This past year, energy stocks were swept up in the wild market gyrations caused by Covid-19. For better and for worse, global supply chain disruptions and unfortunate events bolstered demand in the sector and then took it away. But as we recover from the pandemic, it may be time to reconsider this market segment.
First, let’s talk about the greener shade of energy stocks. As you know, President Joe Biden and many Democrats have pushed for various pro-environmental policies. One of Biden’s first actions as President was to reenter the U.S. in the Paris Agreement. Cynics might view this as nothing more than a symbolic gesture, but it’s likely the first of many environmental policy measures supported by the White House.
Second, green energy stocks may make a comeback following a very disappointing rout earlier this year. Although this pro-climate market segment enjoyed an auspicious start to 2021, its success was soon derailed by the Texas winter storm. No, the cold snap didn’t directly cause the volatility. However, partisan politics took aim at renewable energy, blaming its intermittency for the subsequent crisis.
The attacks on green energy stocks were unfair because no single culprit existed for the widescale power outages. Instead, a variety of factors — including a lack of preparation for cold weather events — contributed to the calamity. Nevertheless, this dynamic supported fossil fuel-based investments, which were already rising on contrarian demand.
But if green energy makes a comeback as the Texas power crisis fades from memory, wouldn’t that negatively affect fossil fuels? It’s possible, but the economics of clean transportation suggests many people will still buy and drive combustion engine cars. Therefore, we may enter a window of opportunity where energy stocks in general move higher.
From fossil fuels to solar, even down to wave and geothermal sources, you can find something to pique your interest. Here are seven energy stocks with the strongest potential for double-digit gains when the sector bounces back:
- Bloom Energy (NYSE:BE)
- Enphase Energy (NASDAQ:ENPH)
- Ballard Power Systems (NASDAQ:BLDP)
- BP (NYSE:BP)
- Occidental Petroleum (NYSE:OXY)
- Enel (OTCMKTS:ENLAY)
- Ocean Power Technologies (NASDAQ:OPTT)
Energy Stocks: Bloom Energy (BE)
Bloom Energy manufactures fuel cells and sustainable power generators. From late October 2020 to early February of this year, shares of Bloom Energy tripled in value. At the time, many folks recognized the need for clean energy. Besides the coronavirus pandemic, Americans across the nation had to contend with wildfires and heat waves. Arguably, the events were the result of climate change, which boosted the bullish case for BE stock.
Later, though, the climate change angle came back to bite Bloom Energy. When the Texas winter storm raged through various regions of the Sun Belt, wind turbines sat motionless while solar panels were rendered useless. Pundits quickly took to the airwaves to blast renewable energy stocks as unable to stand resilient against pressure.
Again, I don’t find that criticism to be fair, but it was effective. Since February, many, if not most, clean energy stocks slipped badly. However, I believe the sector may hold opportunities if you’re patient.
Bloom Energy is particularly compelling because of its microgrid solution. As battery storage technology improves, the microgrid can mitigate intermittency problems by storing energy for later use.
Enphase Energy (ENPH)
Similar to Bloom Energy stock, though not quite as intense, Enphase Energy shares saw a robust rally between September 2020 and early January 2021. ENPH stock remained near its all-time high throughout early February, but then the cold snap occurred and down went green energy stocks like Enphase.
Several factors are at play here beyond partisan attacks against the renewable energy sector. For one thing, having shot upwards so quickly, green energy stocks appeared technically overstretched.
Second, a lack of comprehensive product marketing may have contributed to the volatility. I think many consumers assumed that once you put up solar panels on your roof, you’re immune to blackouts. That’s not quite the case.
Still, I like the narrative of ENPH stock over the long run. Its battery storage solution with load control is particularly intriguing. With Enphase’s platform, users can control how much energy appliances utilize when their home is on backup power.
Energy Stocks: Ballard Power Systems (BLDP)
Over the last several years, electric vehicle (EV) manufacturers have made significant inroads with the general public. Alternative-fuel vehicles have come a long way since Toyota (NYSE:TM) introduced the Prius. Today’s EVs look as sleek as European luxury cars, but have all the practicality of an electric powertrain. Furthermore, improving lithium-ion battery technologies ramped up range while reducing costs.
However, despite long strides in the EV market, moving beyond consumer-level vehicles will be a tough journey for the all-electric crowd. First of all, EVs are just too darn expensive. You can imagine just how difficult applying the technology to big rigs will be. With these limitations and the need for greater infrastructure, widescale EV use might not be feasible for years, or perhaps decades.
