The energy market in 2023 is facing a paradoxical situation. On one hand, oil and gas prices have largely rebounded from their historic lows in 2020 and 2021, thanks to geopolitics around the Russian-Ukrainian war and the supply constraints imposed by OPEC and its allies. On the other hand, not all oil and gas companies have been able to capitalize on this favorable trend, as they face multiple secular headwinds or company-specific obstacles that limit their growth prospects as well as profitability.
With all that said, below are three energy stocks public equities investors should avoid before more damage is done to their shares.
Exxon Mobil (XOM)
One of the largest oil and gas companies in the U.S., Exxon Mobil (NYSE:XOM), has been lagging behind its peers in investing in renewable energy and reducing its carbon footprint. Moreover, the oil and gas company has been embroiled in lawsuits, protests and divestments from shareholders and activists who have accused the U.S.-based oil giant of misleading the public about the risks of climate change. Exxon Mobil’s profits have suffered from lower oil and gas prices compared to last year, as well as higher production costs and declining reserves. Its liquified natural gas (LNG) business, which was previously affected by oil prices, just started to recover in 2023.
The company’s quarterly revenue and earnings in 2023 are still below pre-pandemic levels, and ExxonMobil’s dividend yield has decreased. As oil prices continue to etch upward, public equities investors are perhaps better off investing in other energy stocks.
PG&E (PCG)
PG&E (NYSE:PCG) a California-based utility company, has been plagued by wildfires, blackouts and bankruptcy. The company has been held responsible for several devastating fires caused by its faulty equipment and poor maintenance. PG&E has also been struggling to meet the state’s renewable energy targets and to upgrade its aging infrastructure.
The utility company has filed for Chapter 11 bankruptcy protection twice in the past two decades and has agreed to pay billions of dollars in settlements and fines. PG&E’s stock price has plummeted over 75% since its $71.00/share high in 2017. With the utilities company’s outlook remaining cloudy due to its tarnished reputation and slowing year-over-year revenue growth in 2023, I believe investors should continue to avoid this one.
Chevron (CVX)
Chevron (NYSE:CVX) is also one of the largest oil and gas companies in the United States. This oil and gas giant has also been slow to embrace the transition to renewable energy and to address its environmental impact. Furthermore, the company has faced criticism for its involvement in controversial projects, such as the Keystone XL pipeline and the Ecuadorian Amazon litigation.
Outside of the controversies, the oil and gas company’s earnings have also been in limbo. For their second quarter earning print in 2023, Chevron posted a slump in bottom-line profits for its upstream business, which deals with the production of crude oil and natural gas, due to lower domestic oil and natural gas prices. These factors could change as these commodities are expected to rise in price in the second half of 2023. However, I am still not convinced Chevron, riddled with controversy, is the best play for energy stocks right now.
On the date of publication, Tyrik Torres did not hold (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.
