7 Energy Stock Favorites for 2023

Each January, in the MoneyShow Top Picks report, we survey the leading financial newsletter advisors asking for their top investment ideas for the new year. For the second year in a row, energy is the most popular sector. Here, seven advisors review their top energy ideas for 2023. Bryan Perry, Cash Machine New Fortress Energy Inc. is a powerful investment proposition for 2023 in the burgeoning liquified natural gas (LNG) sector. LNG is the preferred source of fossil fuel over coal-fired and nuclear power sources within countries that have to import energy, China being the largest LNG importer in the world. New Fortress operates as an integrated gas-to-power infrastructure company that provides energy and development services to end-users worldwide. The company operates in two segments, Terminals and Infrastructure, and Ships. The company is aggressively acquiring assets and established new bases of operations to accommodate the growing demand for LNG in Europe and Asia. Revenues for 2023 are forecast to increase by 52% to $3.95 billion with estimates as high as $5.0 billion. Earnings are set to jump by 229% to $5.66 per share from $1.72. The NFE story got a further catalyst on December 13, when the company announced an aggressive dividend policy that is set to pay out 40% of free cash flow in 2023 in the form of dividends. The shares are trading with a P/E of about 9x, which is very cheap on a valuation basis relative to the stellar forecasted revenue and earnings growth. Only five analysts cover the company, and it's my view that when more research firms get behind this compelling LNG story, the stock will propel higher. Michael Brush, Brush Up on Stocks I use insider buying as a starting point to find promising names, and this seems to work particularly well with energy companies. But what's really odd about the energy sector now is that insiders keep buying shares of their companies, even though the sector was up over 62% in 2022. Energy Transfer LP has a distribution yield of 8.5% and a market cap of $38.7 billion. This midstream energy transport limited partnership benefits from increased natural gas demand in the U.S. and abroad. It made a big acquisition in the third quarter of 2022 which built out its energy transport network and contributed to the 59% gain in net income to $1 billion. It also benefits from rising energy prices in the U.S. since this means it can charge more for the use of its pipelines. It also offers a nice distribution yield, for income investors. Energy Transport has a Lake Charles liquid natural gas (LNG) plant in the works that may get cleared to go for construction during the first several months of 2023. This will make Energy Transfer a play on the huge discrepancy between natural gas prices in the U.S. and LNG prices in Europe and Asia. The company has already signed six long-term sale and purchase agreements. Board chair Kelcy Warren bought $73 million worth up to $12.39 in the last several months of 2023. The insider here is worth following for two reasons. First, Warren has been in the energy business for around four decades, and he made over $1 billion in the space. He knows the sector well. Second, he is the co-founder of Energy Transfer. Academic studies show that founder-run companies often outperform. In my experience, founder purchases of their own companies are a particularly good signal. Louis Navellier, Navellier Growth Enphase Energy, Inc. designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry in the U.S. and internationally. The company sells a semiconductor-based microinverter, which converts energy at the individual solar module level, and combines with its proprietary networking and software technologies to provide energy monitoring and control services. California and Hawaii dominate the company's business, but Enphase Energy is quickly expanding throughout the U.S. and internationally. Since the Biden Administration is pushing solar energy and battery backup systems, Enphase Energy's business outlook remains bright. The company's third-quarter revenue rose 19.7% to $634.7 million compared to $530.2 million in the same quarter a year ago. During the same period the company's earnings rose 48.1% to $114.8 million or 80 cents per share compared to $77 million or 54 cents per share. Excluding extraordinary items, Enphase Energy's operating earnings were $1.25 per share. The analyst community was expecting revenue of $617 million and operating earnings of 77 cents per share, so the company posted a 2.9% revenue surprise and a 62.3% earnings surprise! The stock is a good buy. Harry Domash, Dividend Detective Like many other energy stocks, 2022 is turning out to be a good year for Baker Hughes ; as of December 13, including dividends, its shares returned 24% year-to-date vs. the S&P 500's 16% loss. Its oilfield services include onshore and offshore exploration, drilling and maintenance services. There are several reasons to believe that Baker Hughes's winning streak could continue. 1) Big oil is finally getting the message big time: carbon dioxide emissions must be reduced. Baker Hughes, already a major services and equipment supplier, intends to become the leading supplier of carbon reduction equipment and systems. It has already made several acquisitions to help it achieve that goal. For instance, Baker recently agreed to acquire the Power Generation division of BRUSH Group, an established equipment manufacturer that specializes in electric power generation and management for the industrial and energy sectors. 