But that’s why Ballard Power Systems is so intriguing compared to other energy stocks. Specializing in hydrogen fuel cells, Ballard offers a viable “intermediary” solution that stands between yesterday’s dirty fossil fuels and tomorrow’s clean electricity. For instance, hydrogen fuel cell buses are already gaining momentum, boding well for hydrogen-based applications for other transportation methods.
Better yet, BLDP stock is on a heavy discount relative to its February highs. For the investor with a long-term horizon, this is one to seriously consider.
Even when EVs were not part of the mainstream discussion, fossil fuel energy stocks didn’t garner much sympathy from the general public. Every time a spike in gasoline prices occurred, many pointed to big oil as beneficiaries of societal pain.
BP is no stranger to this unfavorable environment. When Hollywood makes a movie about one of your failures, you know you did something terribly wrong.
Despite this, BP stock remains one of the stalwarts in the oil industry. True, the Deepwater Horizon incident didn’t do the equity unit any favors — the stock never regained its pre-explosion price range. Then the coronavirus hit and BP stock fell further.
Still, in the long run, it might be possible for BP stock to return to its pre-Deepwater levels. The economy is still not up to snuff and people are afraid to spend more than they have to. In this scenario, I see combustion cars being the preferred form of personal transport over expensive EVs.
Energy Stocks: Occidental Petroleum (OXY)
When the Covid-19 crisis became a reality for Americans, a nightmare scenario for me and many others came true. I’m sure Occidental Petroleum, which had just acquired a shale oil company, went through similar panic. Maybe not for the same reasons, but the sense of dread is something we can relate to.
In this case, I haven’t been too kind towards oil-related energy stocks, and that includes Occidental Petroleum. Even as we head into a much brighter post-Covid scenario than many previously imagined, the narrative for OXY stock is still very shaky. With a long-term debt load north of $35 billion and fundamental warning signs flashing, I understand if you don’t want to take a shot here.
But if you do, OXY stock can provide an easy path to double-digit gains if the stars align correctly. First, despite workers wanting to stay remote, I believe that employers will start calling them in. At the end of the day, it might come down to a discrimination issue: if one group gets recalled, everybody should get recalled. As more employees return to the office, transportation needs will move towards pre-pandemic levels.
Second, OXY stock received a Goldman Sachs upgrade due to rising oil prices. Combined with a return to in-person work, consumer preference for cars with cheaper combustion engines could support this thesis.
While it might not be a household name on this side of the Atlantic, Italy’s Enel is one of the world’s largest distributors of electricity and gas. Lately, the company has had its eyes on the green energy phenomenon.
According to Reuters, Enel “is looking to develop a green hydrogen project in Russia as part of plans to expand its renewable energy business in the country.” Although talks are still in the preliminary stage, Enel has history on its side. “Enel produces electricity from three thermal power plants in different regions of Russia and also has three wind farm projects in the country,” Reuters reported.
Over the next several years, ENLAY stock will likely get investors’ attention due to the company’s green energy diversification. For example, Enel participates in geothermal energy — basically, heat is harnessed from within the Earth and converted into practical power.
Moving forward, political leaders will likely emphasize distributing power needs across various sources rather than replacing conventional energy with renewables. Both hydrogen and geothermal power could play a major role in that process, making Enel one of the best energy stocks to consider.
Energy Stocks: Ocean Power Technologies (OPTT)
I’ve often discussed the case for Ocean Power Technologies, so this idea isn’t surprising if you follow my work. But if you don’t, there are a couple of reasons for investors to take a look at OPTT stock.
I’m going to warn you ahead of time that this stock isn’t for the faint of heart. OPTT stock is volatile and is the riskiest name on this list. However, if you’re looking for double-digit upside in the next year, you could get it with Ocean Power. Heck, you might even see it within a month or so.
As the name suggests, Ocean Power Technologies specializes in wave energy, which converts the ocean’s currents into usable power. On paper, the process is incredibly compelling because it’s out of sight, out of mind. While wind and solar are the most popular sources of renewable energy, their equipment is bulky, ugly and take up precious land. With wave energy, the equipment is in the water, away from fixated eyes and flying birds.
The economic aspect of wave energy is still a concern. But the hope is that government investment, along with improving technologies, could make this sector viable. If so, OPTT stock could make big waves of its own.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.