The energy industry continues to be overlooked by investors chasing growth. But the industry is steadily growing, and profitability is improving for a lot of the industry's biggest names.
There is a range of good values today, and I think Xcel Energy (XEL -1.91%), First Solar (FSLR 2.12%), and ExxonMobil (XOM -2.78%) should be at the top of every investors' list in November.
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A utility to count on
Utility stocks aren't particularly exciting for many investors, but that's kind of the point. Utilities provide a necessary service and generate steady returns, often regulated by the government.
One of the biggest utilities in the U.S. is Xcel Energy, and the company just continues to churn out profits and dividends. A majority of the company's business is in regulated utilities in the Midwest, Colorado, Texas, and New Mexico. You can see in the chart that revenue, net income, and dividends paid continue to rise slowly but surely over time.
XEL Revenue (TTM) data by YCharts
Unlike some utilities in the U.S., Xcel's operating areas are more insulated from the disruption of rooftop solar and renewable energy, partly because the company has spent a lot of money building out its own renewable energy assets. Given the company's P/E ratio of 19 and a dividend yield of 3.4%, this is a utility worth buying and holding for the very long term.
The solar energy leader
First Solar is the one solar energy stock that hasn't fallen apart in the last six months, and for good reason. The company is a differentiated solar panel manufacturer -- making thin-film solar panels -- and serves primarily the utility-scale market, which isn't as volatile as residential solar. It has also helped that the company has the most manufacturing capacity in the U.S., benefiting from the Investment Tax Credit to the tune of $670 million to $700 million in 2023.
FSLR Revenue (TTM) data by YCharts
You can see in the chart that First Solar hasn't been much of a growth company, and a lot of the recent profit is from tax subsidies. But that's about to change. The company is increasing production from between 11.8 GW and 12.3 GW in 2023 to 25 GW in 2026, with capacity expansions continuing to be announced. And 81.8 GW of future sales have been booked as of the end of October 2023, so there are years of demand for the product.
First Solar will continue to churn out cash, and that's why it's a top energy stock today.
Big oil gets bigger
The reality in the oil business today is that companies and investors know this isn't a growth business long term. Electric vehicles are taking market share, and that's going to hurt oil demand eventually. The resulting impact is less money being invested in new wells, despite strong free cash flows from many oil companies today.
XOM Free Cash Flow data by YCharts
I think this trend bodes well for ExxonMobil's cash flows and dividend long term, and investors are getting a great price for the stock. Shares currently have a 10.5 price-to-earnings multiple, and the dividend yields 3.6%. We're not seeing a drop in oil consumption yet, and given the higher-interest rate environment, I think it will be more difficult to finance large exploration projects, pushing oil prices higher long term.
All of this bodes well for ExxonMobil's long-term cash flow growth and the dividend per share. Oil exploration isn't without risk, but being one of the biggest players in the industry with exposure to multiple geographies and end markets means this is one of the best ways to get exposure to the oil industry for a good price right now.
Energy stocks with tailwinds
Each of these stocks has tailwinds of its own. Utilities will continue to see demand growth as EVs and other electric devices add demand to the grid, solar installations are growing worldwide, and oil demand isn't drying up anytime soon.
