You can’t help but wonder if there’s a higher power trying to tell us Americans something. From the novel coronavirus to the social and political unrest to now the raging disaster that was (and still is) the Texas winter storm, the series of terrible events doesn’t seem like a coincidence. But whatever the case, there’s now growing scrutiny and attention toward energy stocks.
First and foremost, no discussion about the Texas cold snap is complete without discussing its terrible human cost. From the most recent available information, nearly 80 people have succumbed to incidents associated with the storm, either directly from the freezing temperatures or from mitigation efforts gone awry, such as carbon monoxide poisoning.
To be clear, the Wall Street Journal warns that the total death count could take months to determine. And during that course of time, we’ll find out the extent of the economic damage that the storm caused. According to the Texas Tribune, this could be the costliest disaster in state history. Therefore, energy stocks that are tied to the Texas market are not necessarily in a good place right now.
Of course, this being the U.S., the focus has shifted toward who to blame. Predictably, some conservative pundits have blasted renewable energy and the thesis of climate change as contributors to the disaster. While it’s true that renewable power is intermittent, I think this is a bad take because multiple negative catalysts converged to set the fire. Still, clean energy stocks did take a hit from the optics.
In reality, I don’t think any political party looks good here. Consider that America’s infrastructure was crumbling before this crisis and the pandemic. Moreover, a 2016 npr.org report revealed that this nation’s power grid was aging and unstable. Nevertheless, there may be some opportunities with these energy stocks:
- Duke Energy (NYSE:DUK)
- Dominion Energy (NYSE:D)
- Sempra Energy (NYSE:SRE)
- Chevron (NYSE:CVX)
- Total (NYSE:TOT)
- Bloom Energy (NYSE:BE)
- NextEra Energy (NYSE:NEE)
- Ocean Power Technologies (NASDAQ:OPTT)
Despite the contrarian appeal of the energy sector right now, do take note that the broader market has flashed significantly red. Therefore, you may want to gradually build into your position with these energy stocks rather than going all-in at one price.
Duke Energy (DUK)
Over the years, I’ve consistently cited Duke Energy as one of the safer energy stocks to buy. For one thing, the company consistently pays a dividend, which is not something to ignore in this environment. Yes, the cheap money ecosystem has artificially spiked up many growth firms but slow and steady often wins the race.
Fundamentally, of course, the narrative for DUK stock is simple – when people flip the switch, they expect the lights to turn on. When it doesn’t, bad things happen. Typically, I’m thinking about crime and unrest. However, as we’ve seen with the tragedy in Texas, not having access to power can be fatal.
Fortunately, Duke Energy gets it. In early February, management stated that it has a “detailed plan to manage the power grid in extreme conditions.” Further, Duke Energy’s coverage map includes states with variable weather conditions so it’s less likely that the company will be caught off guard. Therefore, you can reasonably sleep well with DUK stock.
Dominion Energy (D)
Before we talk about the next company on this list of energy stocks, I want to make a 100% clear that I’m referring to Dominion Energy, not Dominion Voting Systems. And no, the two have nothing to do with each other, as far as I’m aware. Any suggestions to the contrary could lead you to big trouble, so don’t do it!
Now that I’ve got that caveat out of the way, DOM stock is another energy investment you’ll want to take a close look at. Aside from the core importance of power in our digitalized economy, Dominion has optics on its side. Its coverage area is predominantly located in the East Coast so the company has a long history of serving through cold weather events.
And like Duke, DOM stock pays a nice dividend yield, which you don’t want to dismiss. No, Dominion shares probably aren’t going to make you rich. But it’s a name you can rely on and that has its own fundamental premium.
Sempra Energy (SRE)
One of the main reasons why energy stocks levered to the Texas market have been hit hard was because the meltdown there apparently wasn’t necessary. Sure, right-leaning politicians blamed frozen windmills, which optically makes some sense. Frankly, if you’re dependent entirely on an intermittent energy source, bad things can happen.
However, as the Washington Post detailed, it’s not impossible to produce energy during extremely cold weather. The Post’s Will Englund bluntly stated that “Operators in Alaska, Canada, Maine, Norway and Siberia do it all the time.” Well, that’s why I bring up Sempra Energy and SRE stock.
Headquartered in San Diego and with most of its coverage map in the Southwest, it’s unlikely – though not impossible – that this area will suffer the kind of extreme weather that Texas did.
That said, SRE stock has some exposure to the Texas energy market. However, with most of the underlying company’s coverage levered to one of the most temperate places in the world, you can probably rest easy with Sempra.
