Now is a good time to consider investing in energy stocks. Though strengthened oil prices have pushed energy stock prices higher, they still look attractive compared to the broader market as well as their own historical valuations. That also means you could pick up even the top energy names at attractive prices. Here are three top energy stocks to consider buying right now.
Chevron
If you are looking to invest in the energy sector, it is important to remember that oil and gas stocks could be volatile, moving in tandem with the prices of these commodities. The best way to gain exposure to the sector is to select top stocks with diversified operations and a strong balance sheet. One such stock is Chevron (CVX 1.04%).
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Chevron may not produce eye-popping returns, but it generates a steady dividend income, and you need not stress much about the safety of your invested capital. Chevron incurred a record loss last year, but that was attributed to the unprecedented drop in oil prices caused by throttled demand due to the coronavirus pandemic.
CVX Net Income (TTM) data by YCharts
With improved demand and oil prices, the company should soon start churning out cash, as it has been doing for years. Chevron has raised its dividend for 34 consecutive years. What's more, Chevron's debt-to-capital ratio of 25% is the lowest among its top peers. That makes it one of the best oil stocks to buy for the long term.
TC Energy
The second energy stock to consider buying right now is that of Canadian pipeline company TC Energy (TRP 0.50%). The company has grown its dividend for 21 years in a row. TC Energy's extensive asset footprint and its stable cash flow contributed to the steady growth in its dividend over the years. Recently, the uncertainty surrounding TC Energy's controversial Keystone XL pipeline project also came to an end, with the company announcing the decision to terminate the project.
TRP Cash from Operations (Quarterly) data by YCharts
The move came after President Joe Biden reversed an executive order issued by former President Donald Trump that allowed the pipeline to go ahead. TC Energy has commenced a claim under North American Free Trade Agreement (NAFTA) of $15 billion in damages resulting from the revocation of the permit. TC Energy stock has fallen nearly 11% since it announced terminating the project, though it is still up 16% year to date.
Although Keystone XL would have been a great addition to TC Energy's assets, the company still has 20 billion Canadian dollars of growth projects on which it is working right now. Additionally, it has CA$7 billion of projects under development, some of which would ultimately add to its projects' pipeline. The decision on Keystone XL removes the long-standing uncertainty surrounding it and will allow TC Energy to focus on other projects. Getting new pipelines built has become increasingly challenging due to regulatory hurdles and opposition. That, however, also means existing pipeline capacity is ever more valuable.
Overall, dropping the Keystone XL project doesn't change attractiveness of TC Energy stock. In fact, the recent dip makes it more attractive.
First Solar
The third stock on the list is renewable energy stock First Solar (FSLR -1.39%). The solar panel manufacturer generates peer-leading margins.
FSLR Gross Profit Margin data by YCharts
As the above graph shows, First Solar generated higher income than peers, despite lower revenue in the latest quarter. First Solar has exited the solar projects development business and is focused solely on panel manufacturing. The company increased its manufacturing capacity from 6.3 gigawatts (GW) per year at the end of last year to 7.9 GW at the end of the first quarter. It plans to expand capacity to 8.7 GW by the end of this year. Its solar panels are among the best available in the thin-film market segment, helping it to command premium pricing. Another positive of First Solar is its strong balance sheet.
First Solar stock is down roughly 16% year to date as of this writing. Solar stocks in general have seen some correction this year, as investors booked profits after their spectacular rise in 2020. First Solar stock's fall this year provides an attractive entry point for long-term investors. At a forward P/E ratio of just 20, the stock is one of the best bets in the rapidly growing renewable energy segment right now.
