Depending upon where you look, the definition of what constitutes “energy stocks” varies. According to this source, the energy sector is narrowly defined as: “A stock in a company whose predominant business is the production or sale of energy. Energy stock may include shares in both upstream companies, such as oil exploration firms, and downstream companies, such as oil refineries.”
The definition given by Investopedia is quicker to note the broader context of today’s environment: “The energy sector is a category of stocks that relate to producing or supplying energy. Energy as a sector or industry includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, and refining. The energy industry also includes integrated power utility companies such as renewable energy and coal.”
This article will adhere to that broader definition and so will include utilities and renewables in addition to oil and gas companies.
On that note, oil prices are experiencing a continued downtrend as delta variant concerns persist. Prices exceeded $75 in early July but have since steadily dropped to the low-to-mid $60s range.
Broader renewables support has continued to increase. It is fair to assert that although oil prices remain volatile, there is reason to invest in both renewables and oil at present. That’s what this article will broadly do: Expose the reader to interesting opportunities in the broader energy sector currently.
Investing $1,000 here can produce healthy gains:
- Chevron (NYSE:CVX)
- Exxon Mobil (NYSE:XOM)
- Devon Energy (NYSE:DVN)
- Evergy (NYSE:EVRG)
- Renewable Energy Group (NASDAQ:REGI)
- Vestas Wind Systems (OTCMKTS:VWDRY)
- Array Technologies (NASDAQ:ARRY)
Energy Stocks: Chevron (CVX)
A cursory glance at Chevron’s current analyst ratings indicates a general narrative: CVX stock looks positive moving forward, but trepidation blunts that optimism.
That general idea holds true for the oil giants. I’d say that Chevron is a stock to strongly consider right now as there’s just too many positives in its favor. Forget the fear, and dive in. That fear is currently being driven by delta variant issues and increasing Covid-19 cases. Lockdowns and fewer people driving clearly bode poorly for Chevron and all oil companies.
But that also means that the dip is a massive opportunity. Analyst consensus is that CVX stock warrants an average target price of $124.48, well above its current $96 share price. Shares have already shown their resilience this year when they rose from $85 to $110 between February and early March. Another such rebound will almost certainly occur.
There’s 30% upside in the analyst consensus prices of that rebound. On top of that, investors get equity in a dividend aristocrat with a 5.58% yield. That dividend is currently worth $1.34 per quarter, or $5.36 on an annualized basis. Given that it hasn’t been reduced since 1984, it’s about as guaranteed as dividends come.
Exxon Mobil (XOM)
A lot of the general argument that applies to investing in Chevron also applies to investing in Exxon Mobil: It’s a well-known name in energy, it will almost certainly rebound, and it’s another dividend aristocrat. Thus, investors could be relatively safe in believing that it is a safe buy-the-dip energy stock.
I believe that’s generally true and would only caveat that it is likely more volatile than CVX. Therefore, I’d recommend investing in CVX over XOM, with XOM still being worthwhile.
In fact, both Exxon Mobil and Chevron have increased upside potential due to the disaster Hurricane Ida has created. Ida is likely to result in significant disruptions to Gulf of Mexico production facilities. Both Exxon Mobil and Chevron have major operations in the area. If the disruptions do prove to be major, a price spike should follow.
That means volatility is increasing, which is relatively worse for Exxon Mobil than Chevron. There were already rumors that Exxon Mobil could be forced to reduce its dividend prior to Ida hitting. Chevron was much safer.
But now both have a tailwind in potential supply disruptions. XOM stock is in a precarious position, but it’s still a massive company. Right now, it’s one which carries a dividend yielding 6.43% with tons of upside. It’s a small gamble that can provide strong returns.
Energy Stocks: Devon Energy (DVN)
Despite broader energy concerns which have taken Devon Energy shares down a few percentage points over the past few days, the narrative is clear: It has been growing and should continue to provide strong returns.
Year-to-date DVN stock is up about 72%. Analysts don’t believe its run is over or that a plateau is near. DVN shares are a consensus buy and carry an average analyst price of $38.23, implying 35% upside currently. It also carries a dividend that yields 4.42%.
So, where does Devon Energy fit within the broader energy sector? The Oklahoma exploration and production (E&P) company has operations straight down the center of the continental U.S. including North Dakota, Wyoming, Texas, New Mexico and Oklahoma.