With the administration of President Joe Biden, it seems almost anachronistic to mention Chevron. However, it’s important to realize that while Biden and the Democrats are planning for a clean energy future, when that future is remains a big mystery. Shifting from fossil fuels to renewables will require extensive infrastructural investments and cash outlays – money that we don’t necessarily have.
That’s why I think investors should consider Chevron. Yes, it’s one of the dirty energy stocks, if you will. But until electric vehicles represent more than a fraction of total vehicle sales, CVX stock will be relevant. Indeed, it could be relevant for a much longer time than you might anticipate.
In large part, the Texas winter storm demonstrated the case that fossil fuels may be with us for the remainder of our lifetimes. When the grid goes down for several days like it did in the Lone Star State, that dampens the economic viability of EVs, whether you charge at home or at a charging station.
If anything, fossil fuels provide backup energy source. That’s reason enough to consider CVX stock.
To widen your scope of energy stocks, you may want to go international with Total. Headquartered in Paris, France, TOT stock may not initially make sense. After all, the European Union really takes its climate change agenda very seriously.
Additionally, some European countries have embraced EVs like no other. In particular, Norway has become EV heaven – and I would argue that this is mostly because the Norwegian government provides very generous incentivizes for EV owners. Basically, it doesn’t make economic sense to drive a petrol care in that country.
Whatever. The point is that for the rest of us who may not live in jurisdictions where a government body writes checks for us to overtly influence our purchasing behaviors, EVs represent an expensive proposition for households with average means.
That’s just not going to cut it during a difficult economic recovery process. Therefore, I anticipate that TOT stock will move higher as the world recovers from the pandemic.
Bloom Energy (BE)
Since Feb. 8, Bloom Energy has really taken it on the chin, with BE stock dropping about 36%. Thus, on paper, Bloom doesn’t immediately attract as one of the energy stocks to wager on. Likely, a major contributor to the red ink is the company’s ties to clean energy solutions.
Presently, few people want to discuss renewable power as it’s the convenient scapegoat. As evidence, we saw the same accusations flying during the California rolling blackouts of last year.
Why this narrative impacts BE stock heavily, though, is that it makes sense at a superficial level. When the sun goes down and the wind stops blowing, solar and wind energy infrastructures are basically useless. But if we can harvest the energy from renewable sources for peak-demand usage, that changes the discussion dramatically.
And that’s exactly what Bloom Energy offers with its microgrid system to protect its clients from traditional grid disruptions. From a longer-term perspective, BE is the solution that we need – it’s just that the market isn’t recognizing it at the moment.
NextEra Energy (NEE)
When you go to NextEra Energy’s website, you’re greeted with the message that the company is the world’s largest producer of wind and solar energy. Additionally, you see a giant photograph of a windmill, with a worker who looks miniscule in comparison standing on top of it.
In other words, optically, NEE stock doesn’t strike you with confidence given the persecution of clean energy infrastructure among some political circles. Like other renewable energy stocks, NextEra has taken a hit, down double-digit percentage points over the trailing month.
However, this might be an opportunity, especially for those with a patient outlook. Although fossil fuels will be viable for many decades in my opinion, you can’t ignore that renewable power certainly has its place in a diversified energy portfolio.
Moreover, the Texas winter storm is a one-off event in all likelihood. But as policymakers know, going green will be a multigenerational undertaking. Therefore, it may be wise to advantage the red ink in NEE stock.
Ocean Power Technologies (OPTT)
Out of the energy stocks on this list, Ocean Power Technologies is easily the riskiest; hence, I saved it for last. But it may be a happy middle ground in the heated political debate about renewable energy.
Even before the Texas cold snap, many politicians criticized renewable energy sources, in particular wind. Let’s face it, whether you agree with former President Donald Trump’s attacks on wind turbines – “monsters” that “kill many bald eagles” and which “look like hell” after a decade, to name but a few – there are nuggets of truths in his criticisms.
Fortunately, Ocean Power Technologies may offer a solution. Specializing in wave energy, Ocean Power’s energy system has the advantage of being tucked away in bodies of water. Arguably, such solutions are better for the environment because they don’t seriously impact the surrounding marine environment. It’s no surprise, then, that OPTT stock has been a big winner over the trailing year.
Still, you want to be careful. Many components of the wave energy industry are aspirational. We’ve still got to figure out how to make this platform economically practical. Still, if you want to advantage a possibly massive gamechanger on discount, you should consider OPTT stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.