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Best energy stocks: What are the top energy stocks to watch in 2023?

By Mensholong Lepcha

Edited by Jekaterina Drozdovica


Updated

Business candle stick graph chart of stock market investment trading on dark background design. Bullish point, Trend of graph. Vector illustration
Elevated energy prices helped oil and gas producers post record profits in 2022 – Photo: ART STOCK CREATIVE / Shutterstock

2022 showed investors why it is important to consider energy stocks for their portfolios. 

For the most part of the last decade, investors chased new-age technology stocks and overlooked the energy sector, which was in the middle of an expensive transition to renewables.

In 2022, energy stocks outperformed broader markets despite high inflation and rising interest rates as elevated oil and gas prices helped these companies post record revenues and profits. Here we name some of the best energy stocks to watch and the energy sector outlook.

What are energy stocks?

Energy stocks refer to companies associated with the exploration, production and distribution of energy sources like crude oil, natural gas, coal and renewable fuels.

The energy sector is crucial to the global economy. Without energy, cars will not run, factories will not function, devices will not turn on and the world would come to a standstill.

Today the energy sector is at a crossroads. Industry insiders are working on new solutions to lower the dependence on fossil fuels. Global warming and climate change concerns and the limited supply of fossil fuels are driving innovation in the sector.

Despite the leaps made over the years in the adoption of renewable power generation, our world still remains heavily dependent on oil, coal and natural gas. According to Enerdata, non-renewable sources made up about 72% of global electricity production in 2021.

The International Energy Agency (IEA) classified the primary sources of energy as oil, gas, coal, renewables and nuclear.

There were two energy companies in the CompaniesMarketCap’s list of the top 10 largest companies in the world by market capitalisation, as of 3 January. Middle East energy juggernaut Saudi Aramco was the world’s second largest company valued at $1.887trn. US-based Exxon Mobil (XOM) came in ninth at a market valuation of $454.24bn.

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Energy sector trends for 2023 and beyond

If you are looking for the best energy stocks to buy in 2023, you will need to be aware of ongoing trends and developments in the sector. 

Global energy crisis 

2022 was a year that saw energy prices surge to multi-year highs following Russia’s invasion of Ukraine. 

Crude oil prices rose to trade over the $100 per barrel mark as the West imposed economic sanctions on Russia, one of the world’s top three crude producers.

Brent crude oil live price chart

The natural gas market saw supply disruptions with European countries affected the most due to their over-dependence on Russia for gas imports. The high fuel prices and tight supply resulted in a “shock to the system” that had “far-reaching implications for households, businesses and entire economies”, said the IEA.

While consumers were the clear losers from the crisis, energy producers saw windfall profits in 2022. The agency added:

“High energy prices are causing a huge transfer of wealth from consumers to producers, back to the levels seen in 2014 for oil, but entirely unprecedented for natural gas.”

Unsurprisingly, energy producers dominated the list of the most profitable companies in the world, taking up five spots in the top 10 compiled by CompaniesMarketCap on 3 January 2023.

Saudi Aramco was the highest earner in the world above tech giants Apple (AAPL), Microsoft (MSFT) and Google (GOOGL). Other energy companies on the list were New York-listed Equinor and Exxon Mobil (XOM), Anglo-Dutch energy major Shell (RDS) and Brazil’s Petrobras (PBR). 

Renewables sources of energy gain momentum

Over the years, governments have come together to push for a green energy transition. Over 196 nations adopted a legally binding international treaty on climate change called the Paris Agreement in 2015.

The treaty aimed to “reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century”.

Another significant deal for the energy sector was the European Green Deal signed in 2019 to lower greenhouse gas emissions by at least 55% by 2030 and to make Europe the first climate-neutral continent by 2050.

There is pressure from governments, activists and shareholders on energy firms to transform their business away from fossil fuels that are considered “dirty”. As pointed out by ING:

“The share of fossil fuels in the global energy mix has been stubbornly high, at around 80%, for decades. According to the International Energy Agency (IEA), this share needs to come down to 22% by 2050 in a net-zero economy.”

Energy companies are investing billions to increase their share of renewable energy. The elevated energy prices and windfall profits seen in 2022 are expected to help fossil fuel companies in this expensive transition.

How to select energy stocks to buy?

When searching for the best energy stocks to watch in 2023, market participants can sort companies by the following criteria:

Oil - Brent

81.89 Price
-2.560% 1D Chg, %
Long position overnight fee 0.0304%
Short position overnight fee -0.0524%
Overnight fee time 21:00 (UTC)
Spread 0.045

Silver

29.25 Price
-2.070% 1D Chg, %
Long position overnight fee -0.0202%
Short position overnight fee 0.0120%
Overnight fee time 21:00 (UTC)
Spread 0.050

Natural Gas

2.16 Price
+1.220% 1D Chg, %
Long position overnight fee -0.0630%
Short position overnight fee 0.0410%
Overnight fee time 21:00 (UTC)
Spread 0.0050

Gold

2,401.36 Price
-1.830% 1D Chg, %
Long position overnight fee -0.0198%
Short position overnight fee 0.0116%
Overnight fee time 21:00 (UTC)
Spread 1.20

Market capitalisation

Market capitalisation or market cap in simple words is the market valuation of a company which can be calculated by the share price multiplied by the number of shares. It is the total dollar market value of the number of outstanding shares of a security. 

