Best Energy Companies to Invest in for Portfolio Growth in 2022
After lagging the market for the past decade, energy is outperforming the market big time this past year. As a result, investors are now looking for the top energy companies to invest in as the sector gains momentum.
Except for financials, every other sector is down in 2022, while the Energy Select SPDR Fund (NYSE: XLE) is up 35%. By comparison, the S&P 500 Index (SPX) is down 6% YTD.
Nonetheless, energy companies are seeing their profit margins explode with multi-year high oil prices. Although supply chain disruptions started the run, Russia’s invasion of Ukraine ignited the energy sector.
For this reason, the U.S. and E.U. are moving to sanction Russia by banning or reducing oil imports. While the U.S. is outright banning Russian oil imports, the E.U. is more reliant on the nation’s energy.
As a result, the E.U. plans to reduce reliance by two-thirds while investing in other energy sources.
Is now the time to start looking for energy companies to invest in for long-term growth? Keep reading to learn more.
Best Renewable Energy Companies To Invest In
Investments in renewable energy are hitting all-time highs as the world looks for other sources. In fact, clean energy investments hit a record $755 billion in 2021, with wind and solar seeing the biggest benefits.
Although many renewable energy stocks are down from their highs, the sector is building momentum again. For example, the Invesco Solar ETF (NYSE: TAN) is up 38% after falling to a 52-week low of $56.08.
With this in mind, here are a few of the best clean energy companies to invest in this year.
- Enphase Energy (Nasdaq: ENPH). Although Enphase is a tech stock, the company sells its products for solar power. The residential solar market is ripe for growth. Furthermore, Enphase is releasing its new inverter, capable of producing energy even when the grid is down. And lastly, with a strong cash position, the firm can invest in future growth or buy stock.
- Brookfield Renewable (NYSE: BEP). As one of the largest pure-play renewable energy stocks, BEP looks to play a critical role in clean energy. Brookfield is taking an active role in helping companies with their climate goals. For example, BEP is partnering with Amazon (Nasdaq: AMZN) and investing in Apple’s (Nasdaq: AAPL) China Renewable Energy Fund. Not only that, but BEP is achieving record earnings while growing its pipeline significantly.
Looking ahead, renewable energy will play a critical role in the future. Especially given today’s events, renewable energy is poised to make a comeback.
Best Oil & Gas Energy Companies To Invest In
Oil & gas companies, on the other hand, are critical in this very moment. With no outcomes so far in the war in Ukraine, oil prices are expecting to remain elevated.
Investors are making up for the lost time after abandoning oil stocks for the past several years on the promise of clean energy. As a result, oil ETFs like the SPDR S&P Oil & Gas E&P ETF (NYSE: XOP) are up over 30%.
With higher oil prices, these companies are seeing their profit margins soar, promoting free cash flow (FCF). Thus, investors see huge returns between dividends and stock buybacks.
- Exxon Mobile (NYSE: XOM). One of the largest oil companies in the world, Exxon Mobile is involved in all aspects of the industry. After streamlining its business for the past several years, Exxon is seeing the investments pay off. As a result, XOM generated $48 billion in cash flow in 2021, its highest since 2012. Furthermore, the oil giant pays a generous dividend (4.28% yield).
- Schlumberger (NYSE: SLB). As a leading global oilfield services company, Schlumberger plays an active role in supplying solutions to oil firms. So far, SLB operates in over 120 countries with a growing international presence. Despite less oil activity the past several years, drilling is picking back up as companies look to fill the supply gap. As action picks up again, an increase in spending is likely to benefit SLB.
The tension in Ukraine is causing ripple effects across global energy markets. As nations look elsewhere to cover demand, oil prices remain elevated.
Top Energy Companies To Invest In Overall
Saving the best for last, a few of the top energy companies to invest in for long-term growth.
- NextEra Energy (NYSE: NEE). Despite underperforming its peers so far in 2022, NextEra is one of the largest electric utility companies. But, NEE’s most important claim to fame is the world’s largest wind and solar energy producer. The firm’s long-term renewable contracts will likely provide cash flow the company can then return to investors. On top of this, NEE is the largest utility company in Florida, one of the fastest-growing real estate markets.
- Chevron (NYSE: CVX). Chevron is up 37% YTD as rising oil prices promote higher profits. The oil company operates upstream, downstream, and chemicals units. Furthermore, Chevron is buying Renewable Energy Group (Nasdaq: REGI) to enhance its clean energy business.
Both of these companies are using their well-established business profits to steer themselves into the future of energy.
What You Need To Know
Energy stocks have severely underperformed the market in the long term. For several years, investors have hesitated to invest in energy with a transition underway.
Even with the recent boom, energy stocks value lag earnings growth. As a result, the sector’s value is attractive compared to the market. For example, the Energy ETF (XLE) has a Price/Book of 1.89 while the Technology Select Sector SPDR ETF (NYSE: XLK) has a Price/Book of 10.88 despite being down 10% YTD.
Right now, it’s most important not to get caught up in the daily headlines. One day oil prices are up. The next, they are down. Keep in mind oil prices are still up over 77% from last year.
How long the prices remain high? The answer will largely depend on the outcome of the war. With this in mind, these are some of the top energy companies to invest in to take advantage of rising costs.
Lastly, energy is likely to continue being a hot topic this year as the world seeks new sources to meet demand. Diversifying your portfolio with energy can help boost returns over the next several years while new investments awaken the industry.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.