Heightened tensions in the Middle East may be easing...or not. Oil prices may be heading downward in response...or not. You should react accordingly...or not. 

The stock market hates uncertainty, and right now, there's a lot of it in the oil patch. Even before the current Middle East tensions ratcheted up, concerns about global oil oversupply had energy investors concerned about what 2020 might bring.

So it should come as no surprise that my top energy stock picks right now aren't big integrated oil majors with direct exposure to current geopolitical events. Instead, investors may want to consider Kinder Morgan (KMI 0.40%)Tellurian (TELL -3.35%), and TerraForm Power (TERP). Here's why.

A man's hand holds a light bulb with different energy symbols around it.


Back in good graces

Investors have good reasons to be skeptical of North America's largest natural gas pipeline network operator Kinder Morgan. In 2015, to shore up its balance sheet, the company slashed its dividend by 75%, which sparked a massive stock sell-off.

Since then, the company has made progress on getting its house in order, including reducing its debt load by 19.3%, from more than 8.7 times EBITDA to 5.3 times EBITDA today.

It has also doubled its dividend -- now yielding 4.4% -- since 2017. There's certainly still more progress to be made, but Kinder Morgan has a plan to further reduce debt through a couple of asset sales, and management has announced its intention to boost the dividend by an additional 25% this year. 

Investors seem to be coming around to the stock; shares have increased by 66% from their post-dividend-cut low, including a 37.7% increase just last year.

In spite of this, Kinder's valuation is still at the low end of its historic range, with an enterprise value-to-EBITDA ratio (a better metric than P/E for infrastructure companies because it strips out depreciation) of just 12.3. A low valuation coupled with an improved financial profile makes Kinder looks like a buy this January. 

A speculative play

The idea of liquefying and transporting natural gas by ship has taken off over the past 10 years. Thanks to the natural gas boom in the U.S., several companies are racing to construct LNG liquefaction and export facilities. One such company is Tellurian. 

Tellurian's a tough company to evaluate. It's still in the early stages of its plan to build a pipeline, liquefaction, and export terminal complex called Driftwood LNG. While it's already obtained the necessary regulatory permits, it's still looking for additional partners to help it finance the project and sign supply agreements.

CEO Meg Gentle and her management team have already inked a deal with French oil major Total for 1 million metric tons of gas per annum (mtpa) from Driftwood, and has reached a Memorandum of Understanding with India's Petronet for another 5 mtpa. If that deal is finalized, as is expected, Tellurian will be 4 mtpa short of its goal of 10 mtpa in commitments that would allow it to begin construction. 

In a mid-December interview with S&P Global Platts, Gentle reported that Tellurian was negotiating a $2 billion deal with an unnamed potential partner for that entire 4 mtpa of supply. Obviously, there's no guarantee this deal will come through, but if it does -- or if other partners step up to the plate -- the company's share price is likely to see an immediate jump. 

That said, even under the most optimistic scenario, Driftwood won't begin exporting LNG until 2023, which means an investment in the company involves quite a bit of risk.

However, for patient investors who can handle a bit of uncertainty in their portfolio, Tellurian looks like a good choice to try to get in on the ground floor of the LNG export trend. 

A big renewable yielder

In late 2017, the capable managers at Brookfield Asset Management bought a controlling stake in solar and wind farm operator TerraForm Power. And manage it capably they have: in 2019, TerraForm's shares rose by 37%, thanks to a number of savvy business moves.

However, even though the share price is up, the company's valuation is still near the low end of its post-Brookfield range, at an enterprise value-to-EBITDA ratio of 18.2. With a current yield of 5.2%, the company may not be a screaming bargain, but it looks at least fairly valued. 

There's always the possibility that the management team at Brookfield could suddenly lose their mojo, but the solid performance seems poised to continue, with at least 150 megawatts of acquisition opportunities being actively pursued in Europe, and numerous other potential projects on the radar screen. 

For those interested in a high-yielding renewable energy investment, TerraForm looks like a buy to me.

Going beyond the oil majors

While "energy industry" is sometimes used as shorthand for the biggest integrated oil companies in the world, there's a lot more to energy than just those industry giants. Whether you're interested in reliable dividend payers or speculative smaller investments, you can find interesting companies like Kinder Morgan, Tellurian, and TerraForm elsewhere in the industry.