Companies gain high market valuations based on their financial health, future prospects and upbeat investor sentiment

Revenue and earnings

The revenue and earnings of energy companies are heavily dependent on the state of energy prices during the reporting period.

As mentioned earlier, energy producers saw record revenue and profits in 2022 following a surge in energy prices. 

Market participants looking to invest in top energy stocks should note that energy prices are volatile. Energy prices are dependent on global demand-supply dynamics. Leading oil-producing regions, like the US and OPEC+ nations, exert significant influence on energy prices.

Debt

Energy companies spend enormous amounts of capital on exploration, drilling and production from new sources. These exploration projects are carried out based on geographical studies that may or may not lead to full realisation of expected results. 

Moreover, the transition of the sector to green energy sources has forced energy companies to invest in renewable energy. These initiatives are expensive and may require the company to take on debt.

Market participants should monitor if a company’s debt is at sustainable levels. Financial metrics such as debt-to-assets and debt-to-equity ratios are useful.

Environmental, social, and governance (ESG)

ESG is an important standard that market participants should be aware of. ESG investing refers to investing only in those companies that meet a set of environmental, social and governance standards.

For energy companies, environmental standards may refer to their commitment to reducing greenhouse emissions and increasing their share of renewables. Socially, it could also mean safeguarding the interest of the native population by drilling sites. Governance standards refer to a company’s management, internal controls and shareholder rights.

List of top-performing energy stocks

In our top energy stocks list, we referred to the S&P 500 Energy Index. It consists of energy companies included in the US benchmark S&P 500 (US500).

In 2022, all of the 23 components of the S&P 500 Energy posted yearly gains underscoring investor preference for energy stocks amid elevated crude oil and natural gas prices during the year.

Here are the top energy companies from the S&P 500 Energy index based on their market performance over the last five years, as of 3 January 2023, compiled by Trading View.

Hess Corp (HES)- 195%; ConocoPhillips (COP) - 114%; Marathon Petroleum (MPC) - 76%; Marathon Oil  (MRO) - 58%; Targa Resources (TRGP) - 50%; Devon Energy (DVN) - 47%; Chevron (CVX) - 42%; Valero Energy (VLO) - 37%; Exxon Mobil (XOM) - 31%; Pioneer Natural Resources (PXD) - 31%.

Best energy stocks by market performance 

Note that past performance does not guarantee future returns.
Name Sell Buy 1D Chg, %
Buyers   Sellers

Energy sector forecast for years ahead

Financial services company Fidelity expected conditions of tight energy supply and rising demand that helped the energy sector post a “strong year” in 2022 to continue in 2023.

Maurice Fitzmaurice, sector portfolio manager at Fidelity said this was due to the long lead time to ramp up new supply and refining capacity:

“For 2023, barring a severe global recession, I believe that outperformance could continue, as many of the forces that propelled the stocks in 2022 could persist. Oil and gas demand should continue to grow in 2023 as economies continue to rebound from the pandemic. And supply is likely to remain constrained due to disruptions related to the Russian war in Ukraine and years of low investment in production.”

Elsewhere, McKinsey & Co expected the global energy mix to shift towards power, synfuels, and hydrogen rapidly and to make up 32% of the global energy mix by 2035 and 50% by 2050.

The company said crude oil demand is projected to “decline rapidly” only after 2030. McKinsey said natural gas will play a “pivotal role throughout the transition by its wide range of applications” with its demand projected to peak by 2035.

When researching the best energy stocks, it’s important to remember that analysts’ forecasts can be wrong. Remember that past performance does not guarantee future returns.

Always conduct your own due diligence before trading, looking at the latest news, technical and fundamental analysis, and a wide range of commentary. This article should not be used as a one-stop shop in your research.

Remember, there are no guarantees. Markets are volatile. Never trade more money than you can afford to lose.

FAQs

Are energy stocks a good investment?

The energy sector is vital to the global economy. The sector is undergoing change as oil and gas companies invest in ways to increase their share of renewable energy. Always conduct your own due diligence before trading, looking at the latest news, technical and fundamental analysis, and a wide range of commentary. And never trade more money than you can afford to lose.

Will energy stocks go up?

No-one knows for sure. Energy stocks enjoyed a good year in 2022. Elevated oil and gas prices helped companies post record earnings. However, market participants should remember that past performance does not guarantee future returns.

Should I invest in energy stocks?

The decision to invest in energy stocks is your own. Always conduct your own due diligence before trading, looking at the latest news, technical and fundamental analysis, and a wide range of commentary. Markets are volatile. Remember, never trade more money than you can afford to lose.

Markets in this article

XOM
Exxon Mobil Corp (Extended Hours)
116.12 USD
-2.83 -2.380%
GOOGL
Alphabet Inc - A (Extended Hours)
177.97 USD
-0.32 -0.180%
AAPL
Apple Inc (Extended Hours)
224.55 USD
-0.28 -0.120%
Oil - Brent
Brent Oil
81.894 USD
-2.153 -2.560%
MSFT
Microsoft Corp (Extended Hours)
437.55 USD
-3.84 -0.870%

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