Operating cash flow increased by 85% compared to the last quarter, reaching $1.1 billion. And free cash flow increased six-fold over the prior quarter, hitting $589 million. That gives the company plenty of leeway to operate.
The company has a somewhat unique dividend structure, which is referred to as a fixed plus variable dividend. That paid 49 cents in the most recent quarter.
In a nutshell, Devon Energy is a strong company worth looking into. Its operations won’t have been affected by Ida. Rather, it has an opportunity to capitalize in that prices could rise while it continues to pump oil throughout the Midwest and desert Southwest.
Evergy marks a departure on this list: The first three energy companies were oil producers. The rest will be a mix of renewables, utilities and companies outside the oil sector.
Evergy itself is a dividend bearing electric utilities company out of Kansas City. The company has been experiencing rapid growth throughout 2021. In the first half of the year, net income has increased to $376.9 million, from $202.8 million a year earlier. EPS has nearly doubled over the same period. It hit 89 cents in the first half of 2020 and increased to $1.65 through the first half of this year.
The company is focused on reducing its environmental impact and is generating more power from alternative energy sources. Presently, half of the energy Evergy provides for its 1.6 million customers comes from emission-free sources.
EVRG stock is a very solid choice for the investor seeking a clean energy utility play. The stock comes with a dividend bearing 3.13%, and paying 53.5 cents. Evergy is the type of company investors could see evolve into a regional player which provides real stability.
Energy Stocks: Renewable Energy Group (REGI)
The bull thesis for investing in Renewable Energy Group goes something like this: Biofuels are an increasingly important part of the energy sector and REGI stock is poised to capitalize.
Renewable Energy Group produces biodiesel, renewable diesel and renewable chemicals. Share prices have been volatile throughout 2021 as biofuels gain traction. Although REGI stock recently traded around $48, it hit $113 in February.
A glass-half-full argument would go something like REGI has proven it can exceed average analyst target prices of $83 when it hit $110 earlier in 2021. There’s plenty of reason to believe it could retest those previous highs again.
The company recorded $816 million in revenues in its August earnings report. The good news is that the company experienced a period in which prices increased from 98 cents to $2 to ignite that 50.1% revenue increase. But the company sold 10% less diesel during that period.
One thing is clear: Renewable Energy Group has carved out a niche for itself and if biodiesel becomes a preferred choice the company can run higher again.
Vestas Wind Systems (VWDRY)
Vestas Wind Systems is a Danish manufacturer, servicer and installer of wind turbines. Vestas may not be a household name, but it does have a presence on six continents across 83 countries. Some 77,000 of the company’s turbines are operating across that geographical span.
It’s no secret that wind energy has been tapped as a renewable source as many countries around the globe begin to lean more heavily on non-fossil fuels. Many large companies, including General Electric (NYSE:GE) are betting heavily on wind power as a result.
Investors who look at Vestas only from the perspective of stagnant Q2 year-over-year revenue will be missing the forest for the trees.
That isn’t only because EBIT increased from $69 million to $101 million. Rather, it also relates to a significant backlog. As the company stated in its most recent earnings release: “The value of the wind turbine order backlog was EUR 21.2bn as at 30 June 2021. In addition to the wind turbine order backlog, at the end of June 2021, Vestas had service agreements with expected contractual future revenue of EUR 26.9bn. Thus, the value of the combined backlog of wind turbine orders and service agreements stood at EUR 48.1bn – an increase of EUR 13.0bn compared to the year-earlier period.”
Energy Stocks: Array Technologies (ARRY)
Array Technologies is a buy-the-dip opportunity with backing from people in high places. So, even though ARRY stock is down significantly year-to-date, there’s a reasonable narrative here: Part of that is that Array Technologies announced a $500 million capital commitment from Blackstone (NYSE:BX) on Aug. 11.
That kind of backing should help the company rebound and Blackstone itself will likely leverage its own resources to ensure that the capital provides expected returns.
The last entry on our list of energy stocks, Array Technologies manufactures ground mounting systems for solar powered arrays. Those mounting systems are responsible for angling solar arrays to best absorb the sun’s rays.
Revenues increased by 76%, hitting $202.8 million in the most recent quarter. Gross profits hit $26.8 million, up 17.6%. However, gross margin decreased to 13.2%, from 19.3%. The company has booked orders which reflect those higher margins from last year and thus margins should rise again.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.