Over the last few years, the energy industry has shown quite a lot of volatility due to several reasons, including but not limited to, a pandemic followed by tense geopolitical conditions. Fossil fuels were one of the most important commodities in the world up until 2012. After that, the installation of renewable energy electricity generation capacity has outpaced the fossil fuel plants.
Over the last five years, the spending on renewable energy has also exceeded fossil fuel investments as the International Energy Agency estimates that total energy sector investments will reach around $2.8 trillion in 2023 and around $1.7 trillion of it will be spent on renewable energy.
Fossil Fuels Outlook
Fossil fuels were the favorite stocks among investors in 2022 as Big Oil was able to rack up around $200 billion in profits last year and paid around $110 billion to investors in the form of dividends and share buybacks. However, the current year did not look favorably toward the oil and gas sector. In Q2, companies such as Shell plc (NYSE:SHEL) and TotalEnergies SE (NYSE:TTE) reported 56% and 49% declines in profits, respectively.
The third quarter was promising for global crude oil prices due to the production cuts by OPEC countries and hit record per barrel prices for the year. The price of Brent Crude oil averaged slightly above $80 in July, $86 in August, and $94 per barrel in September. Marathon Petroleum Corporation (NYSE:MPC) was one of the companies that benefited the most from the surge in oil prices and is also the fourth biggest gainer of the S&P 500 in the last three months.
However, in the first week of October, the high per barrel prices led to a decline in demand as we previously predicted, and the U.S. crude oil experienced its biggest weekly loss since March. Despite these fluctuations in the oil price, the US Energy Information Administration (EIA) predicts that Brent Crude oil per barrel price will average at around $84.09 and will be much higher in 2024 at $94.91.
In the long run, the International Energy Agency (IEA) sees the fossil fuel demand drop by 25% by 2030 and 80% by 2050. The Institute of Energy Economics and Financial Analysis said in one of its reports that the oil and gas sector’s “fall has been long in the making.” It further added that the oil and gas sector covered around 29% of the S&P 500 in 1980 and is down to 5.3% today.
The Global Race Toward Net-Zero
The renewable energy sector faced some problems due to the inflationary pressures which led to higher borrowing rates and lower-than-expected investments. Even though the apprehension of inflation is still there, it is not as bad as last year. According to BloombergNEF data, global renewable energy investments were up 22% year-over-year in the first half of 2023 and reached $358 billion.
The developed countries are transitioning toward renewable energy quicker than expected. In 2022, the US made $141 billion worth of investments in the sector and renewable energy accounted for 43% of the country’s global energy mix. France has also recently announced the fast-tracking of its renewable energy capacity and plans to double it by 2035. Bloomberg Law reported that the country is targeting an additional 140 to 175 gigawatts of renewable capacity by that time.
According to an IEA report posted in December 2022, renewable energy is forecasted to account for 90% of global electricity expansion over the next 5 years, and by 2025, it will surpass coal to become the largest source of electricity generation. Furthermore, IEA Executive Director, Fatih Birol, said that the amount of renewables added to electricity systems in 2023 will break records. He further added:
“The global energy crisis has shown renewables are critical for making energy supplies not just cleaner but also more secure and affordable – and governments are responding with efforts to deploy them faster. However, achieving stronger growth means addressing some key challenges. Policies need to adapt to changing market conditions, and we need to upgrade and expand power grids to ensure we can take full advantage of solar and wind’s huge potential.”
Analysts are also fairly bullish on the renewable energy sector as most of the undervalued energy stocks according to analysts in this list are mostly focusing on renewable energy. Some of the best undervalued energy stocks according to analysts include Sunrun Inc. (NASDAQ:RUN), Plug Power Inc. (NASDAQ:PLUG), and Bloom Energy Corporation (NYSE:BE).
12 Best Undervalued Energy Stocks To Buy According to Analysts
A bustling natural gas terminal, capturing the busy flow of energy selling and distribution. Editorial photo for a financial news article. 8k. --ar 16:9
Our Methodology
For this article, we used the Yahoo Finance stock screener to find the energy companies that are listed on either NYSE or NASDAQ and have a market cap of at least $2 billion. Among that list of 205 companies, we chose the companies with the highest average analyst price target upside as of October 23. The average analyst price target percentage was taken from Tipranks.
The best-undervalued energy stocks in this article are listed in ascending order of their analyst price target upside percentage. We only chose the companies that had more Buy ratings than Hold and Sell ratings combined.
