In this article, we will take a look at the 10 best energy stocks for 2021. You can skip our comprehensive analysis of the global energy sector and go directly to the 5 Best Energy Stocks for 2021.
The global energy sector is one of the few parts of the economy that has been affected by not only the COVID-19 pandemic over the course of the past twelve months, but also by extreme weather events, production wars, and disruptive new technology. According to a report by non-profit International Energy Agency, global energy demand dropped by more than 5% in the past year, with oil and coal registering 8% and 7% lulls respectively. This also led to a decrease in energy-related investments by close to 20% worldwide.
Extreme weather events like the Texas deep freeze and the heat waves in South Asia also hit the production capacities of power producers, sometimes crippling systems but mostly resulting in an increase in utility prices that compensated a little for the pandemic losses. An oil production war between Saudi Arabia and Russia, two of the largest oil producing countries in the world, also led to a dramatic decrease in oil prices for most of 2020. The fossil fuel industry also suffered as renewables continued to make headway into power generation.
Renewables are perhaps the single most important trend in the sector that investors should take into account before placing their bets on energy companies. The International Energy Agency has said that renewable energy is on track to become the single largest source of electric power by 2025. The share of renewable sources in electricity generation already accounts for more than 25% of the total generating capacity. New technologies like hydrogen fuel cells and solar panels, as well as increased hydro-electric generation, are leading the way.
Plug Power Inc. (NASDAQ: PLUG), a firm focusing on usage of hydrogen fuel cells in electric vehicles and ships, registered double digits growth over the past year despite the pandemic and aims to reach more than $1 billion in revenue within the next two years. Plug Power Inc. (NASDAQ: PLUG) is expanding into material franchises, entering new markets like Europe and Asia, and working on revolutionary new technology that could potentially power marine vessels with hydrogen fuel cells, drastically reducing fossil fuel demand globally.
Tesla, Inc. (NASDAQ: TSLA), the electric vehicle maker that has grown a sizable energy business over the years, has become one of the notable energy players in the industry due to its innovative technologies. Tesla, Inc. (NASDAQ: TSLA) posted record energy storage system sales in the last three months of 2020, reporting deployments of 1,584 megawatt-hour. The solar energy sales of the company also went up 18% in 2020 compared to the previous year. Tesla, Inc. (TSLA) made a combined $752 million from alternative energy products in the fourth quarter of 2020, up from $436 million in the same period last year.
Similarly, Brookfield Renewable Partners L.P. (NYSE: BEP), which owns significant hydro-electric assets, has in recent years shifted focus to more alternative sources of energy while expanding its hydro-electric power capacity. Brookfield Renewable Partners L.P. (NYSE: BEP) caters to millions of customers across four continents, including the densely populated Asia, and has envisioned 23 gigawatts of power projects in solar, wind, and bio power generation over the next few years to become a global alternative energy powerhouse.
Some future trends to look out for in the energy industry include increased federal scrutiny on fossil fuel firms to transition to solar and wind, along with actions, subsidies and legislation to support and accelerate timelines for expansion into new technologies. These new technologies, like battery storage, offshore wind farms, and green hydrogen, are fast moving towards mass commercialization. The traditional fossil fuel powers could meet a fate similar to what the hedge funds face in the financial world if they refuse to adapt. That's why investors are betting on the success of new and innovative companies like Plug Power Inc. (NASDAQ: PLUG), Tesla, Inc. (NASDAQ: TSLA) and Brookfield Renewable Partners L.P. (NYSE: BEP).
The energy sector isn't the only area where changes are occurring. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of 10 best energy stocks for 2021.
Best Energy Stocks for 2021
10. Chevron Corporation (NYSE: CVX)
Number of Hedge Fund Holders: 50
Chevron Corporation (NYSE: CVX) is a San Ramon-based multinational energy company. It operates in more than 180 countries and was founded in 1879. Chevron is placed tenth on our list of 10 best energy stocks for 2021. On April 26, Chevron announced that it had signed a deal with a major Japanese car maker to create green hydrogen businesses as the firm seeks to diversify in areas beyond fossil fuels. Under the agreement, Chevron has pledged to invest in commercially feasible hydrogen businesses in the United States.
Chevron Corporation (NYSE: CVX) posted a profit for the first time in three quarters on April 30 but missed revenue and earnings targets for the first three months of 2021. The firm has been hit by a global dip in oil prices, but is on the rebound trail and the chemical and refining division of Chevron posted a $5 million profit in the first quarter.
At the end of the fourth quarter of 2020, 50 hedge funds in the database of Insider Monkey held stakes worth $5.3 billion in Chevron Corporation (NYSE: CVX), up from 43 the preceding quarter worth $1.2 billion.
9. ConocoPhillips (NYSE: COP)
Number of Hedge Fund Holders: 49
ConocoPhillips (NYSE: COP) is a Texas-based energy firm that primarily deals in fossil fuels. The firm operates in more than 17 countries, including the United States, Norway, Canada, Australia, Timor-Leste, Indonesia, Malaysia, Libya, China, and Qatar. It was founded in 1875 and is placed ninth on our list of 10 best energy stocks for 2021. ConocoPhillips (NYSE: COP) stands to gain from the stability in oil prices after oil producing countries reached an agreement to expand cooperation in the aftermath of a disappointing past twelve months for the energy sector.
