50 Ways to Invest in the Energy Sector
In 1975, Paul Simon released his big hit “50 Ways to Leave Your Lover.”
According to Simon’s suggestions, 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 declining – is that, to borrow from Simon, there must be 50 ways to invest in the energy sector.
Just think about the different kinds of energy that are produced and consumed in the world. While there are many oil and gas companies to invest in, 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 (NYSE: XOM), with a market cap approaching half a trillion dollars, to $8 million market cap Enservco (NYSE: ENSV), a Colorado-based company that provides oil well services.
There are many blue chip and quality companies, like Exxon Mobil and the other oil majors, for long-term and/or conservative investors.
For those who want to be paid a strong dividend every quarter, there are lots of master limited partnerships, like Sunoco LP (NYSE: SUN), which yields about 7.5%.
Investors interested in renewable energy can look at, among others, Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI), which invests in solar, wind and other projects and sports a yield above 5%.
For speculators, there is a wide variety of choices. There are lots of low-priced energy stocks that trade for under $5, like Vaalco Energy (NYSE: EGY) and Uranium Energy (NYSE: UEC).
And, of course, one of the favorite tools of traders: call options. You can find many calls 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 (NYSE: BP), formerly known as British Petroleum. The $120 billion market cap stock trades for around $40, so if you bought 100 shares, it would cost you around $4,000.
If you thought BP was going to go on a run in the next few months, you could have bought the October $41 calls for $2.92, which would cost you only $292 to control the same 100 shares. If the trade didn’t work out, the most you could lose would be $292. But if BP rose to just $45, you’d make a minimum of 37% on your money (likely more if you sold before expiration) in just six months. And if BP climbed to $50, you’d be up a minimum of 208%.
The energy sector offers 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, and you may “just get yourself [financially] free.”