In this article we take a look at the top 10 energy sector stocks for 2021. Analysts believe that the energy sector is set to recover in 2021 after facing severe losses in 2020 on the back of the coronavirus crisis.
The energy sector got totally pummeled in 2020, as oil demand crashed and oil and gas plants came to a screeching halt. Energy was the worst-performing sector in the S&P 500 last year in 2020. The S&P 500 Energy Sector Index is down 16% over the last 12 months. Major energy giants like ExxonMobil, Chevron, BP and Aramco all posted heavy losses for the year. ExxonMobil lost a whopping $20.1 billion in the Q4’2020. In August 2020, Saudi Aramco announced to cut its capital expenditure to $25 billion or less in 2021 amid coronavirus-related struggles. However, analysts believe a strong recovery is on the horizon for the energy stocks in 2021. The S&P 500 Energy Sector Index is up over 20% year to date, compared to S&P 500 Index’s gain of 17% in the same period. Earlier in February, oil price surged to its highest levels in more than a year as the world is starting to return to pre-coronavirus levels of activity. Analysts believe that with a mass availability of coronavirus vaccines, cases falling and companies reopening their offices, energy companies will start to regain in 2021.
Renewable Energy Revolution: Threat or Opportunity?
But perhaps the biggest threat (and opportunity) for energy companies is the world’s shift towards green energy. The International Energy Agency estimates that the global energy demand will peak in the 2030s. Goldman Sachs predicts that capital expenditures in the renewable sector are expected to surpass those in the oil and gas sector for the first time in history. While oil giants like ExxonMobil remain skeptical of these predictions and firmly believe that the oil demand will continue to expand, others are already pivoting toward green energy. BP in 2020 revealed its historic plan for a 40% reduction in oil and gas production over this decade. Chevron also announced plans to build 500 megawatts of renewable energy plants to power some of its global plants. BP and Chevron also joined hands to lead a $40 million funding round for Canadian geothermal energy company called Eavor.
Push from Activist Investors
Energy players which are reluctant to take action to shift towards renewable energy would be forced to do so amid pressure from the society, UN and above all, activist investors. After investment firm Engine No. 1, which was formed by veteran investors from hedge funds like JANA Partners and Bain Capital, pushed Exxon to start investing in green energy projects, the company released its five-year plan of action to achieve low-carbon emissions. Chris James’ Engine No. 1 owns a $37.8 million stake in Exxon, as of the end of the fourth quarter of 2020.
Which Energy Stocks Will Grow?
Energy remains the essential need of global economies, businesses and individuals. The sources of energy are set to change in the coming decades, and prudent investors are already funneling their money into the energy stocks that are set to gain from the future trends of the market. According to a report by IEA, renewable energy sources, especially solar, are set to meet a whopping 80% of the growth in global electricity demand by 2030.
As with the energy sector, new trends are upending the conventional players even in the financial markets. The hedge fund industry’s 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 strategy of focusing on the top picks of over 800 hedge funds has helped it consistently beat the market over the last several years. We launched our monthly newsletter’s activist strategy nearly 4 years ago and this strategy’s picks returned 187.5% since then and beat the SPY by 111 percentage points. Our short strategy was also launched 4 years ago and its short recommendations gained a cumulative 8% (that’s a good thing because we are shorting them) since then. You can improve your returns by subscribing to our premium newsletters. Our subscription prices start at $6.99 per month and come with a 14-day full refund guarantee.
Therefore, while mentioning the top 10 energy sector stocks for 2021, we pay special attention to the companies that are investing in renewable energy projects. We chose the stocks that are popular among over 880 hedge funds tracked by Insider Monkey. You will notice that these hedge funds are also piling into those energy stocks which are investing in renewable energy.
10. Devon Energy Corporation (NYSE: DVN)
Devon Energy is a Fortune 500 company that has 757 million barrels of oil equivalent as of the end of 2019. The stock is up about 8.6% over the last 12 months. In February, Citigroup and J.P. Morgan reiterated Buy ratings for the stock, with price targets of $24 and $22, respectively. The firms especially like the company’s dividend policies that will ensure that shareholders keep receiving a fixed dividend even when times are tough.
At the end of the fourth quarter, 45 hedge funds tracked by Insider Monkey held stakes in Devon Energy.
9. EOG Resources, Inc. (NYSE: EOG)
Texas-based EOG explores hydrocarbon resources in the U.S., U.K., China, Canada and various other parts of the world. A total of 45 hedge funds tracked by Insider Monkey own the company’s stock as of the end of the fourth quarter, up from 36 funds a quarter earlier. The total value of these stakes is $750.15 million. In January, a BloombergNEF analysis said that the company is not prepared for a low-carbon economy. The stock is up 25% year to date. EOG ranks 9th on the list of top 10 energy sector stocks to buy for 2021.
8. Dominion Energy, Inc. (NYSE: D)
Virginia-based Dominion Energy is one of the top 10 energy sector stocks for 2021. Earlier in February, the company revealed its $72 billion capital investment plan for decarbonization by 2035. The plan, according to the company, should create 10% annual shareholder return for its regulated utility operations. The company plans to spend $32 billion from 2021 through 2025 to support its clean energy profile.
