Energy investors have had an ugly run over the past decade, with the oil industry going through multiple downturns that have destroyed billions in investor value. The ongoing coronavirus pandemic has amplified the struggles, and it's not a stretch to predict that the industry will never return to former heights.
But that shouldn't lead investors to ignore the energy industry as a source of wealth creation. In the midst of the turmoil, there are very real opportunities profit with the companies that are driving the future of energy. Three energy stocks worth buying right now include Brookfield Infrastructure (BIPC 2.38%) (BIP 2.23%), Clearway Energy (CWEN 5.62%) (CWEN.A), and Clean Energy Fuels Corp (CLNE 9.93%).
This leader in infrastructure is a great play on energy growth
Brookfield Infrastructure isn't a well-known company, since it owns natural gas and electricity distribution and transmission assets, along with transportation, telecommunications, and water infrastructure. In short, its a boring, easily overlooked business that often flies under investor's radar.
What it may lack in excitement, it has more than made up for in wealth-creation. Since going public about a dozen years ago, investors have enjoyed 540% in total returns, more than doubling the SPDR S&P 500 ETF Trust (SPY 2.64%) in returns over that period, largely on the back of a dividend it has increased 725%, paying investors a yield of 4.7% at recent prices.
Looking forward, I expect this winner will keep on winning. Its management has a long track record of allocating capital to deliver strong returns, and the growth of the global middle class, along with the need to modernize infrastructure in the developed world are massive tailwinds for decades of growth to come.
With interest rates at record lows, Brookfield Infrastructure is positioned to leverage its know-how during a massive growth period, with the lowest costs of capital in history. There may never be a better time to buy this company than right now.
The path forward just cleared up
Clearway Energy has been handcuffed over the past year by its biggest customer going through bankruptcy, leaving it with almost $170 million in cash at a subsidiary it could not access. The customer, Pacific Gas & Electric (PCG 4.88%), recently emerged, and now Clearway is moving quickly to put that money to good use.
First off, the company, which owns and operates wind and solar power generating assets and sells the electricity to utility customers on long-term contracts, is rewarding investors with a massive 49% dividend hike after having to reduce the paying after PG&E first filed.
Next, the company says it's going to use some of the cash, along with low-cost debt, to invest in a number of new assets that will grow its power production and cash flows even more. Sure, to some extent the market has already "priced in" the PG&E recovery. That's not why Clearway is worth buying today.
Instead, investors should focus on its now clear path forward; removing any risks to that cash, and the future cash flows from PG&E, will allow Clearway to focus fully on its path to continued growth. Investors would do well to buy shares now, and enjoy the nearly 5% dividend yield it will pay with the recent raise, and then enjoy what should prove to be many more years of dividend growth to come.
Don't ignore this easy-to-miss leader in alternative fuels
Clean Energy Fuels sells natural gas that's used for commercial transportation, and frankly, the second quarter of 2020 was brutal. Travel of all types came to a halt as the U.S. locked down in an attempt to slow the spread of the coronavirus. As a result, Clean Energy just reported a 10% decline in fuel volumes in the quarter, mainly from its transit customers that serve airports, and municipal public transportation like public buses.
Yet hidden in this decline, which was the company's first quarterly drop in fuel volumes in almost a decade, is the reality that the company's results held up pretty well, considering the environment. A big part of the reason why is management's efforts to get lean in recent years, and strengthen the balance sheet, putting the company in a position to weather the coronavirus storm. Management expects to end 2020 with no debt, and is on track to generate positive cash flow in the second half of the year.
Yet that's just surviving the pandemic. What makes Clean Energy Fuels worth buying is its prospects going forward. The company is the leader in renewable fuels for transportation, with it's "Redeem" branded renewable natural gas available at 550 stations, and easily its fastest-growing product. For truckers and fleet operators, it's the only zero-emission fuel that's commercially available for just about any application, including buses, refuse hauling, and heavy-duty trucking.
So while hydrogen and battery-electric truck companies get all the headlines despite not having any commercially available vehicles (and likely still being years away), Clean Energy is getting the trucker's business today. Now looks like a great time to buy shares.