources.

Shell (RDS.A) is Europe’s largest company in terms of revenue. Though it’s based in the Netherlands and the United Kingdom, you’ve probably seen that ubiquitous yellow seashell outlined in red everywhere you go (there are 44,000 service stations worldwide). As the largest energy company in the world, Shell is involved with every part of the energy process—exploration, mining, refining, transporting, and distribution. The self-sufficient nature of Shell means it’s a relatively stable investment despite the fact that it is essentially an oil stock. As part of their global expansion, Shell purchase BG Group, a British energy company that operated in 25 countries. Despite entrenchment in oil and natural gas, Shell is also involved in exploring alternatives like solar energy.

Utility Stocks

While some energy stocks can be highly impacted by political instability, geographic, or environmental factors, utility stocks tend to be very stable. This is partly due to the fact that they’re not so much involved with finding and refining sources of energy as they are with delivering it to the end consumers. While most utility companies deliver electricity, others deliver clean drinking water and natural gas, which are also consumer staples and necessities of modern life. These are regulated, predictable processes, delivering products that everyone needs to survive.

That said, utility stocks present great opportunities to stabilize a portfolio, and some of them pay great dividends. These companies can generate significant amounts of cash flow to bankroll further investments.

Another reason utility stocks tend to be stable is that their business is highly regulated by the national and state governments in the jurisdictions they serve. They cannot make drastic changes to prices because of laws that protect consumers, which in turn means that their revenue performance will be fairly consistent and predictable. This forced transparency also helps investors avoid wild valuations beyond the true value of the stock, making it easier to determine which stocks to buy in the energy sector.

The best way for utility companies to grow (since they are very limited in terms of prices and product offerings) is to expand, which they will attempt to do by forming mergers and acquiring other companies. This can also be a great way for investors to benefit from company activity and see an increase in the value of their shares. Some utility companies that cannot grow through mergers and limited partnerships might attempt to break into new frontiers in the energy sector, making them great choices for investors looking to buy clean energy stocks.

Some of the biggest players in the utility sphere—NextEra Energy, Duke Energy, and The Southern Company, to name a few—have already been discussed above. Incorporating shares of these companies into your portfolio is a great way to stabilize your assets, generate some dependable dividend cash flow, and wait for potential growth as they expand their sphere of influence. They may not be considered the best growth stocks in terms of explosive, short-term growth, but the long-term stability they offer is hard to find in other areas of investment.

Oil Stocks

Stocks relating to the oil and natural gas business can be rocky. One of the biggest factors affecting the oil and gas industry is the global geopolitical climate. Simply put, much of the world’s oil supply seems to be squarely placed in regions that frequently suffer from disastrous political instability—everything from coups to outright war.

In response to this, first-world countries, such as the United States and Canada, have continued their efforts to search for oil and gas within their own borders. However, these attempts are often thwarted by an onslaught of environmental groups. To stabilize their own supplies, these countries have built up large supply reserves, which can, in turn, become political bargaining chips.

Experts have long been predicting that our supplies of natural oil and gas will eventually run out. Geological processes have left behind only a limited supply—hence the reference to fossil fuel. However, these oil and gas giants are aware of the situation and have also immersed themselves in search of more sustainable fuel sources, such as ethanol produced from corn.

In the meantime, consumer-facing players in the oil industry can provide a slightly more stable venue for investors. These companies include recognizable names like Shell, Exxon Mobil, ConocoPhillips, and Chevron. Until the advent of electric-powered transportation is fully realized, these companies have a strong market share of fuel consumption since most drivers need gasoline to power their vehicles.

Some of the instability faced by the oil sector can be mitigated by shifting supply chains to keep the pumps filled, but even so, oil companies are woefully affected by the rise and fall of oil prices. However, some established investors have made these stocks part of their portfolio, due to the generous dividends they pay (such as Warren Buffet holding ConocoPhillips).

Overall, oil companies can issue some of the most active stocks. Risk-averse investors should consider balancing out their investment in these companies with other more stable holdings. However, those interested in which stocks to buy for trading purposes will appreciate the volatility offered by petroleum and crude oil. As the months (or in some cases hours) go by, they can ride the price fluctuations of these oil stocks, which are affected by energy demand, discovery of new oil gas energy sources, and global supply.

Best Energy ETFs

Between the relative stability of utility stocks and the volatility of oil stocks, it can be hard for retail-level investors to properly balance out a portfolio for optimal growth. Their best bet might be to buy into one of the many energy exchange-traded funds (ETFs).

These types of funds offer shares, just like a stock. Instead of buying shares of one company and then being tied to its fate, investors will buy into a well-managed and optimized mix of energy stocks. You can skip the risky guesswork of which energy stocks to buy and just let the analysts do it for you.

Investors interested in riding the profits of natural gas and oil discovery and refining should look at the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which tracks companies in the S&P 500 involved in gas and oil drilling.

By contrast, investors intrigued by the possibility of cleaner energy sources can look at the iShares Global Clean Energy ETF (ICLN). Some of the biggest members of this portfolio are Vestas Wind Systems, Siemens Gamesa Renewable Energy, and Pattern Energy Group. These companies are dedicated to developing and delivering alternative sources of energy like wind, water, and solar power. This is a great way to get involved in a potentially fast-growing sector without needing in-depth knowledge of the best wind stocks or solar stocks.

Investors looking to hold on to the stability of utility stocks—without having to navigate the complex climate of mergers and expansion—should consider the Utilities Select Sector SPDR (XLU). This ETF is comprised of 31 different large-cap utility companies, including Duke Energy Corporation, NextEra Energy, Dominion Resources, Southern Company, and American Electric Power Company.

Energy Stocks

The energy sector is a great choice for investors of all risk levels since it’s comprised of both stable stocks— like utility stocks—and more volatile oil stocks, which can sometimes become some of the biggest stock gainers. The stock market is full of choices, and while some verticals are considered higher risk, they can generate dependable cash flow. Many of the companies in this sector are long-established corporate giants of Wall Street (or comparable foreign markets), but it’s important to remember that even a staple commodity like energy can become impacted by factors like the environment and the geopolitical scene.

Investors looking for key players in their dividend investing strategy should not be disappointed by energy stocks, some of which issue a quite sizeable regular dividend. Whether you’re looking to build dividend growth or capitalize off growth stocks, looking into which energy stocks to buy will point you to some great securities with a never-ending supply of business.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Duke Energy (DUK)$90.10flat4.20%19.09Hold$93.80
Engie (ENGI)€14.59flatN/AN/ABuy€16.18
National Grid (NGG)$61.88flat3.41%16.16BuyN/A
Electricite de France (EDF)€9.66flatN/AN/AN/AN/A
Southern (SO)$60.76flat4.08%19.79Hold$55.95
Exelon (EXC)$43.82flat3.31%14.04Buy$52.25
NextEra Energy (NEE)$236.95flat2.11%30.77Buy$234.33
Siemens (SIE)€117.78flat3.31%18.64N/AN/A
Royal Dutch Shell (RDS.A)$57.44flat5.57%11.13Hold$65.00

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