Investment bank Goldman Sachs on April 6 picked ConocoPhillips (NYSE: COP) as one of the stocks with upside potential in the energy market because of the chance of higher returns on capital employed and free cash flow generation. In March, the company had said it planned to spend close to $5.5 billion in capital during the next few months.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in the firm with 5.1 million shares worth more than $204 million.
"We elected to retain a position in ConocoPhillips following its all-stock acquisition of portfolio holding Concho Resources after determining that the combined entity was nearly as undervalued as stand-alone Concho. We believe Conoco is one of the highest quality independent oil producers in the world today. The company has decades of low-cost drilling inventory in attractive oil basins, minimal leverage and industry-leading returns on invested capital. Conoco management has built this enviable competitive position through years of shrewd capital allocation and efficient operations. This includes a history of accretive divestitures and opportunistic acquisitions, the latest example being Concho. For Conoco, the Concho deal adds some of the highest quality acreage in the Permian Basin at an attractive all-in cost, with an opportunity to create incremental value by eliminating duplicative costs and monetizing excess acreage. We believe this value-focused approach to both acquisitions and divestitures is rare in oil and gas and we are pleased to invest alongside these stewards of capital. The shares are priced at a double-digit free cash flow yield and a discount to peers on most earnings metrics, so we took advantage of the opportunity to own the business at an attractive price.”
8. Suncor Energy Inc. (NYSE: SU)
Number of Hedge Fund Holders: 25
Suncor Energy Inc. (NYSE: SU) is a Calgary-based energy firm. The company is famous for the production of crude from oil sands. It was founded in 1917 and is placed eighth on our list of 10 best energy stocks for 2021. The firm also has stakes in the clean energy business and operates four wind farms in Canada. Suncor is exploring the use of energy assets in Libya and Syria for the production of synthetic crude as well. It markets natural gas and petroleum-related products to industries, commercial clients., and retail sellers.
In February, the Bank of America backed Suncor Energy Inc. (NYSE: SU) to be the turnaround stock for 2021 after COVID-related setbacks in 2020 as the oil-rich Alberta province in Canada became a hotspot for the coronavirus. However, the bank picked the firm as one of the companies that could turn fortunes around as the vaccine rollout allows for a return to normal.
At the end of the fourth quarter of 2020, 25 hedge funds in the database of Insider Monkey held stakes worth $686 million in Suncor Energy Inc. (NYSE: SU), up from 22 in the preceding quarter worth $559 million.
"We eliminated our small holding in Cimarex Energy in favor of consolidating our oil-related investments by adding to existing holding Suncor Energy, which we believe is a stronger company to own with oil prices at a historic low.”
7. NextEra Energy, Inc. (NYSE: NEE)
Number of Hedge Fund Holders: 61
NextEra Energy, Inc. (NYSE: NEE) is a Florida-based energy company that was founded in 1984. It is placed seventh on our list of 10 best energy stocks for 2021. The firm is the largest electric utility holding firm by market capitalization. As the US government pushes for the adoption of clean energy sources for power generation, NextEra has signed a deal with OPAL Fuels to develop a renewable gas facility in Minnesota. Once fully operational, the project is expected to produce 6 million gas gallon equivalents of RNG annually.
On April 21, NextEra Energy, Inc. (NYSE: NEE) CEO Jim Robo backed the clean energy plans of President Biden and said they were an opportunity for the firm to expand business. However, the executive also cautioned that it was still not fully clear how the new tax proposals would affect business if they were ratified into law by the US Congress.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in the firm with 13 million shares worth more than $1 billion.
6. BP p.l.c. (NYSE: BP)
Number of Hedge Fund Holders: 29
BP p.l.c. (NYSE: BP) is a London-based multinational oil and gas firm. It was founded in 1909 and comes in at sixth place on our list of 10 best energy stocks for 2021. Some of the products that the firm markets include natural gas, biofuels, wind power, solar power, and de-carbonization solutions like hydrogen usage as a fuel. In addition to refining oil, the firm has significant investments in alternative energy companies that deal in bio-fuels or low-carbon energy solutions for a sustainable environment.
BP p.l.c. (NYSE: BP) was one of the firms that benefited from the recent deep freeze in Texas that drove up the prices of utilities. Investment advisory Citi said that the firm capitalized on the skyrocketing gas prices and raked in more than $1 billion in earnings for the first quarter of the year.
At the end of the fourth quarter of 2020, 29 hedge funds in the database of Insider Monkey held stakes worth $927 million in the firm, down from 30 in the previous quarter worth $611 million.
"As if a global pandemic wasn’t enough, during the quarter OPEC and Russia decided to add an oil crisis to the list of things for investors to panic about. After oil’s largest one-day decline in history, we established a small position in Exxon Mobile (XOM) and British Petroleum (BP)—two of the largest, best managed, and well capitalized companies in the industry.
We don’t have a short-term view on oil, but we do know that the best cure for low oil prices is low oil prices. And with the sector trading at its lowest level relative to the market in history, we are willing to bet that the current extremes in negative sentiment willrevert to more normal levels—and more normal oil prices—at some point. In the interim, we are being paid 10% annually to wait.”
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Disclosure: None. 10 Best Energy Stocks for 2021 is originally published on Insider Monkey.