Investing in the energy industry can be intimidating at first. The daily media cycle that explains all the various reasons oil and gas prices are changing can make it seem there's no way to know which way the market will go in the days and even years to come.
Here's the thing that most people on Wall Street won't tell you about the energy market: You don't have to be an expert at knowing where energy is going next. You just need to invest in quality companies that will generate value over the long term regardless of the price environment.
For those who may be dipping their toes into the energy market for the first time, we asked three of our contributors to highlight the one company they think should be at the top of the list for a first foray into the energy industry. Here's what they had to say.
Going on the offensive
Matt DiLallo: Most oil companies spent the oil market's downturn making defensive moves to protect their balance sheets. Canadian oil giant Suncor Energy (SU 2.89%), on the other hand, used its already solid balance sheet to go on the offensive, spending more than $6 billion on acquisitions. That strength in the midst of the storm is what makes Suncor a great energy stock to invest in for the long haul.
Through the combination of strategic transactions and investments in two major growth projects, Suncor is now in the position to boost its production from the 600,000 barrels per day it averaged last year up to 800,000 barrels per day in 2019. This production ramp-up will come at a time when projections suggest that oil prices will rebound, which should lead to an even bigger ramp-up in the company's cash flow.
Furthermore, despite all the wheeling and dealing, Suncor Energy isn't done shopping just yet. The company is in the process of raising funds to pare down its debt so it can continue to buy while prices are low. After bolstering its position in the oil sands over the past year, it has broadened its search for future deals, looking in both the Canadian Atlantic and the North Sea to expand its operations in these regions. Any future deal to strengthen its asset base at today's prices would put the company in an even stronger position to capture the upside to an improving oil market.
Suncor Energy has done a phenomenal job seizing opportunities to expand during the downturn. This aggressiveness has it poised to cash in as prices rebound.
Not your typical oil major
Sean O'Reilly: Many people believe that the energy industry essentially consists of oil and gas producers. However, the business sector that powers our world is so much more than wildcatting oilmen. It takes a lot to power civilization -- not just oil and gas. Solar, electricity distribution, wind, and biofuels are used today and will all play an increasingly important role in the decades ahead.
Investing in the energy industry, then, is tricky, as you could argue that we're at the beginning stages of an extremely disruptive period. Oil is becoming less important while solar and wind become more so. With all this change in the air, I believe I have the perfect way to bet on the energy industry in the 21st century: French oil major Total S.A. (TTE 0.67%).
In addition to being the one of the world's largest integrated oil majors, Total has been extremely farsighted, investing heavily in renewable-energy businesses. In addition to owning net proven oil reserves of 5.6 billion barrels and 32.2 trillion cubic feet of natural gas as of 2015, it also happens to be the majority owner of leading solar player SunPower, of which it owns 56.92%. Also, late last year, Total announced that it will be investing $500 million per year in renewable energy for the foreseeable future, particularly in biofuels and solar. This development, coupled with Total's increasingly large focus on natural gas through some major LNG projects in the wings, makes it a compelling investment, ideally suited for the changes likely to occur in the decades ahead.
Slow and steady wins the race
Tyler Crowe: Finding a company that can weather the ups and downs of the oil and gas market isn't easy when the prices of these two commodities is pretty much the lifeblood of the industry. To do so, a company needs to have a business model that insulates itself from commodity price swings and a management team focused on smart capital allocation over the long term. One company that's displayed these two traits in spades over the past couple of decades is Enterprise Products Partners (EPD 1.09%), and there's a good chance it will continue on that track for years to come.
As a midstream service provider with one of the nation's largest networks of natural gas and LNG logistics and infrastructure networks, Enterprise is able to pull levers in multiple parts of its business to generate profits during all parts of the oil and gas industry cycle. Over the past couple of years, as oil and gas prices have lost more than half their value, Enterprise has grown its EBITDA. Also, unlike so many other midstream companies, where management teams stretched the limits of balance sheets and cash flows, Enterprise has kept a much more modest approach to growth that has allowed it to produce slow but steady increases in its payouts to shareholders. Its most recent increase marked the 48th consecutive quarter of doing so, putting it on track to be a Dividend Aristocrat in the coming years.
If you're going to own only one stock in energy, you want one you can depend on for growth throughout the industry cycles. Enterprise, as one of the very few that can grow like that, makes for a great initial investment in the industry.