When the stock market was bleeding in 2022, energy companies saw record profits and revenues. Russia’s invasion of Ukraine and the reduction in oil production by Russia led to a surge in the oil demand. OPEC’s lack of plans to increase the production either means energy companies are enjoying solid cash flows. All of this makes now the time to look for niche energy market leaders.
I believe this trend will continue in the second half of 2023 as well. The oil demand will continue to grow, whether oil prices drop or rise. This undersupply is one solid reason why energy stocks are gaining popularity this year. Additionally, there is growing demand for renewable energy across the globe and this is where niche energy market disruptors will make the most of the opportunity. Keeping that in mind, let’s take a look at the best niche energy market leaders.
Chevron Corporation (CVX)
At the top of my list of niche energy market pioneers is Chevron Corporation (NYSE:CVX). It is the largest integrated oil and gas company in the world, with a solid history in the production, exploration and refining of oil and natural gas. It makes most of its earnings from the international markets and should continue to show strong performance in the coming months. CVX stock is trading at $159.12 today and is down 12.23% over the last six months, providing an ideal entry point for investors. Warren Buffet held a significant investment in the company which he recently brought down by 20%.
Chevron recently announced quarterly results and reported earnings of $6.6 billion. Its upstream operations ,which include producing, exploring and transporting natural gas and crude oil, generated $5.1 billion. Meanwhile, the downstream business ,which includes refining crude oil into petroleum, transporting it and running it to gas stations, saw a revenue of $1.8 billion. The OPEC cuts have given the company a premium valuation and I believe this will benefit investors in 2023.
The company generated a free cash flow of $4.2 billion and has consistently maintained and increased its dividend for the past 36 years and it has enough cash flow to continue on that trend. Even if oil prices fall to $50 per barrel, the company still has the ability to reward shareholders. It has a dividend yield of 3.8% which makes the stock even more attractive. In the recent annual investor meeting, the management stated that it expects an annual cash flow growth of over 10%. It is also raising the share buyback range to $10 to $20 billion annually.
The world is moving towards solar energy and the soaring electricity prices in Europe have led to a massive demand for solar inverters in the EU. This is where SolarEdge (NASDAQ:SEDG) is set to benefit. The company manufactures solar inverters and has enough demand to last this year. It recently reported quarterly results and beat the top-line and bottom-line expectations which led to the stock soaring.
SolarEdge is one of the niche energy market winners and reported adjusted earnings of $2.90 which is more than double the $1.20 it reported in the same quarter the previous year. The company reported a revenue of $944 million, which is up by 44%. , Additionally, the stock is that it has a global presence and has generated record revenues from Germany, Austria, Switzerland and more.
For the second quarter, the management expects sales between $970 million and $1.01 billion. Truist analyst Jordan Levy raised the price target of the stock to $380 with a buy rating after the impressive Q1 results. Even Deutsche Bank analyst Corinne Blanchard has upgraded the stock to Buy with a price target of $375. SEDG stock is trading at $286.26 today and I’d recommended a buy when it is close to $263. It is up over 22.44% in the past year. The stock has generated more than 350% returns in the last five years and is now inching closer to the 52-week high of $375, which means there is immense potential for the stock to grow. It is one of the best niche energy market leaders today.
First Solar (FSLR)
One of the top niche energy market innovators that will benefit from the rising demand for solar energy is First Solar (NASDAQ:FSLR). The market didn’t react well to the company’s underwhelming Q1 and this led to a drop in the stock from $200 to $177 today. The stock was trading at $162 in February 2023 and hit $217 at the end of March. However, it lost 16% of its value over the past month. FSLR stock is up 160% over the past year and over 140% in the past five years.
The company is a big beneficiary of the Inflation Reduction Act and is expected to receive an IRA tax credit of around $660 million. In its recent quarterly earnings, it reported net sales of $548 million which is a huge drop from the previous quarter and this did not make investors happy. Its net income per diluted share was $0.40 and the net cash balance stood at $2.0 billion.
Post the results, the company saw the biggest sell-off in two years. However, one must keep the long-term potential of the company in mind. Solar power is the way ahead and every country is working to embrace it. With several tax credits on the way, First Solar will continue to grow. The company expects to start the India facility later this year after winning two government grants and has two more upcoming facilities in Alabama and Ohio in 2024 which will benefit from the U.S. tax credits for U.S.-made solar panels.
On the date of publication, Vandita Jadeja did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.