With myriad factors impacting the equities sector this month, investors may want to turn to relevant energy stock picks to beat what could be several tricky sessions in September. While not dismissing the pertinence of other segments, the energy market may rise on several key catalysts.
First, amid Ukraine’s dramatic counteroffensive, Russia may be further incentivized to continue weaponizing energy exports. European leaders complained about the Kremlin’s energy blackmail tactics as it cut natural gas supplies to its neighbors. Although a cynical concept, such dynamics translate to lower supply and greater demand. That should be net positive for energy stock picks.
Second, multidecade highs in inflation impose significant challenges to Americans and other global citizens. True, the Federal Reserve intends to attack the inflation problem through raising the benchmark interest rate. Nevertheless, such measures could take time to materialize. Further, the Fed must be careful in not overdoing it lest we suffer a recession. So, inflation represents another cynical tailwind for energy stock picks.
Finally, anything can happen in the new normal, from unusual weather to a sudden shift to the office. The subsequent demand spike could make energy stock picks very profitable.
One of the world’s biggest hydrocarbon energy providers, Chevron (NYSE:CVX) historically represents one of the successor companies of Standard Oil. Today, Chevron is one of the big oil players, covering every aspect of the oil and natural gas industries. This includes hydrocarbon exploration (upstream), transportation (midstream) and refining and marketing (downstream).
While the geopolitical flashpoint in eastern Europe doesn’t directly impact Chevron, the subsequent math equation does. In other words, with Russia withholding its energy exports, many countries suddenly have less supply to work with. Therefore, based on simple economic principles, demand for suddenly constrained energy exports should rise – perhaps exponentially.
Cynically, this circumstance should lift CVX. On a year-to-date (YTD) basis, shares gained 34%. In the trailing month, CVX is basically flat. However, with the European winter fast approaching, Chevron could be a big winner among energy stock picks.
One of the world’s top hydrocarbon energy firms, Shell (NYSE:SHEL) may also benefit from the cynical equation above. With Russia losing face for its battlefield performances – along with the ignominy of the invasion itself – the country is probably not in the mood for rapprochement with the west. Therefore, the European critical commodities sector will likely face substantial troubles in the near term that will probably benefit energy stock picks.
However, Shell distinguishes itself from many other companies in the segment with its pivot toward greener solutions. In July, the oil firm generated headlines when it announced that it will build Europe’s largest renewable hydrogen plant. The project will be developed in the Netherlands.
According to Shell executive vice president for emerging energy solutions Anna Mascolo, renewable hydrogen would “play a pivotal role in the energy system of the future and this project is an important step in helping hydrogen fulfil that potential.”
Currently, SHEL is up 20% YTD, though the figure could rise as energy dynamics shift toward the end of 2022.
Cheniere Energy (LNG)
Understanding the bullish narrative for Cheniere Energy (NYSE:LNG) really comes down to connecting a few dots. Dot number one comes courtesy of the U.S. Energy Information Administration. It stated the nation became the world’s largest exporter of liquefied natural gas, or LNG, during the first half of 2022.
Now, the second dot is one that was mentioned earlier. Russia’s belligerence and its weaponization of energy outflows disrupted its own powerful economic sector. True, the painful impact of these actions is being felt across Europe. However, Russia also loses out, as China and India can only buy so much product.
Finally, the third dot: With Europe desperately looking for alternative commodity sources, companies like Cheniere Energy stand to benefit. By all indications, Cheniere will continue doing what it can to support these countries.
Presently, LNG features a YTD increase of 64%. As one of the best energy stock picks, you can expect shares to move higher if turmoil erupts.
Occidental Petroleum (OXY)
A hydrocarbon exploration specialist, Occidental Petroleum (NYSE:OXY) concentrates its upstream initiatives in the U.S. and the Middle East. Also, the company features a petrochemical manufacturing business with locations in the U.S., Canada and Chile. As with the other energy stock picks, Occidental Petroleum commands bullish attention for the underlying sector’s upside potential. However, another reason exists for putting OXY on your radar.
Recently, Investor’s Business Daily reported that Warren Buffett bought up more OXY shares after Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) won regulatory approval to buy up to half of the energy firm. Speculation exists that Berkshire could acquire all of Occidental. However, a Wall Street Journal report indicated this was unlikely.
Nevertheless, that the Oracle of Omaha – one of the greatest investors of our time – supports OXY brings much confidence to retail investors. Therefore, it’s well worth adding OXY to your list of viable energy stock picks.
NextEra Energy (NEE)
While geopolitical and economic dynamics bolster the case for hydrocarbon-focused energy stock picks, renewables obviously draw intrigue. After all, various go-green initiatives confirm that the broader social and political framework supports renewable energy infrastructural developments. Therefore, investors with an eye to the future should consider NextEra Energy (NYSE:NEE).
Fundamentally, what’s attractive about NextEra and its ilk is scientific pertinence. While the matter may be contentious among some circles, the scientific consensus confirms the existence of climate change. Further, government agencies warn that not addressing the casual factors of climate change can lead to detrimental consequences. Therefore, it’s incumbent upon human societies to integrate clean solutions.
With NextEra representing one of the largest capital investors in renewable energy infrastructures, NEE features a long upside pathway. And while it doesn’t offer the most generous passive income payout, NextEra is similar to its hydrocarbon peers, offering stakeholders a 1.9% forward yield.
Although the wider pivot to renewable energy sources – a factor which the Russian invasion of Ukraine spurred – bodes well for related energy stock picks, a full transition remains unlikely. Unfortunately, core renewable sources like wind and solar represent intermittent platforms. In other words, the wind stops blowing and the sun eventually sets. Therefore, these sources feature the lowest capacity factors of all energy originators.
However, geothermal energy features a capacity factor of 74.3%, ranking second among all sources. It also ranks notably higher than natural gas, which stands at 56.6%. In comparison, wind and solar are 35.4% and 24.9%, respectively. Therefore, this narrative presents a speculative but enticing profile for geothermal specialist Ormat (NYSE:ORA).
Featuring more than five decades of experience in this sector, Ormat appears promising. Because its both renewable and quite reliable, ORA appeals for those seeking energy stock picks that could rise over time. Currently, ORA is up 22% YTD and may jump higher should geopolitics get uglier.
NuScale Power (SMR)
Easily the most controversial name among this list of energy stock picks, NuScale Power (NYSE:SMR) also presents significant risks. Nevertheless, forward-looking investors probably have high hopes for where SMR stock could go. Presently, shares have gained 42% on a YTD basis, but the upside potential should be much, much higher.
NuScale Power specializes in nuclear facilities called small modular reactors, or SMRs. Unlike traditional nuclear powerplants, SMRs feature a smaller footprint. Therefore, it can integrate into locations previously thought impossible. Also, their size enables a decentralized portfolio of reliable energy. In other words, rather than one giant facility distributing various energy needs, engineers can build SMRs across several areas.
One area to which NuScale can potentially contribute is desalination efforts, or converting ocean water into potable (drinkable) water. At the moment, steep economic imbalances prevent desalination from being viable. However, with efficient, decentralized SMRs on the table, NuScale can potentially kill two birds with one stone: deliver power and help solve the water shortage crisis.
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.