Most analysts who make stock market predictions set them and then forget them. Few will publicly go back at the end of the year and review their forecasts, unless they happened to be spot on, in which case they'll want to trumpet their success.
However, I believe in full transparency. That's why I'm reviewing all my stock selections for 2019. Among the ones I called the five top energy stocks to buy last year, there was a mix of winners and losers.
My top natural gas stock, Antero Resources: A total decline of 68%
Natural gas driller Antero Resources (AR -2.34%) entered 2019 with high expectations. Because it had locked in the price for 100% of its natural gas output, the company expected to generate enough cash to grow its production by between 17% and 20% in 2019. Further, thanks to the monetization of some of its natural gas hedging contracts at the end of 2018 and the planned consolidation of its midstream entities, the company had started returning cash to investors via a $600 million share repurchase program.
Antero, however, would go on to produce abysmal results. While the price of both natural gas and natural gas liquids (NGLs) tumbled last year -- which put pressure on Antero's balance sheet -- the main issue weighing on the stock was its burdensome pipeline commitments. The company needs to keep growing its production to fill up its pipeline capacity agreements. Because of that, it's burning through cash to increase its output. The company is working to address that issue by targeting to sell up to $1 billion in assets in 2020. While Antero believes it will be able to satisfy its pipeline commitments by 2022, investors are losing confidence in the company's ability to create value.
My top utility stock, Brookfield Infrastructure Partners: A 51% total return
Brookfield Infrastructure (BIP 0.22%) -- which operates a portfolio of energy midstream, utility, transportation, and data infrastructure businesses -- delivered exceptional results in 2019. The company benefited from organic growth that came in above the high end of its 6% to 9% target range, as well as acquisitions. The transactions it closed during the year have it on track to exit 2019 with an annualized earnings run rate 17% higher than it was in mid-2018. Meanwhile, it has several more deals in the pipeline, positioning it to continue growing at an accelerated pace in 2020. Because of that, Brookfield Infrastructure stock could produce strong returns again this year.
My top midstream stock, Enterprise Products Partners: A 21% total return
Enterprise Products Partners (EPD 0.66%) generated a solid return for its investors in 2019. While the master limited partnership (MLP) underperformed the red-hot S&P 500, which gained 30% in 2019, it produced much higher total returns than the average energy stock.
Fueling its big year was the success of its expansion program. Earnings have risen 14% over the past year, which allowed the MLP to continue increasing its dividend. Meanwhile, it secured several more expansion projects during 2019, which should give it plenty of fuel to keep growing both its cash flow and distribution over the next several years. Because of that, Enterprise Products Partners appears poised to continue generating market-beating total returns.
My top oil stock, Occidental Petroleum: A total decline of 29%
Occidental Petroleum (OXY -1.59%) entered 2019 with renewed vigor. The oil and gas producer had just finished up its transformation program, which reduced its oil breakeven level to around $40 a barrel. Because of that, the company was on track to generate lots of cash, since oil started the year around $50 a barrel.
However, instead of cashing in on those rising oil prices, Occidental went out a paid a significant premium to buy rival Anadarko Petroleum. The move saddled the company with lots of debt and infuriated its investors, which is why its stock slumped. As a result, the company faces an uphill battle in 2020 because it's struggling to sell assets to pay down debt, and has an activist investor pushing it to make changes.
My top renewable energy stock, TerraForm Power: A 44% total return
TerraForm Power (TERP) produced excellent results in 2019. The renewable energy company improved the profitability of its legacy assets while continuing to acquire new ones, even as it firmed up its financial foundation. Because of that, TerraForm has lots of momentum entering 2020. Its earnings should continue expanding, which should enable it to increase its dividend once again. Meanwhile, it has plenty of financial flexibility to make more acquisitions, which could provide additional boosts to its cash flow in the coming year.
Picking a winning oil and gas producer is tough
My two worst-performing energy stock picks for 2019 were both oil and gas producers. While commodity price volatility played a role in their underperformance, the biggest factor driving their abysmal stock returns was poor management. In both cases, the companies are pursuing aggressive growth strategies that added heavy debt to their balance sheets, weighing on their share prices. The lesson here is to avoid energy companies being led by management teams who will pursue growth at all costs.
On a more positive note, I did well with energy companies that utilize lower-risk business models. Brookfield Infrastructure, Enterprise Products Partners, and TerraForm Power all primarily operate infrastructure that's backed by long-term contracts, which enables them to generate steadier cash flows. Those models have given them the funds to pay growing dividends as well as invest in expanding their portfolios. Because of that, I'm going to focus more of my attention in 2020 on picking energy stocks with similar qualities, since that should improve my odds of selecting winning investments.