Investing In Energy

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We need energy to power our daily lives, so investing in energy seems like a safe bet, right? Not always. Like all stocks, energy stocks can be volatile, and 2023 was a pretty dismal year overall, but energy has taken Wall Street by storm in 2024, at least so far.

The S&P 500 and the Nasdaq Composite were both up significantly for the year by 9.85% and 10.43%, respectively, as of April 9, and the Dow Jones Industrial Average was up 3.1%. All eyes are on technology, driven by the explosion of artificial intelligence (AI) in seemingly every corner of our lives, but energy is the key driver of market gains this year. While the S&P energy sector jumped 17% since the beginning of the year, information technology stocks, including the AI tech giant Nvidia and Microsoft, rose 12%. According to the S&P 500, most large-cap sectors posted gains in the first quarter, but the energy sector led the way.

“There’s no doubt in my mind that energy outperformance has surprised a lot of people this year,” said Leo Mariani, a senior research analyst at Roth MKM told MarketWatch. “I definitely think that a lot of folks are taking a harder look at it.”

Making a Comeback: Gas and Oil

According to the Wall Street Journal, a crude oil rally boosted prices for international oil majors, refiners, drillers, pipeline operators, and tanker owners. Legacy companies like Exxon, Chevron, and Marathon Petroleum all posted gains. While the U.S. is no longer a net importer of crude oil (as of 2020), the rise in price, caused in part by international strife, is also to blame for higher gas prices.

For investors, though, it’s good news. Marathon Petroleum (MPC), for example, is up 43.86% from the first of the year, from $149.03 per share to $214.40.

It’s a correction of sorts, according to Jeremy McCrea, equity research analyst at BMO Capital Markets. He says over the past decade, many investors have turned away from oil and gas companies, forcing them to operate more efficiently or go out of business, which some did.

“Sentiment was so awful back in 2020, 2021,” McCrea said. “Now you’re getting new investors coming into the sector.”

McCrea says that whether these stock gains remain will depend on whether investors continue to believe oil and gas will be a major part of the global energy mix.

Going Up: Nuclear

Many nuclear energy stocks are also on the rise as more people recognize the potential role of the clean and reliable energy source in a carbon-free world. Developments in new nuclear technology, including SMRs and nuclear fusion, are adding to the investor interest.

NuScale Power (SMR), for example, saw its stock rise when the U.S. Nuclear Regulatory Commission approved its small modular reactor (SMR) design in January of 2023. By the end of the year, however, NuScale canceled plans for its flagship SMR project in the U.S. due to concerns over cost, and its stock dropped, but not for long. This year has seen NuScale stock fluctuate from under $2 to more than $11 per share, hinged mostly on international developments and other nuclear advancements.

(Dairyland Power Cooperative signed a memorandum of understanding with NuScale to look into whether SMRs would be a beneficial option. CEO Brent Ridge says it’s important to build these partnerships, but they must also see that a commercial SMR project can be built efficiently in the United States.)

Many other nuclear-energy-based companies are showing major gains, including Cameco Corp. (CCJ), a Canadian company that mines and sells uranium. Its stock has seen a steady increase in 2024 (+11.1%), over the past year (+91%), and over the past five years (+310%). Nexgen (NXE), Uranium Energy (UEC), and Denison Mines, all involved in the procurement of uranium, show similar, impressive gains.

Centrus Energy (LEU), a Maryland company that also works to fuel nuclear plants, is down year to date but has seen its stock rise 46% from one year ago and 1,251% from five years ago.

Centrus President and CEO Amir Vexler rang the closing bell at the New York Stock Exchange in March and said, “Nuclear power is growing worldwide as a major solution to climate change… There are many reactor developers. There are many technologies that are competing out there, abroad, and in the U.S. There are advanced reactors, light water reactors, and all of them require fueling. All of them require the use of enriched uranium. We, in fact, are the only non-state-owned enrichment company, and that obviously opens a huge door for us to participate in this growing market.”

Vexler said four or five countries have committed to doubling their nuclear generation by 2050, so one of the greatest challenges will be making sure they can keep up with demand.

Wildcard: Electric Vehicles and Infrastructure

Who doesn’t wish they had jumped on the Tesla bandwagon just five years ago when shares were selling for $15? Tesla is the kind of company all investors want in on early—a company that has a unique product or service and a solid head start on the competition. Tesla had both. But that edge is not what it used to be. Tesla is trading at $177 per share, down from its peak in late 2021 when shares topped $400.

Tesla’s hold on the market is waning as more automakers offer electric vehicles, but that has not necessarily translated to major market gains for them. Automakers and companies working to provide infrastructure and parts, from chips to battery charging stations, show mixed returns in 2024.

Rivian Automotive stock is down 51% year to date and 26% from one year ago. Plug Power is down 26% year to date and 64% from one year ago, but up 23% from five years ago. At $71 per share, ON Semiconductor (ON), which engages in the provision of power and sensing technology for EVs, is also down slightly year to date and from one year ago but up significantly (213%) from five years ago.

Bargain Bin: Renewable Energy

On the flip side, renewable energy stocks saw a big sell-off last year, when the harsh reality of high-interest rates made an impact faster than potential government subsidies. High-interest rates proved financially crippling for many renewable startups seeking to build infrastructure that is expected to last decades.

SunPower (SPWR), a California company that designs, manufactures, and installs solar panels and is considered a leader in the U.S residential solar market, saw its stock price drop more than 42% year to date, from $4.77 on January 1 to $2.75 in April. Worse than that, SunPower stock was trading at more than $54 per share in January 2021. Many solar companies are facing similar challenges in the competitive market, including Sunrun (RUN) and Sunnova (NOVA), down 32% and 64%, respectively, year to date.

First Solar (FSLR) is holding its own in the field, up 7.88 percent year to date to $184.45 per share. First Solar was trading at more than $230 per share in May 2023 but saw its stock price decline as interest rates rose.

Other factors slowing the clean energy transition and weighing down stock prices include a lengthy and complex permitting process for transmission projects needed to bring more clean generation resources online. Delays lead to higher costs and lower earnings, which impact stock prices.

The good news for those seeking to invest is that many renewable energy stocks are now good buys, according to analysts. For example, about 80% of analysts on Robinhood, a stock trading tool, rate both Sunnova and First Solar as “buy.” More than 60% rate Sunrun as “buy.”

Strategy: Diversify and Invest for the Long Term

Investment advisors say the key to protecting your investment, whether you are looking at energy stocks or not, is to diversify your funds and manage your risk based on when you plan to retire (or withdraw your money).

Rhetoric during this election year will impact the market, as will the November election. Regardless of who wins, many analysts expect the clean energy transition and the companies building it to progress over the next 5-10 years.

Morgan Stanley analyst Andrew Percoco said he does not expect a full repeal of the Inflation Reduction Act (which includes historic subsidies for clean energy) regardless of who wins the election since many clean energy policies bring job growth and benefit rural areas, which bodes well for renewable energy stocks.

Warren Buffet, known as one of the best investors of all time, says, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Speaking of gold, it is also proving to be a good investment in 2024, hitting record highs and drawing some investors away from the stock market, but that’s another story.—Julie Lund

(Editor’s note: All investment involves risk. The information provided here is for educational purposes only. Investment decisions should be made specific to personal goals and individual portfolios. For more information, contact an investment advisor. WECA does not endorse or recommend any of the aforementioned investments. Stock price comparisons were current as of April 9, 2024.)

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