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Energy stocks have significantly outperformed the rest of the market over the last 12 months.
Using a sector ETF as a proxy for the industry’s performance, the iShares Global Energy ETF (IXC) has returned 57% in the trailing 12 months versus the S&P 500, Russell 1000 Index, and Nasdaq-100 Index returning -1%, -3%, and -7%, respectively.
So, which energy stocks are leading the charge? Here are the best energy stocks to invest in over the next five years:
- Enterprise Products Partners L.P. (EPD)
- Occidental Petroleum Corporation (OXY)
- Enbridge Inc. (ENB)
- NextEra Energy Inc. (NEE)
- Kinder Morgan Inc. (KMI)
- Exxon Mobil Corporation (XOM)
These stocks provide various services up and down the energy value chain. They tend to be fairly valued companies with strong balance sheets, resilient economic moats, and attractive dividend yields.
Next, we will analyze each of these energy stocks in greater detail.
Best Energy Stocks
#1. Enterprise Products Partners LP (EPD)
- Price: $27.60
- Market Capitalization: $60B
Enterprise Products Partners LP is an energy and petrochemical transport infrastructure business. EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, refined products, and petrochemicals.
According to EPD’s latest investor presentation, the company has an average return on invested capital of 12% over the last ten years and 23 consecutive years of distribution increases.
EPD’s management team also has skin in the game; 32% of common units (Limited Partner’s version of “shares”) are owned by management.
#2. Occidental Petroleum Corporation (OXY)
- Price: $70.86
- Market Capitalization: $66B
The Occidental Petroleum Corporation, also known as “Oxy,” is an oil and gas exploration company with operations in the United States and the Middle East. Oxy also manufactures petrochemicals in the U.S., Canada, and Chile.
In May 2022, Berkshire Hathaway gave Occidental Petroleum its blessing, buying up 143.2 million shares of Oxy worth $8.5 billion. According to a company filing, Berkshire Hathaway now owns 15.3% of Oxy.
#3. Enbridge Inc. (ENB)
- Price: $46.20
- Market Capitalization: $94B
Enbridge is a natural gas distribution company headquartered in Calgary, Canada. Here’s a breakdown of Enbridge’s business mix as measured by 2022 EBITDA guidance:
- Liquids Pipelines 58%
- Gas Transmission 26%
- Gas Distribution & Storage 12%
- Renewable Power & Other 4%
The company believes it is well-positioned for organic growth given the global demand for North American energy, in addition to its growing free cash flows, disciplined capital investment framework, and leadership in ESG messaging.
#4. NextEra Energy Inc. (NEE)
- Price: $77.43
- Market Capitalization: $152B
NextEra Energy is the world’s largest producer of wind and solar energy. It is also one of America’s largest capital investors in infrastructure, with around $55 billion in new infrastructure investments planned through 2022.
Amongst the best energy stocks discussed in this article, NextEra Energy is the most “green” given its core operations of harnessing wind and solar energy.
NextEra Energy has delivered a total shareholder return of 945% over the last 15 years.
#5. Kinder Morgan Inc. (KMI)
- Price: $19.94
- Market Capitalization: $45B
Kinder Morgan is an energy infrastructure company specializing in owning and controlling oil and gas pipelines and terminals in North America. It is the largest energy infrastructure company in the S&P 500 Index.
Kinder Morgan’s management owns about 13% of its existing shares. While not quite as high as EPD’s 32% management ownership, it’s reassuring to see the alignment of incentives for the leadership and shareholder base.
KMI also declared $1.11 per share for 2022, equating to its stock’s 6% dividend yield.
#6. Exxon Mobil Corporation (XOM)
- Price: $97.59
- Market Capitalization: $411B
Exxon Mobil is an American multinational oil and gas company. It is one of the largest companies in the world by market cap, revenue, and profit generation.
Exxon Mobil has achieved 39 consecutive years of annual dividend growth and recently initiated a $10 billion share-repurchase program at the start of 2022.
In addition to Chevron Corporation, Exxon Mobil makes up a significant portion of the “energy sector,” as it is commonly referenced.
For example, these two companies account for 44% of net assets in the Energy Select Sector SPDR Fund (XLE), a sector ETF with over $42 billion in assets under management.
Other Energy Stocks to Consider
Many other energy stocks have similar characteristics to the ones previously mentioned. These include conglomerates like Chevron Corporation (CVX), Shell (SHEL), and ConocoPhillips (COP), in addition to independent energy producers like Canadian Natural Resources Limited (CNQ).
There are many ways to get exposure to promising energy stocks, given the various layers of the energy industry.
For example, you could strategically invest in one area of the value chain, such as upstream energy capture or downstream power production.
Additionally, you might be particularly bullish on a specific energy source, such as “green” or “renewable” sources like solar, hydroelectric, or wind.
Some of the top renewable stocks include SolarEdge Technologies (SEDG), Enphase Energy (ENPH), and Northland Power (NPI), which are all major holdings in several clean energy ETFs that have come onto the market.
Alternatives to the Best Energy Stocks
Consider investing in a low-cost energy ETF if you’re struggling to choose a single stock, or a handful of stocks, in the industry.
The popular funds that track the energy sector only have 20-50 holdings in the first place.
Stock selection is hard; if you’re generally bullish on the energy sector over the next 5-10 years, it may be easier to own the entire industry by investing in XLE or IXC.
Several commodity ETFs also provide exposure to specific commodities, such as crude oil or uranium. Consider a crude oil ETFlike USO or the Global X Uranium ETF (URA) if commodity ETFs pique your interest.
Best Energy Stocks: FAQs
What are the best energy stocks to buy?
Historically, the best-performing energy stocks with attractive dividend yields are Chevron Corporation (CVX), Exxon Mobil Corporation (XOM), Shell (SHEL), and ConocoPhillips (COP).
Are energy stocks a good investment?
Energy stocks tend to trade at fair valuations relative to stocks in other industries. They typically have stable free cash flows and attract investors by distributing excess operating profits to shareholders via dividend yields and share repurchase programs.
Is Warren Buffett buying energy stocks?
Warren Buffett’s firm Berkshire Hathaway recently purchased a large number of shares in Occidental Petroleum Corporation (OXY), an oil and gas exploration company headquartered in Houston, Texas. Berkshire Hathaway bought $8.5 billion worth of OXY shares and now owns 15.3% of the company.
What is the best renewable energy stock?
The top five renewable energy stocks by market cap:
#1. NextEra Energy (NYSE: NEE)
#2. Iberdrola SA (OTCMKTS: IBDRY)
#3. Orsted A/S (OTCMKTS: DNNGY)
#4. Enphase Energy (NASDAQ: ENPH)
#5. Siemens AG (OTCMKTS: SIEGY)
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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best energy stocks.
