For many people, the Christmas season is a time for celebrating, traveling, and spending time with friends and family. Understandably, not many will have time to draw up investment strategies when preoccupied with tinsel and turkey. Nevertheless, the holiday season can provide some impressive stock market returns, especially now that the energy sector--renewables and fossil fuels alike--are showing strong momentum.
The U.S. oil and gas favorite benchmark Energy Select Sector SPDR Fund (XLE) has recorded an impressive rebound, climbing 37% in November as oil prices climbed to the highest in eight months amid a flurry of potential Covid-19 vaccines as well as a surprise drop in crude inventory.
Whereas the consensus is that it will take months before oil demand can bounce back in a meaningful way, building positions early can help investors catch much of the coming rally.
Here are five energy stocks and ETFs to buy for your Christmas portfolio.
Source: CNN Money
#1. EQT Corporation
- Market value: $4.24 billion
- Dividend yield: 0.19%
- 12-month total return: 69.4%
Natural Gas Prices (USD/MMBtu)
Source: Business Insider
Whereas the oil sector has just begun to show signs of a solid recovery, the natural gas camp has been doing much better. Gas prices have climbed an impressive 62% over the past six months, thanks to weather-related demand and falling inventories. The short-and medium-term gas momentum remains positive, with the first resistance seen at around $3.10/MMBtu.
It's little wonder then that gas stocks have performed much better than oil or integrated energy stocks. Pennsylvania-based EQT Corp.(NYSE:EQT) is up nearly 70% over the past 12 months and remains one of the few fossil fuel stocks that are in the green this year. EQT is a pure-play natural gas company with ~17.5 trillion cubic feet of natural gas reserves.
EQT is no longer in growth mode and considers acquisitions as its second act in a bid to gain economies of scale and help it return capital to shareholders. EQT CEO Toby Rice sees "industrial logic" in a potential merger with CNX Resources (NYSE:CNX).
EQT also is considering a path to net-zero status, starting by replacing equipment that runs on fossil fuels with electric-powered devices as well as using real-time sensors and other technologies in a bid to cut drilling time and energy. ESG plays within the fossil fuel sector tend to go down well with investors.
#2. Cabot Oil and Gas
- Market value: $7.08 billion
- Dividend yield: 2.25%
- 12-month total return: 6.5%
Like EQT, Cabot Oil & Gas (NYSE:COG) is a pure play on natural gas, pumping ~2.4 billion cubic feet of natural gas equivalent per day, mostly from the Marcellus Shale in Appalachia. And again, like EQT, COG is one of a handful of fossil fuel stocks in the green this year.
Like many of its peers, Cabot has been struggling due to weak gas demand, posting Q3 revenue of $291.04M (-32.2% Y/Y) and GAAP EPS of -$0.04. Quite worryingly, free cash flow was negative 0.3M.
However, Cabot is clearly on a recovery path, with management saying it expects to generate $125M-$150M of free cash flow during the final quarter of the year and finish positive for the full year.
Appalachian Basin gas production has lately fallen sharply, something that could help boost prices. Thankfully, Cabot has maintained a healthy balance sheet that has allowed it to keep its capital spending plans intact while also paying out a modest dividend.
#3. Array Technologies
- Market value: $6.02 billion
- Dividend yield: NA
- Return since IPO: 90%
New Mexico-based Array Technologies (NASDAQ:ARRY) went public about a month ago and managed to charge straight out of the gate.
Array Technologies designs and manufactures solar ground monitoring systems. Don't be fooled by its recent IPO--Array is hardly a newcomer to the solar industry, having been founded in 1989 by Ron Corio, a pioneer of solar trackers. Today, Array is recognized as the world's second-largest supplier of solar tracking systems, a rapidly growing market estimated at ~$3 billion in 2020. Array had a 17% slice of that market, trailing only market leader Nextracker with a 30% share.