Best Undervalued Energy Stocks To Buy According to Analysts
The AES Corporation (NYSE:AES) is a Virginia-based utility and power generation company. It offers its services in Latin America, Africa, North America, Europe, the Middle East, and Asia through its many subsidiaries, including but not limited to, AES Alamitos, AES Alamitos Energy, AES Integrated Energy, and AES Ohio Generation.
On October 7, The AES Corporation (NYSE:AES) declared its quarterly dividend of $0.1659 per share. The dividend is payable by November 15 to shareholders of record on November 1. As of October 23, the company has a dividend yield of 4.74%.
On October 13, The AES Corporation (NYSE:AES) reported that it is a partner in two Regional Clean Hydrogen Hubs that have been awarded funding of up to $2.4 billion under the Bipartisan Infrastructure Law (BIL) that was passed in 2021. The company aims to lead the green hydrogen market in the U.S. by receiving funding for green hydrogen projects which will be possible through the two hubs. The Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) Hub will receive $1.2 billion and is located in California. The HyVelocity Hub will receive up to $1.2 billion and is located on the Gulf Coast of Texas and Louisiana.
The AES Corporation (NYSE:AES) is one of the best undervalued energy stocks to buy according to analysts, along with Sunrun Inc. (NASDAQ:RUN), Plug Power Inc. (NASDAQ:PLUG), and Bloom Energy Corporation (NYSE:BE).
Massif Capital mentioned The AES Corporation (NYSE:AES) second-quarter 2023 investor letter. Here is what it said:
“Currently, the portfolio has roughly 11% allocated across two utilities, The AES Corporation (NYSE:AES) and Polaris Renewable Energy. In the case of both equities, we have experienced disappointing 2023 market results, and in the case of AES, it is the long-book’s worst performer YTD, dragging down the overall portfolio by -2.09%. Polaris contributed a positive return of 0.21%. These two positions represent investments in similar assets but very different businesses, which explains much of the divergence in this year’s results.
TransAlta Corporation (NYSE:TAC) is a Canadian energy company that operates wind, hydro, solar, battery energy storage, and natural gas facilities. The company operates 60 facilities in Canada with a gross installed capacity of 5,718 megawatts (MW). In the US, the company has a gross installed capacity of 1,219 MW through 10 facilities, and in Australia, TransAlta Corporation (NYSE:TAC) has 6 operating facilities producing 500 MW.
Over the last three months, 6 analysts have covered TransAlta Corporation (NYSE:TAC)’s stock and all of them maintain a Buy rating on the company stock with an average price target of $11.92. The average analyst price target shows a 53.31% upside to the company’s stock price of $7.77 as of the October 23 market close. TransAlta Corporation (NYSE:TAC) takes the 11th spot on our list of best undervalued energy stocks according to analysts.
In Q2, TransAlta Corporation (NYSE:TAC)’s stock was owned by 18 hedge funds at a combined stake value of $98.767 million.
ReNew Energy Global Plc (NASDAQ:RNW) is a renewable energy company that produces energy through wind and solar technology. The company is India’s largest renewable energy company with a generating capacity of over 13.4 gigawatts (GW). ReNew Energy Global Plc (NASDAQ:RNW) is also India’s first renewable energy company that surpassed 1 GW of production capacity.
Rubric Capital Management was the largest hedge fund holder of ReNew Energy Global Plc (NASDAQ:RNW) in the second quarter with nearly 8.166 million shares worth $44.749 million.
ReNew Energy Global Plc (NASDAQ:RNW) has been covered by 2 Wall Street analysts with an average price target of $8.78. Both analysts are bullish on the company stock and keep a Buy rating.
Average analyst price target as of Oct 23: $246.26
Average analyst price target upside: 62.74%
First Solar, Inc. (NASDAQ:FSLR), formerly known as First Solar Holdings, Inc., is an Arizona-based solar technology company that manufactures and sells photovoltaic cells (PV) solar energy solutions all over the world.
On September 21, First Solar, Inc. (NASDAQ:FSLR) announced that it has started construction of its manufacturing plant in New Iberia and it expects the plant to be fully operational by 2026. The company expects that the plant will increase the manufacturing capacity of the company by 3.5 gigawatts to around 14 gigawatts in the U.S. and 25 gigawatts globally.
According to Insider Monkey’s database that tracks 910 elite hedge funds, hedge funds were quite bullish on First Solar, Inc. (NASDAQ:FSLR) in Q2 as the number of hedge funds increased to 51 in Q2 from 39 in Q1. Robert Pohly’s Samlyn Capital increased its holding in the company by 126% in Q2 to 1.26 million shares worth $239.587 million.
