The announcement on March 8, by president Biden, claiming all imports of Russian oil, gas, and energy sources will be banned at all American ports of entry has left investors seemingly hawkish, even as the Brent crude was trading well above $100 per barrel, an increase last witnessed in 2008.
The U.S. benchmark, the West Texas Intermediate, was also climbing sharply at the start of March, with prices per barrel toppling close to $120.
Even while consumer demand has remained steady, and countries imposing stricter diplomatic sanctions on Russia, fossil fuels, and renewable energy shares have entered some choppy waters in recent days, leaving investors on both sides of the aisle on whether the oil bubble is set to burst, or if renewables are still the safer bet?
The world is still predominantly oil and gas
While we’ve seen a lot of companies and governments trailing efforts shifting to renewable energy, the world still runs mostly on fossil fuels. From the road and transportation industry, production and manufacturing of goods, to energy and gas, there’s still a hefty reliance on fossil fuels.
As of 2019, around 84% of the world’s energy consumption primarily came from burning fossil fuels, including natural gas, coal, and oil – consumers, and governments are still relying heavily on the need for these fuels.
It does however make it a bit more clear to the investor who’s looking to make a quick buck with the oil and gas rally to see that prices for these energy resources aren’t going to come down any time soon.
With oil and gas prices rising, companies are looking for new ways to explore the market, and investors are willing to jump on the bandwagon, and rising prices are perhaps the last thing that’s putting off investors. During this time, companies in the oil and gas industry aren’t just seeing record-breaking revenues, but it’s also giving them the ability to strategize, as renewables are sweeping across markets.
Exxon Mobil (NYSE: XOM) announced at the start of the year a $22 billion expenditure budget, a hefty jump from the $17 billion in 2021. Exxon operations have gone global in recent years, with deepwater drilling in Australia, the Middle East, selected African waters, and the Permian Basin.
As demand has increased year-over-year, operations have grown bigger, and the positive outlook has for some time calmed any cuts to Exxon’s 4.5% dividend.
XOM can trail a successful year, and its $380 billion market cap is one way to attract investors who are willing to place their bets on Exxon as the fossil fuel movement remains quite strong across the world.
Even if Exxon is not delivering on its promise, there’s still Chevron, who’s been trailing XOM for quite some time, with a market cap just shy of $334 billion, and investors have been seeing positive returns as oil prices have been climbing.
Conoco Phillips (NYSE: COP) has been on investors’ watchlist for most of 2021 and so far 2022 as well. After the acquisition of Concho Resources in 2021, the company’s market cap trailed a healthy $129 billion, marking it as one of the biggest independent oil companies in the U.S.
With soaring oil prices, and its healthy balance sheet after spending more than $9 billion for Shell’s 225,000 net acres in the Texas Delaware Basin, Conoco is increasing its holdings and domestic influence.
The midstream American gas giant, Enterprise Products Partners (NYSE: EPD) is what investors are looking for, delivering increased capacity and production throughout the last few years, and its recent acquisition of Navitas Midstream Partners for $3.5 billion in cash is one indication of the current condition of the company.
As the current economic recovery takes its toll on Americans, with inflation hitting a 40 year high, EPD has been placed in a fortunate position, offering an investment with the ability to hedge inflationary price increases. With most of its debt secured for the long-term at 4.4%, increased prices can be passed off to the consumer, rather than the company itself.
EOG Resources (NYSE: EOG) is perhaps one of the more overlooked oil stocks on the market, yet its market cap of close to $68.97 billion keeps investors well on their heels, with the company constantly developing new technology and production equipment.
EOG places more interest and focus on using technology and big data in drilling operations than in the production, and exporting category. It placed them in a comfortable position, where the company now has acreage in the Eagle Ford shale, and among other giants in the Permian Delaware Basin.
Although environmental efforts and polarizing political agendas have scraped these companies from the spotlight, there’s still a hefty amount of steam left before they’ll witness renewables and sustainability taking a majority stake.
There’s still money in renewables
On the other side of the aisle, renewables have had a difficult road throughout the last few decades, but a push for Environmental Sustainability and Governance (ESG) policies by governments in developed and developing nations has helped them fast-track their global dominance.
SolarEdge Technologies (NASDAQ: SEDG) has been heading into 2022 with a strong pace, with a four-week gain of 23.6% between February and March. Analysts have been keeping an eye on SEDG as it managed to cross its 12-month target price from $327.05 to $328.91 per share.
Upcoming quarterly earnings of $1.31 per share represent a 33.7% change in the last year, with more than $600 million in expected revenues.
Perhaps Albemarle (NYSE: ALB), a global leader in the chemical industry should offer a bit more clarity to the rise in go-green stock purchases. The company which is among the largest producers of lithium saw its stocks rise by more than 58% in 2021.
With the demand for electric vehicles (EVs) and hybrids climbing to never-before-seen highs, Albemarle is perfectly positioned for another stellar year, even as some investors and consumers remain skeptical.
Renewable energy sources have increased by more than 45% in 2020, and these stocks are perhaps in for one rollercoaster year, out betting most estimates, with overall returns of more than 159% since 2019.
The real winner between oil, gas, and renewables is a hard swing, but a swing in the right direction nonetheless. Investors who are looking to increase their returns, while playing it safe are perhaps better off investing in big oil and gas companies.
Although demand for both industries has increased, there’s still no end to the consumption of fossil fuels yet, and as renewables start to take form, even in the most volatile markets there are hopes that their influence will see investors more interested.
Solar, wind, and hydropower stocks remain a stronghold, and a valuable asset to any portfolio, and for investors who are keener on adding stocks that will offer better long-term returns, you should perhaps look to lean more towards renewable stocks.
The deciding factor is irrelevant, in some cases, and investors should consider the risks that come along when choosing either or to invest in. There’s potential to grow, and whether you predict demise on the horizon or not, these stocks can become a vital asset to any portfolio.