From the early days of the campaign trail, Donald Trump made it clear that he is a traditional-energy man. Coal, oil, nuclear — you name it, and he supported it. That has helped to support the sector from his election through today.
With former governor and now Energy Secretary Rick Perry making his first policy speech since being appointed to the position, we now know what exactly the Trump administration will do during its tenure. And perhaps more importantly, we now know which energy stocks will keep on going in that new reality.
Speaking at the Bloomberg New Energy Finance (BNEF) conference in New York, Perry painted a more moderate picture than previous pieces of policy. That included the surprising suggestion that the U.S. should stay in the Paris Climate agreement.
But the real gist of his talk was still a hefty dose of fracking, mining and exporting fossil fuels overseas — and that’s where we’ll find the best opportunities in the energy sector.
With that as a backdrop, here are my favorite seven energy stocks to buy for the rest of the Donald Trump presidency.
Favorite Energy Stocks Under Trump: Halliburton (HAL)
It’s no secret that Trump wants to drill, baby, drill … so naturally the firms providing the necessary equipment to do so will see robust gains.
And when it comes to fracking, Halliburton Company (NYSE: HAL) is still the bee’s knees.
Coming off of its disastrous failed marriage to rival Baker Hughes Incorporated (NYSE:BHI), HAL has slimmed down and has managed to cut costs and improve margins. Its success has also come on the back of rising oil prices. Rig counts are on the upswing, and Halliburton has managed to raise prices since October. That significantly improved Halliburton’s earnings picture for the first quarter of the year.
But the real reason why HAL could be a great winner for the next four years of Trump has been its focus on North America. See, Halliburton primarily is a play on America’s shales. The vast bulk of its revenues come from within U.S. borders. That focus hurt it during the recent oil downturn because it didn’t have its rivals’ international strength, but with Trump and Perry promising more domestic drilling, HAL is in prime position.
Halliburton has been a roller-coaster ride for some time now, but it’s a great value on its 2017 dip for several years of recovery gains.
Favorite Energy Stocks Under Trump: EOG Resources (EOG)
I hate to use superlatives, but EOG Resources Inc (NYSE:EOG) is simply the best fracker around, and that doesn’t hinge on whoever’s in the White House.
EOG’s rise to the top of the energy pile has come via its early-mover status. The shale superstar was one of the first to buy acreage in some of the nation’s largest shale resources, including the Bakken, Permian and prolific Eagle Ford. This prospecting into new regions provided EOG with some of the best and lowest-cost acreages around, and it also gave the company an immense resource and production base.
EOG Resources continues to expand that production base. The fracker recently reported to the Texas Railroad Commission a monster well in the Delaware Basin, a subformation of the Permian. Analysts at SunTrust Robinson Humphries say it is one of the best they’ve ever seen in the Delaware Basin. The Permian is already one of the lowest-cost and most important production regions in North America, and the recent find will help EOG dominate it even further.
Add that well’s potential to EOG’s already solid assets, and it’s hard not to view this as one of the best energy stocks to buy, Trump or not.
Favorite Energy Stocks Under Trump: TransCanada (TRP)
TransCanada Corporation (USA) (NYSE:TRP), on the other hand, is absolutely a play whose fortunes are greater thanks to Donald Trump ascending to the presidency.
Trump threw TRP a bone this year when he signed an executive order allowing for the buildout of the much-maligned Keystone XL pipeline. If built, the major pipeline should fill TRP’s coffers with plenty of cash flows as it brings crude oil down from Canada into the Gulf Coast’s refineries.
That said, TransCanada doesn’t necessarily need the pipeline to be a good holding.
TransCanada has re-imagined its portfolio, including snagging Columbia Pipeline Group at the end of 2016. That buyout brought in valuable interstate natural gas pipelines — around 12,000 miles of them — that run from the Northeast and south towards the Gulf of Mexico. Those pipelines are predominantly used by utilities to feed their generation capacity, and provide steady demand that is only rising. This will translate to additional cash flows.
But TRP does go from good to great under pro-pipeline Trump, who should assure that TransCanada has an easier time building out all the necessary organic projects it brought on via the buyout.
All the extra cash will eventually flow through to investors, who currently enjoy a 4%-plus yield on TRP’s dividends.
Favorite Energy Stocks Under Trump: Valero Energy (VLO)
The good ol’ days could be returning to the likes of Valero Energy Corporation (NYSE:VLO) thanks in part to President Trump’s dislike of biofuels.
