5 Stocks to Profit From the World's Insatiable Thirst for Energy

The United States of America has a reputation for having an insatiable appetite for the rest of the world's energy. We drive big, gas-guzzling SUVs with just one passenger inside, think nothing of leaving the lights on around the house, and expect the rest of the world to provide this energy cheaply, so we don't have to start thinking about where it comes from.

But we now have increasing competition in energy gluttony, as the massive populations of India and China join the middle class. No matter how you slice it, energy is getting more expensive -- it's just a matter of how you want to play the trend.

Black gold
If you think the days of $2-a-gallon gas will ever return, I have some swampland in Florida I'm willing to sell you.

China's auto sales grew 32% last year to 18.1 million units. That's great news for General Motors and Ford (NYSE: F  ) , who are increasing sales in the country, but bad news for everyone buying gasoline. Oil is a global commodity, and even if we "drill, baby drill" off our own shores, it won't balance supply and demand.

Domestic oil play Kodiak Oil & Gas (AMEX: KOG  ) should be able to capitalize on the higher prices as production ramps up. Positive production data, as well as the rising price of oil, has kept this stock on a roll over the last six months.

The other black gold: Coal
If you thought brownouts in California were bad during summer months, you may want to stay away from China for the next few months. The fast-growing country is having trouble keeping up with power demands, and it may fall a whopping 30 gigawatts short of demands this summer. The country's overall electricity demand is projected to increase 12% to 4.7 billion megawatt-hours. To put that in some physical perspective, that increase would require China to install 109,348 1.5-megawatt wind turbines to keep up with demand.

While the U.S. and even China talk about reducing the greenhouse gasses that coal emits, coal powers one of the only kinds of electric plants that can be built quickly enough to meet demand right now. Maybe in 10 or 15 years, alternative energy will be able to pick up the slack. For now, coal is the best we've got.

That's OK for coal giants Arch Coal (NYSE: ACI  ) and Peabody Energy (NYSE: BTU  ) . Whether demand comes domestically or internationally these companies will benefit from higher prices.

Natural gas
Yesterday, Bloomberg reported that hedge funds had increased their bullish bets on natural gas over the last three months. That's no surprise, with everyone trying to find alternatives to oil and new nuclear power generation all but on its deathbed. If it weren't for the potential to increase supply domestically, I would say that natural gas couldn't go anywhere but up.

ExxonMobil (NYSE: XOM  ) and Chesesapeake Energy (NYSE: CHK  ) are the No. 1 and No. 2 producers of natural gas in the U.S., respectively. If natural gas prices go higher, as hedge funds expect, shareholders should cash in on the run-up.

But the exciting development in natural gas is happening in the transportation sector. Clean Energy Fuels (Nasdaq: CLNE  ) is building a fueling infrastructure throughout the country for buses, trucks, and passenger vehicles. Compared to oil, natural gas is cleaner, cheaper, and can be produced domestically. With transit authorities already making the switch, could your vehicle be far behind?

The Foolish bottom line
Unless China, India, and the U.S. go into another massive recession, energy demand will only increase over the next 10 years. That means prices of oil, coal, and natural gas will likely keep climbing. What do you think is the best way to invest in higher energy prices? Let us know in the comments below.

The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies, including the stock Fool analyst David Lee Smith calls the "energy king." To get instant access to the names of the three oil stocks, click here -- it's free.

General Motors is a Motley Fool Inside Value recommendation. Ford Motor is a Motley Fool Stock Advisor pick. The Fool owns shares of ExxonMobil and Ford Motor. Alpha Newsletter Account, LLC owns shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2011, at 2:31 PM, golf1224 wrote:

    Would you increase your positions of Kodiak Oil & Gas now or hold current positions?

  • Report this Comment On May 05, 2011, at 4:54 PM, BuckCreek wrote:

    I would buy more KOG on weakness.

  • Report this Comment On May 10, 2011, at 12:16 PM, MCrawley1970 wrote:

    I read recently that Chevron had invested approximately $600 million into research dealing with biofuel production using a genetically engineered species of algae. Do you think fuel production of this kind has any real promise?

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