2) Baker is expanding its presence in Asia by opening a new oilfield services chemicals manufacturing facility in Singapore, enabling manufacturing optimization and faster delivery of fit-for-purpose chemical solutions. 3) Baker has embarked on a multi-facetted program to increase profit margins and increase cash flow. Consequently, for next year, analysts are forecasting EPS to total $1.66 per share, up 79% vs. 2022. 4) Baker Hughes has just been added to the Nasdaq-100 Index (December 19), thereby increasing demand from ETFs and mutual funds tracking that index. On the dividend front, Baker recently raised its quarterly payout by 6% to $0.19 per share, which recently equated to a 2.8% dividend yield. Jason Bodner, MAPSignals My top pick for an income investment comes right from our quantitative research process. Each day our systems sweep through more than 6,000 U.S. stocks and ADRs to identify the best in show. With a lot of focus typically placed on large-cap stocks for income through dividends, I am finding opportunity in a small cap company. Black Stone Minerals LP is an interesting potential income investment. Black Stone is an oil and natural gas exploration company. But unlike traditional oil and gas companies, BSM invests in a portfolio of energy companies. That's why it technically classifies as a financial company. But the portfolio holdings are exclusive to energy. This portfolio approach allows BSM to diversify its holdings and keep costs down to a minimum. This is why BSM recently yielded over 10% with a forward P/E ratio of 8.4 times earnings. The stock has seen inflows in an unusual way all year long -- a tell-tale sign of institutional demand supporting stocks. Tony Daltorio, Investors Alley By now, we have all become familiar with Europe's woes regarding natural gas and its dependency on Russian gas supplies. But do you know what company is the second-biggest provider of natural gas to Europe, behind only Russia's Gazprom? It is Norway's Equinor , which provides more than 20% of Europe's gas. Equinor -- my Top Pick for conservative investors for the coming year -- is majority-owned by the Norwegian government. The company has ramped up production of gas in Norway by 18%, to record levels, in order to help meet European demand following the withdrawal of vast volumes of Russian gas. And here's another big plus: Currently, shares in European energy majors are trading at less than half the value of their U.S. rivals, when measured as a multiple of their expected profits over the next year. Its strategy focuses on investing in its highest-quality assets while divesting smaller, non-core assets. New oil and gas projects coming online by 2030 break even at less than $35 per barrel, and payback comes in less than 2.5 years on average, according to the company. Another company characteristic that I love is that Equinor has no net debt, giving it one of the best balance sheets among the major energy companies. And there is lots of room for dividend growth (current yield 4.66%). Equinor is a buy on any drop in its stock price. Its current price in the mid-$30s a share is a good entry point. Gavin Graham, Internet Wealth Builder Pason Systems Inc. (Toronto: PSI) is a Calgary based oil services company, which provides specialized data management systems for the oil drilling industry. The company describes itself as providing the Internet of Things for the oil drilling industry. With a market capitalization of $1.2 billion it is a mid-sized stock with decent liquidity, trading over 100,000 shares most days. Pason has no debt and cash on the balance sheet of $206 million, up $30% from $158 million at the end of 2021. CEO Jon Faber noted that revenue in the third quarter was the highest since the first quarter of 2015 and adjusted EBITDA the highest since the fourth quarter of 2014, just before the Saudi inspired collapse in oil prices. Meanwhile, North American rig counts were back to the level of the first quarter of 2020, the last before the onset of Covid-19. Reflecting the improved conditions, Pason has recently raised its quarterly dividend by 50% from $0.08 to $0.12, equivalent to a 3% yield. Pason has survived the most severe downturn in the drilling industry in forty years thanks to its rock-solid balance sheet and control of costs including reducing capital expenditures by 75% to less than $10 million in 2021. Now that the industry is recovering strongly, its operational leverage is delivering dramatic increases in adjusted EBITDA and earnings, but although the share is up 56% over the last year, against a decline of 15% for the S&P 500 and 5% for the S&P/TSX, it is still down 10% from its price five years ago. Selling at less than 16 times its last 12-months' earnings and with a rising dividend, it is an attractively valued play on increased activity in the drilling sector.

7 Energy Stock Favorites for 2023

For the second year in a row, energy is the most popular sector in Moneyshow's Top Picks report.

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