While energy stocks as a broader market segment have been rather inconsistent this year, over the long run, demand should turn decisively in the positive direction. It really comes down to simple math.
Fundamentally, while many developed nations incur slowing population growth, on a nominal basis, the U.S. will still absorb a significant number of people thanks to a combination of natural births and net immigration. According to the Congressional Budget Office, the nation’s population will stand at 373 million people in 2053. That right there makes the case for energy stocks with upside.
Obviously, a larger demographic will consume more resources. And that means we can’t be myopic and just focus on green and renewable energy solutions. More than likely, we’ll leverage every source of power available because the matter goes beyond politics and ideology. Instead, sheer necessity will push the paradigm forward.
For the patient investor, these energy stocks with upside should eventually deliver the goods.
Exxon Mobil (XOM)
Love it or hate it, we’re going to live with hydrocarbons for a very long time, perhaps indefinitely. Yes, you can talk to me all you want about net-zero emissions. As the federal government readily acknowledges, the U.S. will only increase in size. You’re not going to feed such a demand spike through wind and solar alone. And that brings us to Exxon Mobil (NYSE:XOM).
No, I’m not going to characterize the company as a feel-good story. Rather, it’s a must-have story. Also, with major oil producers agreeing to voluntarily extend production cuts through the end of this year, an artificial demand spike makes XOM relevant. Cynically, then, it’s one of the top energy stocks with upside potential. Enticingly, Exxon insiders also recognize the forward-looking positive implications. In the second half of this year, the company experienced a conspicuous spike in insider buys.
As well, analysts rate XOM a moderate buy with a $128.39 target, implying nearly 14% growth.
Phillips 66 (PSX)
Specializing in the downstream (refining and marketing) component of the hydrocarbon value chain, Phillips 66 (NYSE:PSX) also covers some elements of the midstream trade through energy transportation. Thanks to the aforementioned artificial demand spike (via reduced supply), PSX should steadily march higher. Since the beginning of this year, PSX gained just a hair over 14%.
In fairness, PSX incurred some choppy trading in recent sessions. Still, as the economy marches forward amid a troubled geopolitical environment, downstream players will probably rise on their captive audience. Yes, retail gasoline prices have surged, putting pressure on consumers. Unfortunately, people have little choice but to pay up unless they want to make the transition to electric vehicles.
However, as CNBC pointed out in a recent video, EV inventory is piling up at dealerships. So, that transition might not be a viable solution. Presently, analysts peg PSX as a moderate buy with a $133 target, implying over 15% upside.
Enbridge (ENB)
A Canadian multinational pipeline and energy company, Enbridge (NYSE:ENB) is one of the most important energy stocks with upside potential. As a midstream stalwart, Enbridge plays a critical role in North America’s infrastructure. Per its public profile, the company’s crude oil system consists of 17,809 miles (28,661 kilometers) of pipelines.
Now, it must be stated that the market isn’t a big fan of ENB. Since the January opener, shares gave up nearly 18% of equity value. In the past 60 months, ENB only returned just under 3% for patient stakeholders. However, as society fully normalizes from the last vestiges of the pandemic quarantines – meaning a return to the office – demand for midstream enterprises should rise.
To be fair, ENB still trades at a rich forward earnings multiple of 16.64x. Nevertheless, it’s consistently profitable, which is what you’d expect from a midstream giant. Lastly, analysts rate ENB a moderate buy with a $38.03 target, implying almost 19% growth.
Cameco (CCJ)
Although controversial because of the underlying business, Cameco (NYSE:CCJ) deserves consideration for energy stocks with upside potential. Yes, the nuclear energy industry requires some product evangelism if you will. Here, perception is tough to overcome. At the same time, Cameco and the nuclear energy ecosystem benefit from mathematical realities. With the U.S. facing a rising population, energy demand will almost surely rise with it.
Basically, two things cannot be true at the same time. If the U.S. were to avoid expanding nuclear energy, then it must limit immigration. But if the policy is to continue inviting people from abroad with open arms, then nuclear energy must be a part of the viability solution. Per the Nuclear Energy Institute, one uranium fuel pellet has the equivalent energy of 149 gallons of crude oil.
It’s worth pointing out that investors recognize the long-term narrative. Since the January opener, CCJ gained over 67% of its equity value. In addition, analysts peg CCJ as a strong buy with a $45.68 target, projecting upside of over 19%.
Clearway Energy (CWEN)
Moving over to the green side of energy stocks with upside, Clearway Energy (NYSE:CWEN) is one of the largest renewable energy owners in the U.S. Per its website, Clearway features over 5,500 net megawatts (MWs) of installed wind and solar generation projects. However, investors have difficulty with CWEN, with shares down more than 33% since the January opener.
With the red ink, CWEN has only gained 10% over the past 60 months. Obviously, that’s not a great confidence booster. However, for the intrepid speculator, one could make the argument that CWEN is considerably de-risked. Right now, CWEN trades at forward earnings multiple of 15.8X, which is still a tad higher than the sector median of 14.08x. However, in December 2022, CWEN traded at a forward multiple of 35.2x. So in that sense, shares look more attractive. Also, some insiders have been buying up shares this year, adding some juice to the bullish thesis.
Analysts rate CWEN a moderate buy with a $28.29 target, implying almost 33% growth.
NextEra Energy (NEE)
A top name among green energy stocks, NextEra Energy (NYSE:NEE) features about 58 gigawatts (GW) of generating capacity. Per its corporate profile, NextEra is the largest electric utility holding firm by market capitalization. As well, no other company on the globe generates as much renewable energy from wind and solar sources. Despite the street cred, NEE presents high risks.
Notably, investors aren’t biting into the optimistic thesis, with shares down almost 38% since the January opener. Recently, one of the company’s subsidiaries disclosed that it was slashing its distribution growth outlook in half. That news ended up hurting the parent company. However, NextEra also started off on the wrong foot at the beginning of 2023 with a revenue miss.
Nevertheless, on the bright side, NEE is much more attractively valued for contrarian speculators. Presently, shares trade at 12.95X trailing earnings. That’s lower than the sector median of 14.95x. Analysts peg NEE a consensus strong buy with a $74.73 target, implying almost 43% upside potential.
Bloom Energy (BE)
Possibly the riskiest idea on this list of energy stocks with upside potential, Bloom Energy (NYSE:BE) manufactures and markets solid oxide fuel cells that produce electricity on-site. Per its public profile, Bloom’s fuel-cell microgrid platforms may offer significant resiliency solutions for enterprise-level clients. Given the steep financial costs associated with disruptions from blackouts, BE fundamentally brings relevance to the table.
Unfortunately for longtime stakeholders, that hasn’t been enough to prevent a rush for the exits. Since the beginning of the year, BE stock lost nearly 38% of its equity value. What’s more, during the past 60 months, BE slipped more than 46%. Unsurprisingly, investment data aggregator Gurufocus noted that Bloom could be a possible value trap.
Unfortunately, while Bloom has expanded its top line, it kept posting widening net losses since 2020. However, based on a trailing-12-month (TTM) period, it appears Bloom is mitigating the red ink. Will that be enough to convince investors? It’s hard to say but analysts rate it a moderate buy with a $23 target, implying almost 93% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
