The energy industry is one of the most important and influential industries in the world that can make or break the global economy. Energy stock prices can be risky because of their erratic nature and sometimes unpredictable consequences. However, with some exploration and understanding of the industry & the energy stock prices, there are various companies that you can invest in and be on the winning end of the game with lucrative results.
The energy stocks include companies focused on exploration, production, and distribution of renewable and non-renewable resources, including oil, gas, electricity, and various forms. The economic position of any country is strongly dependent on its energy productions and energy stock prices. However, some big companies in the industry whose energy stock prices can even affect the global economy.
At the beginning of 2020, the energy industry took a big hit, as the global pandemic caused the world to shut and halted most business operations. This led to a rapid decline in the demand for various oil and energy services. Consequently, energy stock prices plummeted, and the world economy was struggling.
This article covers the various sub-sectors in the energy industry and offers insight into the major factors that can effectively help investors analyze energy stock prices.
The energy industry is an umbrella term that encapsulates most energy sources and includes various companies operating in its different subsectors. Each subsector of the energy industry operates on a specific energy resource and has factors that can influence its energy stock prices. Below are some of the subsectors in the energy industry:
Energy utility companies are the companies that operate in the utility subsector of the energy industry. They offer services related to energy distribution, from the point of generation to the consumers. Some of the top energy stocks in the utility sector are Pacific Gas & Electric (NYSE: PCG), Southern California Edison (SCE^E), and Florida Power and Light (NYSE: FPL).
Liquefied Natural Gas is a subsector of the natural gas industry. It involves cooling down the natural gas into a liquid form, which is safer, non-toxic, easier to store and transport. The liquefied natural gas industry has a lot of growth prospects in the future. A few of the biggest companies in LNG stocks are Cheniere Energy (NYSE AMERICAN: LNG), Royal Dutch Shell (OTCMKTS: RYDAF), and Total (OTCMKTS: TTFNF).
Natural Gas is the parent sector of LNG and involves exploration, production, and distribution of Natural Gas products and their products. Top natural gas stocks are Royal Dutch Shell (OTCMKTS: RYDAF), Kinder Morgan (NYSE: KMI), Enterprise Product Partners (NYSE: EPD).
Oil stocks are the major contributor to the energy stock sector. The companies involved in the oil industry focus on exploring and producing crude oil from the earth and refining and distributing its various products. Crude oil is the predominant energy source for the world and plays a significant role in the world economy. The top oil companies in the industry are ConocoPhillips(NYSE: COP), Enbridge (NYSE: ENB), and Phillips 66 (NYSE: PSX).
The Renewable Energy industry is another subsector of the energy industry along with its various branches. The renewable energy sector includes companies that focus on electricity generation through renewable resources, such as geothermal energy, wind energy, solar energy, and hydro energy. With an increasing focus on sustainable alternatives and climate conditions, renewable energy stocks have a tremendous growth opportunity in the foreseeable future. Some of the major companies in the renewable energy sector are Brookfield Renewable Partners (NYSE: BEP-A), First Solar (NASDAQ: FSLR), NextEra Energy (NYSE: NEE).
The energy industry is a vital sector of the stock market and the global economy. For an investor, the energy sector can be pretty tricky and full of risks since a lot rides on the energy stock prices, especially in oil & gas companies. Almost all industries and stock market sectors are dependent on the energy industry, and any change in the energy industry can influence other sectors or the global economy and vice versa. We witnessed this soon after the outbreak of the COVID-19.
Due to a lack of movement, and social interactions, many industrial sectors were majorly affected. The consequence of it all was felt by the energy industry, as demand for energy products dropped significantly. This led to a steep drop in oil and gas prices. Consequently, the global economy took a big hit. However, the renewable energy market was still in quite a stable condition.
One of the most important factors to consider before investing in energy stocks is that the global economy always comes back up after a hit in due time. Therefore, investors always need to keep the risks in mind and research their investing companies. There are a few factors to look out for when investing in energy stock prices to ensure the company can withstand economic turmoil.
- Strong Balance Sheet
- Low Production Costs
- Conservative Dividend Payout Ratio, and
- Manageable Capital Spending Programs
The energy industry has gone through a rough phase due to the pandemic. However, 2021 is bringing positive signs with energy stock prices stabilizing as the world returns to its pre-pandemic routines. Businesses are opening up, and more and more people are starting to travel every day. This brings every stock market sector back on track, making up for all the losses in the previous year. In the future, the oil and gas industries may still pose some risks; however, the renewable energy sector is moving steadily in the positive direction, sending optimistic signs of massive returns.