Have you ever dreamed of investing in the energy sector, but felt like the bigger, established energy stocks were too expensive and were out of reach of your budget? Fret no more! There are plenty of profitable and undervalued energy stocks that offer plenty of upside potential – and we’ve rounded up the top ten here.
Energy Stocks
Before we get into the specifics of what stocks are worth considering, let’s first distinguish the different types of energy stocks. There are four main categories of energy stocks: oil, natural gas, electricity, and alternative energy. Each of these categories has its own distinct investment profile, and investors must take into account these specifics when researching potential investments.
For example, oil stocks are often associated with higher risks, as the price of oil is both extremely volatile and generally rising in the long-term. On the other hand, natural gas stocks tend to be the steadiest, offering more predictable returns due to the steadiness of natural gas prices. Furthermore, electricity is another form of energy stock that requires careful analysis–not only because of price volatility of electricity, but also due to the different governments and economies involved. Similarly, alternative energy stocks–such as wind, solar and geothermal–are often tightly regulated and focused on long-term plans, but also offer a good investment opportunity due to the potential for technological advances and will likely become more popular in the near future.
Understanding Your Risk Tolerance
When you are looking to invest in any type of stock, the importance of understanding your risk tolerance and investing style cannot be overstated. Every investor has different risk tolerance levels, and it’s important to understand your own level before making any investment decisions.
For investors who are more conservative and who are focused on steady and secure returns over time, low-risk investments, such as blue-chip energy stocks, are the way to go. These include established energy companies, such as Exxon and Chevron. Other energy stocks such as those involved in gas production and refining may also be suitable.
On the other hand, investors who are more interested in riskier, but potentially more profitable investments, may find smaller companies and oil drilling, exploration, and production companies to be more attractive. However, these stocks may be more volatile, and investors must take extreme caution when making their decisions.
Top Undervalued Energy Stocks
1: Petroleo Brasileiro S.A. (PBR)
Petroleo Brasileiro S.A., or PBR, is the largest integrated energy company in South America and is a major player in the worldwide oil and gas market. It has a strong presence in Brazil and other parts of South America and is a great choice for investors looking for international exposure. PBR is a solid dividend stock and currently trades at a relatively cheap P/E ratio.
2: Anadarko Petroleum (APC)
Anadarko Petroleum is an oil and natural gas producer and is one of the largest independent energy companies in the United States. APC’s stock has been steadily climbing in recent months and currently trades at a P/E ratio lower than the industry average. APC’s production is growing steadily and so it’s a great choice for investors looking for rising dividends over time.
3: Chesapeake Energy (CHK)
Chesapeake Energy is the second-largest natural gas producer in the United States, with assets all over the nation. It is a relatively small company compared to the other major energy companies and offers a great potential for growth. CHK’s P/E ratio is significantly lower than the industry average and its dividend yield is above the industry average.
4: Encana Corporation (ECA)
Encana Corporation is a large Canadian energy and exploration company that focuses on oil and natural gas production. It is one of the ten largest energy companies in the world, and its production is expected to grow significantly in the coming years. ECA is another stock whose P/E ratio is significantly lower than the industry average, and its dividend is high relative to the industry average.
5: Apache Corporation (APA)
Apache Corporation is an oil and gas exploration and development company based in Texas. The company has amassed a large portfolio of assets based in the United States and around the world, and is currently trading at a P/E ratio lower than the industry average. Furthermore, its dividend yield is higher than the industry average, making it an attractive investment for dividend investors.
6: Allis-Chalmers Energy (ALY)
Allis-Chalmers Energy is a small cap energy company that specializes in oil and gas exploration and production. Allis-Chalmers stock has been on a steady climb, with a recent jump due to a pending merger with Schlumberger, one of the largest oilfield services companies. It currently trades at a P/E ratio lower than the industry average and has a considerable dividend yield.
7: BP (BP)
British Petroleum, or BP, is one of the biggest names in the energy sector and is the world’s sixth largest public energy company. BP is involved in the upstream, downstream, and alternative energy sectors and is actively investing in renewable energy sources. Its stock is currently trading at a P/E ratio lower than the industry average and investors get a 5.5% dividend yield.
8: Royal Dutch Shell (RDS.A)
Royal Dutch Shell is the world’s third-largest public energy company and is involved in both oil and natural gas production. Its stock trades at a P/E ratio lower than the industry average and investors gain a 6% dividend yield. Shell is actively investing in renewable energy sources and is a great option for investors looking for some international exposure.
9: ConocoPhillips (COP)
ConocoPhillips is the world’s third largest publicly traded energy company and is involved in the exploration, production, and refining of oil and natural gas. It is a great option for investors seeking international diversification and long-term growth potential. The CPO’s stock is currently trading at a P/E ratio lower than the industry average and investors receive a steady 5.3% dividend yield.
10: Marathon Oil (MRO)
Marathon Oil is an integrated energy company involved in the exploration, production, and refining of natural gas and oil. Marathon Oil’s stock is currently trading at a P/E ratio lower than the industry average and offers investors a 7.4% dividend yield. Moreover, Marathon Oil has plans to restructure and spin-off its upstream business in order to unlock value for shareholders and further generate value.
Energy stocks are a great way to diversify and grow your portfolio, while taking advantage of the long-term potential that the energy market has to offer. To maximize your potential, it is essential to understand both the risk/reward tradeoff and your own risk tolerance before making investment decisions. While researching and investing in energy stocks, it is important to look for both long and short-term potential.
The stocks listed above are just a few of the ones that offer great potential in the energy industry. Each of these stocks offers great potential, while trading at or below their industry’s average P/E ratio and dividend yield. When done right, investing in energy stocks can be a great way to generate strong returns–just make sure to do your research and carefully analyze each potential position before investing.