On October 20, Exane BNP Paribas initiated coverage of First Solar, Inc. (NASDAQ:FSLR) stock with a price target of $237 and an Outperform rating.
Average analyst price target as of Oct 23: $161.35
Average analyst price target upside: 67.57%
Enphase Energy, Inc. (NASDAQ:ENPH) is a California-based company that manufactures, produces, and sells M, S and IQ series microinverters, Envoy monitoring systems, and inverter accessories to its clients in the solar photovoltaic industry.
On October 23, Enphase Energy, Inc. (NASDAQ:ENPH) strengthened its position in Europe by entering the solar power market of Greece with its Q8 Microinverters and IQ batteries. Solar and battery systems are essential to Greece's Ministry of Environment and Energy’s plan to transition to solar power solutions and away from fossil fuels. Hence, the government has subsidized solar power technology under a program to build two gigawatts of residential solar capacity by 2030.
In Q2, 50 hedge funds had a stake in Enphase Energy, Inc. (NASDAQ:ENPH) with a combined stake value of $772.727 million. It is one of the best-undervalued energy stocks to buy according to analysts as they predict an upside of 67.57% to the company’s stock price at the time of October 23 market close.
Array Technologies, Inc. (NASDAQ:ARRY) is a New Mexico-based solar equipment company that designs, manufactures, and sells solar tracking solutions to customers in the U.S. and worldwide.
Array Technologies, Inc. (NASDAQ:ARRY), one of the best-undervalued energy stocks, is hailed as one of the few companies that rely on domestic content sourcing. In line with the company's commitment to using U.S. materials for its projects, Array Technologies, Inc. (NASDAQ:ARRY) announced on September 12 that it has entered into a long-term partnership with Steel Dynamics, Inc. (NASDAQ:STLD) for a supply of coil.
On October 17, Array Technologies, Inc. (NASDAQ:ARRY) announced that it will expand in Albuquerque, New Mexico through the construction of a westside manufacturing facility of $49 million spread over 216,000-square-foot.
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is an infrastructure asset management company headquartered in Ontario, Canada. The company’s portfolio is quite diversified and spread across the world. However, the majority of the assets owned by the company operate in the energy sector.
In April 2023, Brookfield Infrastructure Partners L.P. (NYSE:BIP) agreed to acquire the intermodal freight containers’ lessor, Triton International Limited (NYSE:TRTN) for $13.3 billion in a cash and stock deal. The acquisition was completed on September 28, 2023 after the companies received all the necessary regulatory approvals.
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is not only an undervalued energy stock according to analysts, but also has a very attractive valuation. As of October 23, the company is trading at a trailing twelve-month price-to-earnings ratio of 3.11.
Sunrun Inc. (NASDAQ:RUN), Plug Power Inc. (NASDAQ:PLUG), and Bloom Energy Corporation (NYSE:BE) are some of the best-undervalued energy stocks along with Brookfield Infrastructure Partners L.P. (NYSE:BIP).
Emeth Value Capital made the following comment about Brookfield Infrastructure Partners L.P. (NYSE:BIP) in its Q2 2023 investor letter:
“Brookfield Corporation has $7.6 billion invested through Brookfield Infrastructure Partners L.P. (NYSE:BIP), a publicly traded permanent capital vehicle that is one of the largest owners and operators of critical global infrastructure. The entity was demerged from Brookfield in 2008 and was seeded with interests in 1.2 million acres of timberlands in Canada and the United States and interests in 10,900 kilometers of electricity transmission assets in Chile, Brazil, and Canada. The oldest of these assets, Great Lakes Power Transmission Co., an electricity transmission system based in Ontario, was acquired by Brascan in 1982. Brookfield Infrastructure Partners has significantly enhanced the quality, scale, and diversity of its portfolio over the last fifteen years. The timber assets were fully divested, and rail networks, toll roads, diversified terminals, last-mile utilities, midstream energy, and digital infrastructure were added. The partnership now owns many of the world’s premier infrastructure assets, several of which were acquired for value during a dislocation. For example, in 2020 Brookfield Infrastructure Partners acquired a six percent ownership interest in Sabine Pass, the largest LNG export facility in the United States. The transaction occurred amid unprecedented lows in natural gas pricing and an oversupplied LNG market. The partnership paid $1 billion for its interest, which was funded with forty percent equity and sixty percent low cost debt. In 2022, Sabine Pass generated $2.5 billion in earnings, or approximately $120 million in earnings against Brookfield Infrastructure Partners’ $400 million equity investment, equating to a thirty percent cash on cash yield…” (Click here to read the full text)
