Our energy investing tips and list of energy stocks will help you better spread your money out among top energy shares
Resource and commodity stocks in general should make up only a limited portion of your portfolio—say less than 20% for a conservative investor or as much as 30% for an aggressive investor.
At the same time, energy stocks can play a crucial role in your portfolio as a hedge against inflation.
Below we share our tips for energy stock investing and our list of energy stocks we recommend buying or holding.
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Our list of energy stocks include stocks with certain characteristics
The best energy stocks for long-term investment gains have some things in common.
First, these stocks typically have strong balance sheets with low debt. If they’re junior producers, we like to see a company with the funds to finance their reserves to production. These stocks are also from companies with experienced management teams. We look for an experienced management team with a proven ability to use the latest technologies.
The best of these stocks don’t trade “over-the-counter” trading because regulatory reporting is lax in OTC trading.
Next, avoid unsustainably high prices when buying energy stocks. These prices are often a result of broker hype or investor mania.
Finally, we look at the market cap of energy stocks (and mining stocks as well) versus the estimated value of the resources they have in the ground. Sometimes, a company’s marketing efforts are so successful that they drive the stock up too high in relation to the size of its reserves. We like an energy stock’s market cap to be no more than half the value of those reserves. We assume that the company will be able to expand its reserves with more exploration, but if the current reserves are double the energy stock’s market cap, it provides a margin of safety.
Our list of energy stocks
Brookfield Renewable Partners L.P. (Toronto symbol BEP.UN) owns hydroelectric generating stations, wind farms, and natural gas-fired plants. Brookfield is a stock to buy.
Cenovus Energy Inc. (Toronto symbol CVE) owns Western Canadian oil sands properties and conventional oil and gas wells. Cenovus is a buy.
Chevron Corp. (New York symbol CVX) is the second-largest integrated oil company in the U.S. by revenue, after ExxonMobil. Chevron is a buy.
Imperial Oil LTD (Toronto symbol IMO) is Canada’s second-largest publicly traded oil company, after Suncor Energy. Imperial is a buy.
Precision Drilling Corp. (Toronto symbol PD) provides contract drilling services to land-based oil and gas producers, mainly in North America. This stock is a buy.
Bonus tip: What to know before investing in solar alternative energy stocks
The attraction of solar power is obvious for alternative energy stock investing—it offers a source of clean, endlessly renewable energy that has the potential to replace fossil fuels like oil, coal and natural gas. However, like many alternative energy sources, solar power’s vast potential has risk to match. High costs mean many solar power stocks must rely on government subsidies.
Because of that price disparity, solar power relies heavily on government subsidies and political support. That support is based on environmental “clean” energy concerns and perceptions of climate-change urgency, as well as a push toward energy independence.
Many of these subsidies for solar power stocks seem likely to continue, at least for now, in China, Japan and the U.S., and that’s fuelling demand from utilities for large-scale solar plants. However, solar subsidies have lost support in many countries, including Germany and Spain. Meanwhile, low prices for oil, natural gas and coal make solar power less cost-competitive.
What do you think of this list of energy stocks? Do you currently hold any of these investments in your portfolio? Share your story with us in the comments.
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