If you're looking for great stock sectors to invest your money in 2022 and beyond, you've come to the right place. In this segment of Backstage Pass, recorded on Jan. 5, Fool contributor Jason Hall explains his investing thesis on the energy industry, reviews some compelling charts and statistics, and names his top stock in this sector for investors to take a second look at right now.
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Jason Hall: I'm going to cheat. I'm going to tell everybody right now I'm going to cheat. Here's the thing. Tech sector still had a good year. Last year, tech sector is the green one here, still up 34% for the full year. That's important to remember.
With that said, I think the energy sector has a good chance to be the strongest sector this year. The reason why is energy demand continues to grow. There has been massive underspend to develop oil and gas resources over the past half-decade. Obviously, it's set up a lot of the energy industry in a good position to be very profitable from here at our expense after the pump.
What I wanted to show everybody as further reasoning why. Is if you go back to the beginning of 2018, the energy sector, again, this is using the sector spider. This is the S&P 500 components of the oil and gas industry because the energy sector, that's all it is, is oil and gas stocks. It's not solar, it's not wind, it's nothing renewables at all, is still down 23%, guys.
Even after crushing it last year, it's still down at 23% which I just think is mind-numbing. It's a reminder of how far the industry has fallen. The beginning of last year was like 2% of the S&P 500. The whole industry was less than Apple.
It was just crazy. Anyway, here's where I cheat. I'm going to cheat because I'm going to recommend a technology company that's an energy company.
The energy industry is changing because so many of the companies that are involved in energy today that are going to be driving the future of energy are not energy companies because they don't do oil and gas in sectors are an old thing, and they don't work well when we have major disruptions and industries.
Right now, again, solar and wind, renewables, hydrogen, so many things that are happening in the energy industry are outside of the energy sector as far as S&P 500 is concerned. I'm going to recommend a company called Stem (STEM 4.63%).
Stem is a recommendation in at least one Motley Fool service. Stem is an AI-powered cloud software provider. If those buzzwords sound familiar, they should because some of our favorite companies are providing cloud software and are using AI.
What Stem does, is help companies, whether it's a utility company that's making power, whether it's an industrial power user like a manufacturer or Amazon with all their distribution centers, all that kind of stuff, manage and most effectively get the best cost and also focused on things like carbon footprint.
So, Stem software does that. It's recurring revenue, very, very high-margin business, and they're the biggest. The second biggest is Tesla. Tesla doesn't really tell us the exact numbers, but we know Stem has more deployments. That says a lot about how good these guys are at it. What do they lead with?
They lead with selling batteries, and they lead with selling batteries as an agnostic commodity thing. They get a little bit of margin on the batteries, but then the idea from there is to use Athena to manage the ins and the outs of getting the power into it and then pushing the power out to use it or to push the power out to sell it back to the grid.
Or if you're a utility, using that to meet your demand, or if you have excess capacity right now from some production source, you store that energy. They do all of that. The AI learns and it gets better at it, and they're absolutely dominant in it.
They just made a recent acquisition, I want to just briefly highlight. I think it's really interesting. They acquired AlsoEnergy, which is a company that manages the solar assets.
It's really interesting and it's the acquisition that I love. I think that's why it's important to highlight is because it's an acquisition where you have a large pool of shared customers that you do different things for but the majority of your customers are not the same.
So 30% of their customers are overlapped, but they don't do the same thing, so they're not competing for the same business.
That's really, really powerful. I really like what Stem has recently done with this acquisition to grow their share of the market into something they don't necessarily already do.
I think it's also really compelling right now, the stock has absolutely been killed. It went public via a SPAC merger on April 28th is when that closed.
The stock from the high end shot way up after that and it's down by like 55% since then. I think it's a misunderstood business. I think it's a wonderful opportunity at scale.
It's going to be just a cash cow. I love it. Stem ticker, STEM. As soon I stop talking about it, I'm going to buy a bunch more.