What are energy stocks?

What are energy stocks?


1st September, 10:14
Updated: 23rd September, 07:20

Looking to invest in the products and services that help power the modern world?

Then it’s worth looking into energy stocks. In this lesson, we’ll explain what energy stocks are, detail their typical characteristics, and tell you where to go in order to invest in them. We’ve also prepared a list of energy stocks you can consider for potential buys.

What are energy stocks?

Energy stocks are stocks of companies that do business in the energy sector. They include oil drilling companies, oil refinery companies, natural gas exploration companies, and many more related businesses. 

Why do investors look for energy stocks?

As the global population grows and more people gravitate to big cities, demand for energy continues to expand. The movement in some parts of the world toward green energy has shifted the industry’s landscape somewhat, but whether it’s fossil fuels or alternative energy sources such as solar or wind, businesses and households will always need energy to function. That gives energy stocks the potential for price appreciation. 

What are the defining characteristics of energy stocks?

1) These companies do business in the energy sector

We mentioned some of the types of businesses in this sector above, but pretty much any company involved in generating energy or acquiring fuels is included in energy stocks. The list also includes industries such as coal and nuclear power.

2) Different stocks are headed in very different directions

Though the global COVID-19 pandemic has in many ways pushed climate change to the sidelines in the public consciousness, the planet still faces major climate-related challenges. To address these challenges, both businesses and consumers have begun shifting toward cleaner energy sources such as solar and wind, and away from dirtier energy sources such as coal. Know what you’re buying before you dive into an energy stock, keeping those types of distinctions in mind. 

3) Energy will always be a vital commodity

Whatever form energy takes, it will remain a vital pillar of the global commodity. Energy of various kinds powered society through the Industrial Revolution, all the way to today, and will continue to do so for centuries to come.

4) They’re influenced by global trends

The 2020 oil price war involving Saudi Arabia and Russia crushed global oil prices, which in turn hammered many oil stocks. Pay attention to global trends in energy consumption, supply, demand, and pricing, as those factors quill quickly spread from the relevant energy commodity of the moment to related stocks.

Here are some examples

If you want to invest in energy stocks, here are some companies you might want to consider putting uour money into.

1) Chevron (CVX)

One of the largest energy companies in the world, Chevron’s stock took a big hit in early 2020 due to the combined impact of the COVID-19 pandemic and the global oil prices war. It’s rallied since then, nearly doubling in price from its March lows to its level in early June.

2) ConocoPhillips (COP)

The multinational energy company has been a value investor’s dream lately. As of June 2020 the stock had doubled in price from its March lows, a strong complement to its 3.6% dividend yield and its modest 15-to-1 price-to-earnings ratio.

3) First Solar (FSLR)

In March 2020, solar panel maker First Solar’s stock plummeted to its lowest level in three years. It’s rebounded since then, gaining more than 50% from its March low to its levels in early June. 

4) Renewable Energy Group (REGI)

Renewable Energy Group is an American biodiesel company that’s also part of the Fortune 1000. Its stock surged to an all-time high in June 2020, and offers more growth potential given that its price-to-earnings ratio is less than 4-to-1.

How do I find energy stocks?

Investment websites such as Yahoo Finance and MarketWatch provide screening tools which let you search for energy stocks based on parameters such as earnings per share and revenue growth. But you can also check out some of the best energy stocks right here, with our monthly lists of energy stocks on the rise.

Visit this guide for more information on how to find energy stocks > 

Now you have a better understanding of energy stocks, simply click to check out our next lesson on healthcare stocks and keep improving your financial knowledge.

By Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other investments for Invezz and about emerging technologies for private clients.
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