“50 Ways” to Invest in the Energy Sector
December 29, 2023
A Note From Amanda: Energy prices have taken a breather this year… but tensions in the Middle East and attacks in the Red Sea promise to keep volatility alive and well. That’s no problem for our good friend Marc Lichtenfeld, the Chief Income Strategist of The Oxford Club. He’s bullish on the energy sector as a whole… and today, he shows you several ways to play the industry… even providing tickers.
Check it out below.
In 1975, Paul Simon released his big hit “50 Ways to Leave Your Lover.”
According to Simon, you could…
- Slip out the back, Jack.
- Make a new plan, Stan.
- Hop on the bus, Gus.
All with the goal to “get yourself free.”
I’ve been bullish on the energy sector for well over a year now. One of the things I like about the sector, besides the fundamentals – energy demand is increasing while supply is decreasing – is that, to borrow from Simon, there must be 50 ways to invest in the energy sector.
Just think about how many different kinds of energy are produced and consumed around the world. There are many oil and gas companies to invest in, and you can also buy coal stocks, utilities, renewable energy companies and many others.
The Energy Sector Has It All
Energy companies come in all sizes, from megacaps like Exxon Mobil (XOM), which has a market cap approaching half a trillion dollars, to small caps like Enservco (ENSV), a Colorado-based company that provides oil well services and has a market cap of just $7.5 million.
For long-term and/or conservative investors, there are many blue chip, quality companies, like Chevron (CVX) and the other oil majors.
For those who want to be paid a strong dividend every quarter, there are lots of master limited partnerships, like Sunoco LP (SUN), which yields about 6%.
Investors interested in renewable energy can look at, among others, Hannon Armstrong Sustainable Infrastructure Capital (HASI), which invests in solar, wind and other projects and sports a yield close to 6%.
For speculators, there is a wide variety of choices. There are lots of low-priced energy stocks that trade for around $5, like Vaalco Energy (EGY) and Uranium Energy (UEC).
And, of course, there’s one of the favorite tools of traders: call options. You can buy calls on many energy companies for less than $5, which enables you to control 100 shares of stock for each contract while greatly lowering the amount of capital you have at risk.
For example, let’s say you were interested in oil giant BP (BP), formerly known as British Petroleum. The $100 billion market cap stock trades for around $35, so if you bought 100 shares, it would cost you around $3,500.
If you thought BP was going to go on a run in the next few months, you could buy the March 2024 $36 calls for $1.41, which would let you control the same 100 shares for just $141. If the trade didn’t work out, the most you could lose would be $141. But if BP rose to just $40, you’d make a minimum of 184% (likely more if you sold before expiration) in just three months. And if BP climbed to $45, you’d be up a minimum of 538%.
The energy sector has something for every investor. So with apologies to Paul Simon, here’s my “50 Ways to Invest in the Energy Sector.”
- Pick up a stock low, Joe.
- Grab a blue chip, Kip.
- Buy a cheap call, Saul.
Incorporate one or more of these strategies into your investing, and you may just “get yourself [financially] free.”