New Opportunities in Energy Investment: Analysis of Top US Stock Companies

In 2022, Europe decided to impose a windfall profit tax of up to 25% on energy companies, reflecting a profound transformation in the global energy market. The combined effects of the pandemic, trade conflicts, and geopolitical tensions have propelled energy to become a strategic resource influencing economic stability. For investors, this presents both risks and opportunities—the structural upward trend in the energy sector offers a rare window for selective investment.

The Deep Logic Behind the Rise of Energy Stocks

The strong performance of energy stocks, continuing from 2021 to the present, is driven by three core factors:

Fiscal Stimulus and Inflationary Pressures

Massive economic stimulus measures by governments post-pandemic have released significant liquidity. The resulting inflation pressures and shortages of materials have boosted energy demand. This expansion on the demand side directly leads to higher energy prices, forming the basis for increased profitability in energy stocks.

Geopolitical Shocks

The outbreak of the Russia-Ukraine conflict disrupted the existing global energy supply chain. Russia, Europe’s largest natural gas supplier, had its gas pipelines through Ukraine cut off, causing tight natural gas supplies and soaring prices in Europe. This regional energy crisis quickly spread to global markets, altering the supply-demand balance of natural gas worldwide and raising the overall pricing level in the energy market.

Reshaping the US Energy Position

As the world’s largest energy consumer and producer, the US has significantly increased its self-sufficiency through large-scale shale oil and gas extraction, while expanding energy exports. The dual role of the US dollar as an international reserve currency and as the pricing currency for oil gives it a unique influence in the global energy market.

Investment Logic of US Crude Oil

In terms of crude oil varieties, US crude oil(USOIL) is more attractive than Brent crude oil. Although both are international benchmark prices, they differ in regional representation—Brent reflects Europe, the Middle East, and Africa, while US crude represents supply from the Western Hemisphere.

Two main reasons for choosing US crude oil:

First, after global inflation and geopolitical conflicts, the US economy’s recovery ability is evidently stronger than Europe’s. Economic development relies on energy support, and robust economic growth will inevitably drive energy demand and enhance pricing power. Second, since 2021, US energy supply to Europe has surpassed Brent crude oil supply. As US crude further penetrates the global market, its pricing power continues to rise, while Brent’s pricing power diminishes. Overall, US crude oil has far better growth prospects than Brent.

Stability of Traditional Energy Giants

US Electric Power(AEP.US)

US Electric Power is the largest integrated power generation, transmission, and gas company in the US, headquartered in Columbus, Ohio. The company has a capacity of 42 million kW, 38,000 miles of transmission lines, 186,000 miles of distribution lines, reserves of 12.8 billion cubic meters of natural gas, and operates 6,300 miles of natural gas pipelines. Its extensive logistics include 7,000 tank cars and 1,800 barges, producing 10 million tons of coal annually, serving over 5 million customers across seven northeastern states and four southern states.

Ohio experienced extreme freezing rain in February 2021, causing the Texas power grid collapse and bankruptcies, serving as a cautionary tale. The reason why US Electric Power remains promising is that its ample self-owned fossil fuel supplies limit the impact of external energy price increases, keeping power costs controllable and ensuring stable profitability. Additionally, its stable customer base and controllable costs provide reliable electricity support for the US high-end manufacturing recovery in 2023.

ExxonMobil(XOM.US)

ExxonMobil is the largest US and one of the top global oil companies, occupying a leading position among listed international energy firms. The company has industry-leading resource reserves, with global exploration and production in 30 countries since the 20th century, producing over 128 million tons of oil and natural gas annually, and selling more than 265 million tons of petroleum products in over 75 countries.

As the world’s largest petrochemical enterprise, ExxonMobil sells over 17 million tons of petrochemical products annually in more than 100 countries, with a combined cogeneration power capacity exceeding 7,500 MW, making it one of the largest independent power producers globally. The company also operates the world’s largest export coal mines and owns multiple mineral resources in the US, Australia, and Chile. These data confirm its unshakable position as a leader in traditional fossil fuels and make it the top choice for energy investment in 2023.

Duke Energy(DUK.US)

Duke Energy was founded in 1899, with a history of 124 years, and has grown through multiple industry consolidations. The company has an annual power generation capacity of nearly 20,000 MW, controls 12,000 miles of interstate pipelines, and serves over 11 million people across five states.