Dominion is also getting some love from hedge funds. A total of 47 hedge funds tracked by Insider Monkey were bullish on the stock, up from 37 funds a quarter earlier. Israel Englander’s Millennium Management increased its stake in the company by 115% in the fourth quarter.
7. Enphase Energy, Inc. (NASDAQ: ENPH)
Enphase is one of the top 10 energy sector stocks for 2021. The company sells software-based home energy solutions which help consumers track and monitor energy generation and usage. The stock is up by 243% over the last 12 months. The company recently crushed analysts’ forecasts for the fourth quarter of 2020. Needham analyst James Richiutti reiterated his Buy rating for the stock and increased the stock’s price target to $240 from $118.
A total of 48 hedge funds tracked by Insider Monkey were long Enphase Energy, up from 42 funds a quarter earlier. Even though Daniel Patrick Gibson’s Sylebra Capital Management slashed its stake in the company by 52% in Q4, the hedge fund still owns 1.97 million shares of the company.
6. Sunrun Inc. (NASDAQ: RUN)
Sunrun designs and sells residential solar energy solutions in the U.S. The stock is up over 209% in the last 12 months. In January 2021, the stock was downgraded by Credit Suisse to Neutral from Outperform with a $79 price target. The firm said that the current stock value already implies the upcoming catalysts like tax credits and waivers expected from the Biden administration.
Hedge funds are becoming extremely bullish on Sunrun. A total of 48 hedge funds ended the fourth quarter of 2020 with stakes in Sunrun, compared to just 29 funds a quarter earlier.
5. ConocoPhillips (NYSE: COP)
Texas-based ConocoPhillips is one of the top 10 energy sector stocks for 2021. The company is engaged in hydrocarbon and other energy resources exploration all over the world. As of the end of 2019, the company had about 5,262 million barrels of oil equivalent energy resources. Earlier in February, S&P Global lowered its credit ratings for ConocoPhillips (NYSE:COP), citing the worldwide transition from fossil fuels to green energy. The company has a dividend yield of 3.5%.
As of the end of the fourth quarter, 49 hedge funds tracked by Insider Monkey were long ConocoPhillips.
4. Schlumberger Limited (NYSE: SLB)
Despite losing about 15.5% in value over the last 12 months, oil field services and energy company Schlumberger remains on the portfolios of 50 hedge funds out of the 887 tracked by Insider Monkey, as of the end of the fourth quarter. The total value of these stakes is $1.23 billion. In January 2021, the stock was upgraded to Buy from BofA, with the price target hiked to $31 from $27. The bank believes the oil stock would gain from the overall recovery in international demand in the second half of 2021.
Earlier in February, Schlumberger appointed Florence Lambert as CEO of Genvia, the company’s new clean hydrogen production technology venture.
First Eagle Investment Management, which returned 5.64% for the third quarter 2020, highlighted a few stocks in their investor letter, and Schlumberger Limited is one of them. Here is what Baron Asset Fund stated:
“Oilfield services giant Schlumberger struggled to gain traction following the initial pandemic-related selloff of the first quarter. The company has been aggressive in cutting costs in response to the difficult operating environment; it has slashed about 25% of its workforce, reduced its dividend and sold off assets, including its North American hydraulic fracking business. We see Schlumberger’s financial strength and dominant market position as sources of resilience that may potentially enable it to respond positively if and when oil prices rebound.”
3. NextEra Energy, Inc. (NYSE: NEE)
Florida-based NextEra is one of the top 10 energy sector stocks for 2021. The company has over 46 gigawatts of generating capacity, and provides electricity to over 10 million people in the U.S. NextEra stock is up over 14% in the last 12 months. It is one of the biggest solar and wind energy producers in the country. The company recently announced that it plans to add about 30 gigawatts of renewable projects to its portfolio by 2024, above the analysts’ consensus of 20 gigawatts.
Hedge funds are also increasing their hold in the company. At the end of the fourth quarter of 2020, 32 hedge funds tracked by Insider Monkey were bullish on NextEra, compared to 22 funds a quarter earlier.
2. Exxon Mobil Corporation (NYSE: XOM)
ExxonMobil is one of the top 10 energy sector stocks for 2021. Hedge funds are loading up on XOM, as 63 hedge funds tracked by Insider Money moved into 2021 with XOM in their portfolios, up from 52 funds a quarter earlier. Jean-Marie Eveillard’s First Eagle Investment Management owns $1.1 million worth of XOM shares, while Irving Kahn’s Kahn Brothers has a $666 million stake in the oil company.
Oil prices nudged higher this week as U.S. supplies dropped amid extreme winter conditions and demand continued to rise as the economy comes back to normal.
1. PG&E Corporation (NYSE:PCG)
PG&E is one of the major utility companies in the U.S. with a growing exposure to renewable energy including solar and wind. The company offers several green energy programs to its customers across the country. Recently, Bank of America’s Julien Dumoulin Smith reiterated a Buy rating for the stock with a $14 price target. The analyst is bullish on the company’s new wildfire mitigation plan .
As of the end of the fourth quarter, 66 hedge funds tracked by Insider Monkey reported owning stakes in PG&E. One of the biggest stakeholders of the company is Dan Loeb’s Third Point which owns over 84 million shares of the company.
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This article is originally published at Insider Monkey.
