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Gain Big From These 5 Stocks as Energy Market Recovers in 2021

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Looking back at 2020, we see that the energy sector has been one of the most affected sectors due to the coronavirus pandemic. Global lockdowns resulted in energy demand collapse and oversupplied markets, thereby causing difficulties for several companies. The energy sector witnessed several bankruptcies, triggered by market volatility. Some of the companies opted for mergers and acquisitions, buying lucrative assets at beaten-down prices. However, the scenario is changing and energy companies are now gearing up for a steady uptick in the coming days.

Energy Sector Bouncing Back

Even though the sector witnessed plunges during the turbulent period, the stocks belonging to this sector are now recovering at an impressive rate. Bullish investor sentiments regarding this sector are evident. In the past three months, the energy sector has jumped 25.1% compared with 14.3% increase of the S&P 500 Index.

Comprehensive View of the Sector

While the overall energy sector has outperformed the S&P 500 Index in the past three months, multiple industries belonging to the sector performed differently, as shown in the graph below. As such, we will present several stocks that you may invest in from different industries in the energy sector.

 

Oil Price Improving: The WTI Crude price is slowly nearing the $50-per barrel mark. This will mark a massive improvement from the historic lows in April, when it tumbled to the negative zone for a while. The low oil prices resulted in limited access to capital. However, the improving crude prices are bound to change the scenario, given the addition of economically producible reserves, one of the most important requirements to obtain financing — or in other words, capital — from banks.

Moreover, the cautious approach taken by OPEC+ members with the assumption of a bullish sentiment is worth noting. As multiple vaccines are witnessing success in the United States and globally, the energy market outlook is getting brighter. Hence, instead of extending the existing production cut, OPEC+ is betting on a gradual increase in output.

Natural Gas Price Rising: Rising domestic demand, liquefied natural gas exports and decreased production are boosting natural gas’ price. Throughout 2021, gas prices are expected to average $3.01 per million British thermal units (MMBtu), reflecting a significant increase from the estimated 2020 figure of $2.07 per MMBtu, per the U.S. Energy Information Administration.

Increasing crude oil and natural gas prices will likely boost profit levels of upstream companies like HighPoint Resources Corporation and Vermilion Energy Inc. (VET - Free Report) . HighPoint Resources’ significant footprint in the DJ Basin positions the company for substantial growth in profits. Vermilion Energy’s operations in lucrative oilfields in North America, Europe and Australia will support bottom-line expansion. While HighPoint Resources sports a Zacks Rank #1 (Strong Buy), Vermilion Energy has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Drilling Recovery: Rising commodity prices will increase drilling, and the demand for oilfield service providers as well as oil and gas equipment suppliers. The count of rigs engaged in exploration and production of oil and natural gas in the United States has increased for four weeks in a row, indicating that oil and gas drillers are gradually returning to domestic onshore and offshore spots. Moreover, international rig count significantly increased through the month of November. As such, investors should consider including oilfield service providers like KLX Energy Services Holdings, Inc. (KLXE - Free Report) and equipment suppliers like NOW Inc. (DNOW - Free Report) in their portfolio. Both these companies have a Zacks Rank #2. KLX Energy’s Permian and Eagle Ford presence offers exemplary opportunities. NOW’s upstream, midstream, and downstream presence provides it with a diverse revenue source.

Thriving Renewables: While the overall energy sector witnessed a turbulent period due to the pandemic, the renewable energy market has experienced massive investments in the last few months. Per International Renewable Energy Agency, a massive amount of $1.8 trillion was invested in renewables in the 2013-2018 period. Moreover, the agency anticipates renewable investment to rise to $800 billion per annum to reach 2050 climate goals stipulated in the Paris Agreement.

Concerned investors are putting pressure on companies with high carbon-footprint for better compliance with the Paris Agreement. Energy majors like Equinor ASA (EQNR - Free Report) and BP plc (BP - Free Report) are leading the way in the transition, with chunks of solar and wind investments and emission-reduction strategies. With more renewable investments waiting to be unlocked in the pipeline, you may consider stocks like SunPower Corporation (SPWR - Free Report) . This solar energy company is a Zacks Rank #2 player and has a strong presence in residential and commercial markets. Moreover, its sustainable business and diverse revenues sources are highly praiseworthy.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks>>