It will be foolish to expect a decline in global energy demands in the near future. Regardless of the current geopolitical climate, energy needs continue to grow at a staggering pace. The US Energy Information Administration (EIA) expects demand for fuels and electricity to grow by 25% by 2040. Smart investors are now converting this need into profitable portfolio additions.
If you are looking for stocks of strong companies that have good long-term potential for value expansion, look into the energy sector. In the short term, the revenues of these companies may fluctuate wildly and may even prove to be cyclical in some cases. However, the overall long-term outlook is usually good. However, it could be difficult to find which companies are worth their price. To help you understand these stocks better, we have compiled a list of stocks that give you great exposure in the sector.
Below are the top 5 energy stocks that you can invest in August.
1. Vistra Energy Corp. (VST)
Vistra Energy’s Q2 2019 results for three months ending June 30, surpassed analysts’ expectations. The firm recently completed $1.29 billion of its $1.75 billion share repurchase program as well. The management is also seeking growth of 6-8% dividend growth per share this year. It also managed to pay off $5.3 billion in debts, further strengthening its balance sheet.
What is especially noteworthy for a company like Vistra is its increasing liquidity quarter-on-quarter. At the close of the second quarter, the company had $3.14 billion in available liquidity with over $964 million in cash and cash equivalents. This shows a company with strong fundamentals.
The most recent highlight for the company was the acquisition of Crius Energy in mid-July, which could help it launch itself in higher-margin markets, increasing its overall efficiency. It has got into an agreement with East Bay Community Energy to work at the company’s Oakland Power Plant site and develop a new 20-megawatt/80megawatt-hour battery project for energy storage.
2. Edison International (EIX)
In July this year, Edison International offered about 25 million new shares of its common stock to raise more capital for its corporate purposes. The company increased its core earnings in Q2 2019 and exceeded analyst expectations too. The company not only has strong results but also focuses on prevention of wildfires in California. This year, it was ranked 144th in Forbes Best Employer For Women list. Last year, it featured on the 120th spot on World’s Best Employers list as well.
However, the company’s core potential demands more focus than its culture. In June this year, it was awarded oil exploration license by the Maltese government. It can now explore natural resources in offshore blocks 1, 2 and 3 located within Area 3, a larger stretch of 6,400 square kilometers located north of the island nation. The one-year Exploration Study Agreement could be extended by two years. Edison International’s parent company Edison Exploration and Production now hold 90 licenses in North Europe and the Mediterranean.
3. WEC Energy Group, Inc. (WEC)
Another good dividend-paying stock on our list, WEC Energy too posted good results for Q2 2019, even though consolidated revenue remained flat year-on-year, while retail electricity deliveries went down in the second quarter. Despite a few hiccups, the company managed to subvert analyst expectations. However, its cash reserves have gone down considerably since December 31, 2018. At the time, the company’s available liquidity was $84.5 million, which is $37.9 million at the end of Q2. The long-term debt has come down to $9,921 million.
4. Duke Energy Corporation (DUK)
Duke Energy passed the analyst estimates in its Q2 2019 results, providing $1.12 earnings per share (EPS) as against estimates of $0.98 per share. The company’s bottom line has also improved by 57.7% YoY as operating income and revenue grew side by side. The company gained via its electricity as well as natural gas businesses in the regulated sector.
However, the income from the non-regulated sector dropped YoY. The three sectors in the company- gas utilities & infrastructure, commercial renewables, and electric utilities & infrastructure, almost doubled their net income during the quarter, which shows a stronger market presence.
We must note that the company’s available liquidity has fallen in the last six months. On December 31, 2018, it was $442 million, but on June 30, 2019, it dropped to $336 million. The long-term debt also increased to $54.3 billion by the end of Q2.
5. PG&E Corporation (PCG)
PG&E Corporation is the parent of California- centric Pacific Gas and Electric Company which is serving over 16 million residents of the state. The company is yet to announce its Q2 2019 earnings results. Institutional investors hold about 90% of this company while insiders hold only 0.21%.
According to some investors, high insider ownership is a marquee case of a good company where employees feel personally motivated to push the company forward. If your investment values are the same, then you may want to avoid PG&E. Otherwise, it remains a dependable corporation with a strong market presence.
During the first quarter, the company provided unexpectedly positive earnings coupled with an improved bottom line. While temperatures rose during the quarter, the analysts expect the company to post better results this time as well. However, incremental wildfire risk mitigation costs could trim the earning significantly.
When you are buying energy stocks, look for companies with stronger balance sheets. As a traditional, capital intensive sector, you cannot apply the “growth” formula of tech companies to the energy sector. It is better to look first for strong balance sheets with good liquidity and a strong dividend outlook. Energy companies often diversify into oil, natural gas, and electricity because of which they continue to float even if problems in one area cause them to take earnings hit.
If you want to buy an energy stock, check out either of the five companies listed above. To diversify your portfolio in this sector, don’t forget to add some renewable energy stocks as well. It will provide your portfolio with a broader, safer outlook. As we always suggest, never buy a stock without proper research.
Disclaimer: The author does not have any position in the stocks mentioned. Also, the author may not be a certified financial advisor, and the opinions expressed should not be treated as investment advice.
Buying and selling of securities carry the risk of monetary losses. Investors are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.