Array's first earnings since going public have been disappointing after the company reported Q3 revenue of $139.46M (-29.5% Y/Y) and Q3 GAAP EPS of -$0.06, with the company attributing the revenue decline to changes in seasonal order patterns.
Goldman has a $50 price target on ARRY (current price $37.62), saying the company "appears poised to leverage its technology leadership in maintaining stable pricing and margins against this backdrop of solid volume growth for trackers."
Cowen has PT of $45, Barclays $46, while UBS has $43.
#4. Invesco Solar ETF
- Assets Under Management: $30.92 billion
- Expense Ratio: 2.83%
- 12-month total return: 203.2%
Investors who need to diversify their solar portfolios can buy solar ETFs instead of buying individual stocks.
Invesco Solar ETF (TAN) is an exchange-traded fund that's solely dedicated to companies in the solar sector. The ETF tracks the MAC Global Solar Energy Index, which itself tracks companies involved in a wide range of solar technologies, provision of raw materials, manufacturing, installers, solar plant operations etc. Currently, TAN is the only ETF strictly devoted to solar energy. TAN's top five holdings include:
- SolarEdge Technologies--7.83
- Xinyi Solar Holdings Ltd--6.68%
- First Solar--6.64%
- Enphase Energy Inc.--6.59%
- Sunrun Inc.--6.33%
The solar sector has been red-hot and is set to thrive under Biden. In January 2018, the Trump administration implemented Section 201 solar tariffs on imported cells and modules at the height of the trade war with China. A presidential proclamation released back in October seeks to increase those tariffs and eliminate an exemption for two-sided solar panels. According to The Hill, the 2018 solar tariffs have significantly harmed the U.S. solar sector by destroying more than 62,000 jobs and nearly $19 billion in new private sector investments. The tariffs, which began at 30% in 2018, made some imported panels more expensive, with the price of high-efficiency PERC (Passivated Emitter Rear Cell) modules nearly doubling in the United States compared to prices in other markets as the modules leave factories in China and Southeast Asia. Indeed, Greentech Media estimates that when purchased in multi-megawatt quantities, such modules now cost 32 cents to 35 cents per watt in the U.S. compared to only 17 to 19 cents per watt when manufactured. The lion's share of those extra costs can be directly chalked up to the Trump tariffs since shipping costs clock in at a much lower 1.5 cents to 2 cents per watt.
One of the first pieces of business expected for Biden is to order the International Trade Commission to evaluate these tariffs and possibly repeal them considering the damage they have wrought to the downstream solar industry in this country. Even partly eliminating those punitive tariffs on solar modules and inverters is expected to have tremendous positive effects on solar development.
#5. NextEra Energy Inc.
- Assets Under Management: $148.83 billion
- Dividend Yield: 1.84%
- 12-month total return: 30.7%
NextEra Energy Inc. (NYSE:NEE) is a Florida-based clean energy company and America's largest electric utility holding company by market cap. NEE is the world's largest producer of wind and solar energy with 45,900 megawatts of generating capacity. The company owns eight subsidiaries, with the largest, NextEra Energy Services, supplying 5 million homes in Florida with electricity.
During the last earnings call, NextEra's management reiterated its 30x30 goal to install more than 30 million solar panels, or roughly 10,000 megawatts of incremental solar capacity, in Florida by 2030 through one of its subsidiaries, Florida Power & Light (FPL).
Another of NEE's subsidiaries, NextEra Energy Partners LP(NYSE:NEP), is publicly listed and pays a 4% dividend--one of the highest in the industry. NEP acquires, manages, and owns contracted clean energy projects with a preference for businesses with stable, long-term cash flows. NextEra Energy Partners owns interests in dozens of wind and solar projects in the United States., as well as natural gas infrastructure assets in Texas. These contracted projects use leading-edge technology to generate energy from the wind and the sun. The company's management is shooting for 12-15% dividend growth through 2024, making this an ideal stock for income investors.
By Alex Kimani for Oilprice.com
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