Notably, Duke Energy has laid out in liquefied natural gas (LNG) supply, power plants, and energy transmission in Australia and Latin America, along with active expansion in Europe and continuous growth in its domestic renewable energy business. These diversified operations lay a foundation for future revenue growth.

Leaders in the New Energy Sector

NextEra Energy(NEE.US)

If ExxonMobil represents the peak of traditional fossil energy, then NextEra Energy(NEE.US) is undoubtedly the leader of the global new energy era. The company’s energy portfolio includes four main sectors: wind power, solar power, nuclear power, and natural gas sales.

Among these, wind power benefits from the unique geographical advantage of the US Midwest (average wind speeds of 7 m/sec), maintaining sustained competitiveness. Its subsidiary FPL serves 11 million people and 5.6 million customers in Florida, contributing one-fifth of the company’s revenue; NEECH (independently listed in 2018) focuses on wind and solar, accounting for seven-eighths of revenue, making it one of the world’s largest wind and solar power companies.

The bullish case for NEE is based on two points: first, the world is entering an accelerated new energy phase— the EU has committed to a 35-year ban on fuel vehicles and a shift to new energy, coupled with ongoing geopolitical conflicts that boost energy independence awareness worldwide, making clean energy expansion inevitable. Data from 2021 show that wind and solar have become the fastest-growing power sources, accounting for a record 10% of global electricity generation, with clean energy generation accounting for 38%. Second, NEE has early-mover advantages in wind and solar, and despite more extreme climate events in 2022 and global energy-saving efforts, it still possesses sustained growth potential.

It is worth noting that as major countries worldwide enter the clean energy market, rising polysilicon raw material prices pose construction cost pressures for photovoltaic plants. However, the cost suppression from giants’ expansion efforts is expected to offset this impact, with global polysilicon production reaching 536 GW by the end of 2023.

Lithium Americas(LAC.US)

Lithium Americas focuses on lithium resources. Although it does not engage in traditional fossil fuels or clean power generation, its strategic position in the current and future energy industry makes it an energy investment.

Headquartered in Canada, it owns two brine resources in northwest Argentina and clay resources in Nevada, USA, planning to fully integrate these three resources and sell to the lithium chemical market. While its scale is not yet comparable to competitors, as the US advances its electric vehicle replacement process as the world’s largest auto market, the scarcity and price of lithium resources are expected to explode, leading to a “Davis double play” in industry and company valuation.

Western Oil Company(OXY.US)

Western Oil(OXY.US) was founded in 1920, headquartered in Los Angeles, California. It is the fourth-largest oil and natural gas company in the US, with operations across the US, Middle East, North Africa, and South America.

In May 2019, the company acquired Anadarko Petroleum for $59 per share in cash plus 0.2934 shares of its own stock, totaling $38 billion, further expanding its footprint. This acquisition was supported by Warren Buffett’s continued increased holdings, reflecting market recognition of its long-term value.

Risk Assessment for Energy Stock Investment

Investing in energy stocks indeed involves higher risks than other sectors, requiring investors to be fully aware:

Cyclical Risks: The oil and gas industry has obvious cyclical characteristics; investors must endure fluctuations between prosperity and recession.

Price Volatility: Oil and gas prices are core factors affecting stock valuations, beyond corporate control. For example, the March 2020 Saudi-Russia oil price war caused a global crash, and the subsequent surge after the Russia-Ukraine conflict in February 2022 led to significant gains in energy stocks, demonstrating the impact of price swings.

Exploration Uncertainty: Exploration of oil and gas is inherently unpredictable. From purchasing exploration rights, geological testing, to drilling and production, the process is fraught with uncertainties, and failures can lead to huge losses.

Environmental Pressure: Fossil fuel production, transportation, and combustion emit greenhouse gases. Governments worldwide are pressuring companies to reduce carbon emissions, which could weaken demand for oil and gas in the long term.

Summary of Investment Recommendations

Generally, larger-scale energy companies tend to have lower risks. The seven companies mentioned cover traditional fossil fuel giants, clean energy leaders, and emerging energy enterprises, each with unique features.

From a short- to medium-term perspective, stocks related to traditional fossil fuels, due to their mature technology and markets, are better suited to help investors seize current opportunities; emerging energy stocks require more time and patience. Regardless of the choice, a thorough understanding of the cyclical nature and risk factors of the energy sector is fundamental to prudent investing.