All along the campaign trail, Trump as derided the use the ethanol in gasoline. Part of his and EPA chief Scott Pruitt’s ire has been the idea of Renewable Identification Numbers. Under the Energy Policy Act of 2005, refiners of gasoline and diesel fuel are required to add a certain amount of ethanol or other renewable fuels to each gallon they produce. If they can’t do it, they have an obligation to buy credits called Renewable Identification Numbers (RINs) to make up the difference.
For a refiner like VLO, the cost of buying RINs is an expensive exercise. Valero spent more than $749 million on RINs last year, while it has already spent $146 million in the first quarter of 2017 on them.
That’s a lot of wasted cash.
If Pruitt is allowed to kill the program, that will free up a huge chunk of money for Valero — enough to incrementally boost its already healthy 4.3% yield.
VLO is already a top pick among energy stocks, and would do even better if Trump & Co. are able to get their way in energy policy.
Favorite Energy Stocks Under Trump: Range Resources (RRC)
Natural gas is the future of fossil fuels. From export and plastic production to generating electricity supplies, natural gas continues to get the nod from end users and investors.
One of the best pure plays in this space is Range Resources Corp. (NYSE:RRC).
RRC drilled the first well in the prolific Marcellus shale back in 2004, and like oil-focused EOG, Range Resources was a first-mover in the region. Today that position is just shy of a million acres, and that doesn’t include anything it holds in the nearby Utica. RRC estimates that it has 93 trillion cubic feet of natural gas in its reserves in the region alone.
These prime Marcellus acres sit across the shale field’s vast liquid-rich window. That means Range Resources is able to pull out higher-valued (and thus higher-priced) shale oil and natural gas liquids than other operators focusing strictly on dry gas. That has helped on the earnings front — RRC was profitable this quarter for the first time in two years on the back of rising nat-gas and oil prices.
Natural gas is an important piece of the energy sector’s future, and President Donald Trump supports more nat-gas exports. That’s a winning recipe for RRC.
Favorite Energy Stocks Under Trump: VanEck Vectors Coal ETF (KOL)
Donald Trump has made a million promises to the coal industry, including bringing all the jobs back. His latest round of executive orders that roll back environmental legislation, and Perry’s comments at the BNEF conference, are both steps in that direction.
Coal needs the help — it’s a risky sector that is being decimated by natural gas, and bankruptcies do abound.
The best way to play the sector is the VanEck Vectors Coal ETF (NYSEARCA:KOL), which tracks 27 different coal-related stocks and provides the diversification necessary to survive the sector should things go south.
Top holdings include miners such as Consol Energy Inc. (NYSE:CNX) and Westmoreland Coal Company (NYSE:WLB). But it’s not a perfectly pure play, as there’s plenty of international exposure (which won’t benefit from Trump’s plans), as well as related equipment plays such as Joy Global Inc. (NYSE:JOY).
Still, KOL jumped a staggering 98% in 2016, rebounding from 65% losses over the past five years thanks to the promises of the Trump campaign (and The Donald’s subsequent victory).
Can coal repeat that performance? We shall see. But any boost to coal prices should drive an outsize surge in the ETF.
KOL charges 0.59% in fees, or $59 annually on every $10,000 invested.
Favorite Energy Stocks Under Trump: Vanguard Energy ETF (VDE)
If you’re simply bullish on the broader energy sector during the Donald Trump presidency, the best play in the sector is … well, the whole sector.
The Vanguard Energy ETF (NYSEARCA:VDE) is a powerhouse ETF that holds more than 130 U.S. energy stocks across several industries, from E&P firms to oil services to refiners to even a few coal names. Top holdings include Halliburton, Exxon Mobil Corporation (NYSE:XOM) and Kinder Morgan Inc (NYSE:KMI), demonstrating a nice range of diversity.
The ETF’s returns have been mixed, thanks largely to the downturn in crude and nat-gas prices from 2014 on. But since inception in 2004, VDE has generated 7.35% in annual returns, which isn’t bad by any stretch.
Also, this is a Vanguard fund, so you get dirt-cheap annual expenses of just 0.1%.
For investors looking for the best energy stocks, the easiest way might be to just buy the VDE.
As of this writing, Aaron Levitt was long TCP, TRP and VDE.