The S&P 500 is currently penciled in for a 14% gain (including dividends) for 2014. While that's a far cry from the 32% gain investors enjoyed in 2013, there's no denying that the past 12 months were good to investors. However, energy investing has been complicated at the end of the year, especially for oil producers, as year-to-date gains heading into the fourth quarter quickly turned to losses. Of course, we at The Motley Fool like to invest in great companies for the long term. So while global energy markets were pitched quite the curveball heading into 2015, it doesn't mean great opportunities don't exist. Here's what some of our top energy analysts are excited about for next year.
Tyler Crowe: How can anyone not be excited when there are so many great companies in the energy space at steep discount prices?
OK, perhaps I need to qualify that for a bit. Oil prices have taken a massive plunge, and the share prices of many energy companies have gone with it. Those who have owned shares in these companies probably feel as if they have lost their shirt -- and possibly their sanity.
That being said, when we look at this situation from a very long-term time horizon, we can see that many of the weaker players in the oil market, both domestic and abroad, can't turn a profit at today's price. Eventually, these unprofitable barrels will be forced out of the market, and the price of oil will probably go up again as global demand increases, driven primarily by developing nations. When this does happen, the more solid, profitable companies today will be in a great position to take advantage of that situation.
Knowing that this will probably happen in the future -- after all, it has happened many, many times before -- those who have the stomach can get in on some of those great energy companies at a price considerably lower than just a few months ago. This isn't the best strategy for everyone, but those with a very long investment time horizon should give serious consideration to buying energy stocks today.
Maxx Chatsko: I really like synthetic biology pioneer Amyris (NASDAQ:AMRS) for a long-term, high-growth stock, and I'm excited for the progress to continue in 2015. It should begin to catch the eye of a larger number of investors next year. Why?
The company wields the best organism engineering platform in the industry (keeping development costs low), has a wholly owned production facility in Brazil, and has more than 20 molecules in development. In addition to producing the renewable hydrocarbon farnesene -- which can be processed downstream into a variety of chemicals ranging from jet fuel to cosmetic ingredients -- and a supplementary version of the fragrance patchouli oil, Amyris has over 20 unique molecules in the pipeline and plans to commercialize two to four every year.
While Amyris will need to hold one more debt offering next year before it reaches profitability in 2016, it's likely that the next fundraising will allow the company to complete its second manufacturing facility in early 2016. Already half-completed, it's twice the size of the first facility and is expected to have most of its capacity sold to tire manufacturers for performance materials, which alone could add over $100 million in annual product revenue by 2017.
And since many of Amyris' products are derived from farnesene, it reaps benefits across its portfolio. So when partner Total SA makes improvements to yeast strains for more efficient manufacturing of jet fuel, Amyris reaps the benefits when manufacturing cosmetic ingredients, too. With farnesene production costs expected to fall to $2.50 per liter next year (the average selling price for all molecules is roughly $10 per liter), Amyris simply needs to continue to develop markets to enable capacity expansion and realize its growth potential.
Matt DiLallo: Despite the drubbing in the oil markets this year, I'm still a long-term bull on U.S. shale. Because of this long-term outlook, I'm really excited to go bargain hunting for beaten-down shale producers in 2015.
The one stock that I've had my eye on for a while is Concho Resources (NYSE:CXO). The only thing I hadn't liked about the company was its valuation, which was a little too rich for my tastes. I thought its enterprise value to EBITDA multiple, which was in the mid-teens at the time, was just too high for an oil company, even one growing as fast as Concho.
That richness, as noted in the above chart, has been eroded away to a much more compelling low single digit multiple.
I'm really excited about the potential of this Permian Basin-focused driller. It is absolutely loaded with oil-rich growth opportunities and is sitting on resource potential that is estimated to be upwards of 3 billion barrels of oil equivalent. This is really low-cost oil, too, as the company's unhedged cash margins had been hovering around 75%, or nearly $50 per barrel of oil equivalent at the end of the third quarter. While those margins are being squeeze by falling oil prices, the company has a large margin of safety to endure even lower oil prices.
That said, the price of oil hasn't seemed to find a bottom yet, so I'm still waiting to see how things shake out before buying Concho Resources, or any other shale driller on my watch list. However, that doesn't mean I'm not getting excited about bargain shopping in 2015.
Travis Hoium: Next year could be a transformational year for energy. We could see a global peak in coal consumption, oil demand could continue to be weak despite lower prices, and renewable energy will continue to disrupt the way we think about energy.
From an investment perspective, we have to start thinking about energy in ways we never have before. Just because a commodity like coal, oil, or natural gas falls in price doesn't mean demand will rise, which has always been the case if you're willing to wait long enough. Instead, low prices may be a sign of fundamental weakness in commodities, making these investments far riskier.
I'll continue to bet on the long-term trends that have seen fossil fuel demand fall in developed nations, in favor of renewable energy. Wind and solar energy is now competitive with fossil fuels in most of the world, and that should lead to an installation boom, leading to more price pressure on fossil fuel commodities.
This situation creates an exciting investment opportunity for renewable-energy stocks. My top picks are SunPower, Vivint Solar, and SunEdison, who are all taking advantage of renewable energy's increasing competitiveness. I'd shy away from anything related to coal and even be wary of oil stocks for the same reasons. The rules of energy are changing and that's an exciting development for 2015.
Matt DiLallo and Tyler Crowe have no position in any stocks mentioned. Maxx Chatsko owns shares of Amyris. Travis Hoium owns shares of Amyris, SunPower, and Total and has options on SunPower. The Motley Fool recommends Total. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.