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6 Energy Stocks to Watch This Christmas as Market Recovers

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The holiday season is approaching. With the pandemic still looming large, people are desperately looking for something to cheer about this Christmas. People will soon be busy with turkey and stuffing, however, some will keep an eye on investment strategies, as the holiday season can bring some striking stock market returns. Given the recovery witnessed in the energy sector and expected improvement in the future, we will provide you with six stocks from this sector that you should either buy or hold.

Energy Sector on Recovery Mode

The sector took a massive hit due to the coronavirus pandemic in the second and third quarters. Energy demand destruction and oversupplied market were the two major hurdles for companies in the sector. The situation triggered a capital expenditure budget cut by most of the energy companies, with some others opting for merger and acquisitions. The moves taken by the companies were targeted at cost synergies and reduction, budget trimming, along with efficiency enhancement. These moves are expected to pay off in the coming days. Even though the sector witnessed plunges during the turbulent period, the stocks belonging to this sector are now recovering at an impressive rate. In the past three months, the sector has jumped 11.4% compared with 3.1% increase of the S&P 500 Index.

 

Bullish investor sentiment regarding this sector can be noticed. There are several factors that are boosting the energy sector at the moment such as clean energy market investments, improving natural gas price outlook, demand recovery, etc. Let’s dig deeper.

Renewables to Thrive

The renewable energy market has witnessed massive investments in the last few weeks. Importantly, per International Renewable Energy Agency, a total of $1.8 trillion was invested in renewables in the 2013-2018 period. Furthermore, it anticipates investment to scale up to $800 billion per annum to reach 2050 climate goals. Energy giants like Equinor ASA (EQNR - Free Report) and BP plc (BP - Free Report) are leading the way with solar and wind investments, as well as emission-reduction strategies. Similar to other companies in the sector, these Zacks Rank #3 (Hold) companies are facing pressure from investors for better compliance with the Paris Agreement. SunPower Corporation (SPWR - Free Report) is a solar stock that you may consider. This Zacks Rank #2 (Buy) company has a strong presence in residential and commercial markets. Moreover, its diverse revenues sources and sustainable business are commendable. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Natural Gas Price to Rise

Rising domestic demand, liquefied natural gas exports, and decreased production as well as inventories are boosting gas prices. Throughout 2021, natural gas prices are expected to average $3.14 per million British thermal units (MMBtu), indicating a rise from the estimated 2020 figure of $2.14 per MMBtu, per U.S. Energy Information Administration. Higher natural gas prices will likely boost profit levels for companies with massive gas production volumes like Antero Resources Corporation (AR - Free Report) and EQT Corporation (EQT - Free Report) . Both these Zacks Rank #3 companies have major acreage holdings in the Appalachian Basin, which has been a major contributor to natural gas production growth in the United States.

Markedly, this creates opportunity for midstream companies with natural gas infrastructure to reap profits from the expected production boost on account of rising prices. One such company, Antero Midstream Corporation (AM - Free Report) generates stable fee-based revenues under long-term contracts for providing customized and integrated midstream services to Antero Resources. This Zacks Rank #2 company raised its free cash flow guidance for 2020 to $485-$495 million.

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