The energy sector is often invisible to the average consumer, and many might be reluctant to invest in it since it can seem so intimidating. That’s why the energy sector is still overlooked by many, even though it is a large, stable and growing industry. In this article, we’re going to give 8 solid reasons why everybody should consider investing in the energy sector.
Table of Contents
The Size of the Market
The energy market is valued at around seven trillion dollars globally, making it the most valuable market on Earth. It accounts for about 10% of the world’s gross domestic product. Energy is delivered to nearly every one of seven billion people on the planet. That is why nine out of the ten companies with the highest annual revenue are in the energy sector. This market is simply too large to not be part of. Another side benefit of investing in the energy market is that it is ultra-stable. People may stop buying cars or clothes when they’re financially strapped, but energy will always be central to every single human endeavor.
The Energy Sector Itself Is Diverse
When you say you’re investing in the energy sector, many people think you’re talking about oil. However, the energy sector is far more than oil. It includes gas and other hydrocarbons. You can invest in renewables, as well. You could invest in wind, solar, nuclear, or new technology and still be in the energy sector. Even if renewables or totally new energy resources take over the market, it will take years for existing energy sources to decline, so energy companies will still be a good value for at least a decade. An alternative is investing in the companies building and maintaining the power grid; regardless of where the power comes from, these businesses will remain profitable as they connect customers to power generators.
You don’t have to invest in oil futures to invest in the energy sectors. Dr Kent Moors stock picks in the energy sector should be of particular interest, given his long, successful track record. Or you could invest in exchange traded funds that invest in a variety of energy companies.
Income and Growth
Investing in the energy sector allows you to go for various investment goals as well. You have growth companies, blue chip stocks, income opportunities or you could even look at the exploration sector and hope to make it big.
It’s all about coming up with a strategy that works with your particular economic situation. But once you’ve identified your objectives, the energy sector can help you reach them. If you like dividends, then you could look at integrated gas and oil companies for instance. If you want steady income payments, then master limited partnerships and pipeline operators may be the way to go. Or are you looking for bigger returns and are ready to take a risk? Then you could look at immature gas and oil explorers with potential. Whatever what your investment style is, you’ll find it in the energy sector.
Another great advantage of being an energy investor is the insight you’ll get on consumer energy pricing. People are constantly asking why oil and gas prices are always fluctuating and why they’re moving in a certain direction. You, on the other hand, will only need to look at crude oil futures and have a pretty good idea of where the future prices at the pump might be heading. Or you’ll know that gas prices will be cheaper in the fall when refiners are cutting off summer blends for instance.
Whenever you are investing in a particular industry, you will have a more thorough understanding of what affects it, and this allows you to understand how it will affect the everyday lives of consumers.
Exchange traded funds have democratized a lot of investment strategies and are making it easier for everyday investors to invest in the sector. The ability for retail investors to profit from commodity prices, cover the complete sector with a single fund, and use leverage and shorting can all be achieved through ETFs.
For instance, if you want to invest in the coal industry, instead of buying a single or a few coal stocks, you can invest in a coal ETF that will give you broader exposure to the market instead.
Its Strong Track Record
Energy investments have returned greater than average returns for decades. A number of energy focused exchange traded funds have beaten the Dow Jones index by 200%. More than a few energy producers have seen returns several times that of the Dow. You can invest in energy companies that generate a steady stream of income as customers pay their energy bills just as you could invest in startups with potentially hefty returns if they succeed.
Certain Future Growth
While we can debate what the future of energy will look like, the fact remains that energy demand is only going to grow. The IEA predicts that energy demand will grow by more than a third by the year 2035. China, India, and the Middle East will account for two thirds of that growth. Demand for electricity is expected to grow at twice the rate of total energy consumption. Global oil demand will increase as the number of cars doubles between now and then. In order to meet these rising energy demands, an estimated $37 trillion in infrastructure needs to be built, roughly half of it in oil and gas. This creates an amazing opportunity for investors.
The Potential for Ethical Investing
If you are investing your money based on specific ethical principles, the energy sector is full of opportunity. If you’re concerned about climate change, you could invest in renewable energies, biofuels, or companies promoting energy efficiency. There is also the option of investing in these companies indirectly by buying into funds that specialize in renewables and eco-friendly energy firms.
While the energy sector isn’t immune to downturns and changes in technology, there is an opportunity for every investor. That holds true whether you want income, value, or growth.