In this article, we will take a look at the 10 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.
Oakmark Funds, an investment management firm, in their Q1 2021 investor letter, mentioned ConocoPhillips (NYSE: COP). Here is what Oakmark Funds has to say about ConocoPhillips in their letter:
“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.
In one of their investor letters, Brown Advisory spoke about Cimarex Energy Co (NYSE:XEC) and Suncor Energy Inc (NYSE:SU) stocks. Here is what Brown Advisory said:
“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.
In one of their investor letters, Broyhill Asset Management spoke about Exxon Mobil Corp (NYSE:XOM) and B P Plc (NYSE:BP) stocks. Here is what Broyhill Asset Management said:
“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.”
5. Plug Power Inc. (NASDAQ: PLUG)
Number of Hedge Fund Holders: 21
Plug Power Inc. (NASDAQ: PLUG) is a Latham-based firm that concentrates on the development of hydrogen fuel cell systems that can replace more conventional batteries in equipment and electric vehicles. These fuel cells are environment friendly compared to the conventional energy solutions. Some of the products marketed by the company include GenDrive, a hydrogen fueled PEM fuel cell system for electric vehicles, and GenFuel, a hydrogen fueling delivery, generation, storage, and dispensing system.
Plug Power Inc. (NASDAQ: PLUG) stock was picked by investment advisory Evercore as one of top five picks for the clean energy transition planned by the US government. The advisory gave the firm an Outperform rating with a price target of $42, implying a 66% upside potential.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm D E Shaw is a leading shareholder in the firm with 15.3 million shares worth more than $522 million.
4. Exxon Mobil Corporation (NYSE: XOM)
Number of Hedge Fund Holders: 63
Exxon Mobil Corporation (NYSE: XOM) is a Texas-based multinational oil and gas firm. It is ranked fourth on our list of 10 best energy stocks for 2021 and was founded in 1870. The firm is one of the largest energy firms in the world and operates more than 22,000 net operated wells that have proven oil and gas reserves. It has operations in more than 21 countries with oil refineries in most of them. It has a refining capacity of 6.3 million barrels of oil per day that makes it one of the largest oil refining companies globally.
Exxon Mobil Corporation (NYSE: XOM) posted quarterly results last month and reported the first profits in five quarters and total revenues of $59 billion, up more than 5% from the same period last year. The firm said the freezing weather in Texas earlier this year had resulted in $600 million in earnings losses for the firm because of the decreased production and sales. However, the company forecast a bright outlook for the rest of the fiscal year as oil prices stabilize.
At the end of the fourth quarter of 2020, 63 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in the firm, up from 52 in the preceding quarter worth $1.3 billion.
First Eagle Investment Management, in their Q1 2021 investor letter, mentioned Exxon Mobil Corporation (NYSE: XOM). Here is what First Eagle Investment Management has to say about Exxon Mobil Corporation in their letter:
“Leading contributors in the First Eagle Global Fund this quarter included Exxon Mobil Corporation. Recovering oil prices on improvements in demand for crude and other distillates helped fuel strong performance across the energy complex, including shares of Exxon Mobil. The company’s financial results have improved markedly from the Covid-related demand shocks in 2020, helping ease concerns about the sustainability of Exxon’s dividend, which is among the largest in the S&P 500 Index. In addition, Exxon has reiterated its commitment to reducing capital expenditures, which we believe should further bolster the resilience of its cash flows against future demand slowdowns.”
3. Royal Dutch Shell plc (NYSE: RDS-A)
Number of Hedge Fund Holders: 34
Royal Dutch Shell plc (NYSE: RDS-A) is a Netherlands-based oil and gas firm that was founded in 1907. It is placed third on our list of 10 best energy stocks for 2021. The firm markets natural gas, liquefied natural gas, crude oil, electricity, and other energy solutions for vehicles and marine vessels. The company has said it plans to reach zero carbon emissions in the next three decades after it came under fire for being identified as the seventh-largest corporate greenhouse gas emitter in the world between 1988-2015 by CDP Carbon Majors. It has a market cap of over $140 billion and posted more than $180 billion in annual revenue in 2020.
Royal Dutch Shell plc (NYSE: RDS-A) announced last month that it was partnering with a Singaporean firm to research the use of hydrogen fuel cells for powering marine vessels. The company said that the feasibility study for the project would be the first step towards the wider adoption of the clean energy system by the energy sector.
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 16 million shares worth more than $565 million.
2. Tesla, Inc. (NASDAQ: TSLA)
Number of Hedge Fund Holders: 68
Tesla, Inc. (NASDAQ: TSLA) is a San Carlos-based electric vehicle maker with significant stakes in the clean energy business. It is placed second on our list of 10 best energy stocks for 2021 and was founded in 2003. The company is owned by eccentric billionaire Elon Musk who also runs several technology companies. Investment advisory Canaccord in April said that it believes Tesla is set to increase spending on clean energy storage and power generation with an aim to attack and conquer the trillion dollar energy market across the world.
Tesla, Inc. could produce $8 billion in revenues from energy generation alone within the next three years, an analyst at Canaccord has forecast. With EV sales already booming, Tesla stock, already one of the most expensive on the market, could rise even higher.
At the end of the fourth quarter of 2020, 68 hedge funds in the database of Insider Monkey held stakes worth $12.3 billion in the firm, up from 67 in the preceding quarter worth $8.1 billion.
1. Brookfield Renewable Partners L.P. (NYSE: BEP)
Number of Hedge Fund Holders: 20
Brookfield Renewable Partners L.P. (NYSE: BEP) is a Bermuda-based company that owns and operates clean energy power generation plants in the United States, Canada, Colombia, Brazil, Europe, India, and China. It was founded in the 1890s and is placed first on our list of 10 best energy stocks for 2021. The firm runs several hydroelectric plants, more than 100 wind farms, over 550 solar facilities, as well as other clean energy businesses. The company is most famous for being one of the oldest hydroelectric power generation firms globally.
Brookfield Renewable Partners L.P. (NYSE: BEP) announced on March 30 that it was partnering with Plug Power for the development of a hydrogen plant in Pennsylvania. Construction on the project is set to begin in 2022 and the plan will produce 15 metric tons of hydrogen daily with zero carbon emissions.
Out of the hedge funds being tracked by Insider Monkey, London-based investment firm Ecofin Ltd is a leading shareholder in the firm with 280,135 shares worth more than $12 million.
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Disclosure: None. 10 Best Energy Stocks for 2021 is originally published on Insider Monkey.
