Includes energy sector companies focused on the exploration, production, and marketing of oil, gas, and renewable resources worldwide. Popular energy sector stocks include upstream companies which are primarily engaged in the exploration of oil or gas reserves. Well-known companies are Devon Energy Corp. (DVN) and Chesapeake Energy Corp. (CHK). Downstream companies are HollyFrontier Corp. (HFC), which refines and processes oil and gas products for delivery to consumers.
Energy sector stocks to buy
Hundreds of public companies focused on the production and distribution of energy. However, some stand out leaders because they are large in size and strong financial profile. There are three types to consider the people:
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1. ConocoPhillips
ConocoPhillips (NYSE: COP) is a diversified oil and gas producer. It has functions around the world and uses many methods to produce energy. The company facilitates deepwater wells, oil sands production complexes, LNG production, and export, and conventional (eg, vertical drilling) and operated unconventional (eg, horizontal drilling in shale structures using hydraulic fracturing) oil and gas wells .
The company also enjoys low-cost operation. This is less than the average cost of supply of $ 30 per barrel in 2020 fellow oil and gas producer after the acquisition of Concho Resources.
ConocoPhillips complements its low-cost supply with a strong balance sheet. It is supported by an investment grade bond ratings take a low leverage ratio and lots of cash. That’s why low oil and gas prices, weather period, which provide plenty of cushion to 2020 were lots.
2. NextEra Energy
NextEra Energy (NYSE: Anii) is one of the nation’s largest electric utilities. It is also a world leader in the production of electrical energy through the resources segment, which sells clean energy to other utilities and end users across the country from the air and sun.
Both businesses generate supported by relatively stable cash flows, government-regulated rates and generate electricity Nextera offers fixed-price contracts and deliver customers. This business model has proven its resilience during the COVID-19 pandemic. Nextera has not suffered at all, static electricity thanks to the demand and rates.
The company also boasts one of the best balance sheets in the electric utility sector and also has one of the highest credit ratings among its peer group. The energy-producing company has a conservative dividend payout ratio for a utility, which adds to its strong financial profile. Those factors enable Nextera to make a steady and growing dividend payout, making it a very good renewable energy dividend stock.
3. TC Energy
(NYSE: TRP) pipelines in the US, Mexico’s largest natural gas pipeline operators in North America, TC Energy, and Canadian country. In addition, the company is giving it status as one of the owners of a major liquids pipeline system, Canada’s major oil exporters. It is also one of the largest electricity producers in the country.
Generating infrastructure assets of energy mainly supported flow by relatively stable cash fee-based contracts and regulated rates. It continued to generate low as risk business model, COVID has proven to be highly durable during -19 TC energy flows steady cash.
Meanwhile, the company has a conservative amount paid out of their annual income through dividends. It is also one of the top credit rating in the pipeline. Those factors give it to continue to expand its pipeline network to create a financial flexibility while companies with low risk TC energy sector.
Fastest Growing Energy Stocks
- Cabot Oil & Gas Corp.: Cabot Oil & Gas is an oil and gas company that develops and explores properties in North America. The company maintains interests in Texas, Louisiana, the Rocky Mountains, and the Appalachian and Anadarko Basins, as well as in Canada. On May 24, Cabot Oil & Gas and Cimarex Energy Co. announced an all-stock merger of equals. The enterprise value of the combined companies is approximately $17 billion. And the transaction is expected to close in Q4 2021.4
- Valvoline Inc.: See above for company description.
- Cheniere Energy Inc.: Cheniere Energy owns and operates liquefied natural gas pipelines and receive terminals in Louisiana and Texas.
How to invest in the energy sector
The energy sector poses a challenge to investors, especially oil and gas companies. Energy prices can change in a heartbeat, which can have a large-scale impact on the region as well as on the global economy.
This is why COVID-19 became abundantly clear at the outset of the epidemic. The outbreak shut down a large part of the global economy, such as air travel and work. Which drove the demand for oil demand and pricing for torpedoes. The heavyweight on the oil company’s stock prices, with some companies. Filed for bankruptcy after this recession ended somewhat unnecessarily.
Due to the impact volatility in commodity prices can have on the energy sector, investors need to understand how to invest in energy stocks. That includes keeping downside risk in mind by not allocating too much of a portfolio to one energy stock or the industry as a whole. In addition, if the company does not go out of business. The situation of the industry should look at companies not likely to deteriorate significantly.
Factors that increase an energy company’s durability include:
- Low production costs or stable revenue with minimal exposure to fluctuations in volumes or pricing (e.g., supported by regulated rates or long-term fixed-fee contracts).
- A strong balance sheet, including a high investment-grade credit rating, lots of liquidity (cash on hand and borrowing capacity), and minimal near-term debt maturities.
- A conservative dividend payout ratio compared to its subsector peers.
- Manageable capital spending programs financed primarily with post-dividend free cash flow and prudent use of debt.
Energy stocks are important but risky
The energy sector is important to the global economy because it provides the fuel and electricity necessary to drive business and travel. However, when the economy slows down, as it did during the COVID-19 epidemic. It can have a major impact on energy demand and prices. This is why energy can place significant weight on share prices. Conversely, when the economy accelerator, which started happening in 2021 as more vaccines rolled out pandemic. Demand soars to the limit and usually takes prices with it.
For this reason, investors should focus on Dividend stocks of companies that can easily survive a recession. This is why put them in the best position to succeed even when the market conditions will improve. In addition, they should consider more focus on clean energy companies using renewable sources.
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