5 Energy Stocks for Potential Breakouts in 2024

Energy stocks are among the market’s most volatile entities. Their fluctuations are driven by a multitude of factors, including but not limited to supply and demand dynamics, geopolitical events, environmental regulations, technological advancements, and shifts in consumer preferences. While these stocks may present opportunities for risk-tolerant investors seeking long-term growth potential, it’s important to note that the high volatility can also lead to significant losses, making them a potentially risky investment. Therefore, a balanced and well-informed approach is crucial when investing in this sector.

Why trade in energy stocks?

Energy is essential for human life and economic activity.

It powers our homes, factories, transportation, and communication systems. It also affects the environment, health, and social welfare of billions of people around the world. As the global population and economy grow, so does the demand for energy.

However, the energy sector is also undergoing a major transformation. The traditional fossil fuel industry is facing challenges from climate change, renewable energy sources, and electric vehicles. The oil and gas giants are diversifying their portfolios and investing in low-carbon technologies. The renewable energy sector is expanding rapidly and becoming more competitive and efficient.

While energy stocks can provide substantial returns, dividends, and a diverse exposure to various markets and regions, it’s important to bear in mind that they also come with their own set of risks. These include market volatility, geopolitical uncertainties, and regulatory changes, which can potentially lead to significant losses. Therefore, a balanced perspective is essential when considering such investments.

Exxon Mobil Corp (XOM)

One of the largest and most profitable oil and gas companies in the world.

Exxon Mobil Corp has a diversified portfolio of upstream, downstream, and chemical operations in over 200 countries. It also has a strong balance sheet, cash flow, and dividend history.

Exxon Mobil Corp is facing some headwinds

It is facing some headwinds resulting from environmental lawsuits and activist shareholders. However, it is also making strategic moves to adapt to the changing energy landscape. It is investing in natural gas, biofuels, hydrogen, carbon capture, and renewable power. It is also reducing its debt, cutting costs, and streamlining its operations.

Exxon Mobil Corporation stock has been underperforming the market for the past few years, but it could rebound in 2024 if oil prices recover and its transition strategy pays off.¹It currently trades at a low valuation of 8.45 times earnings and offers a dividend yield of 3.4%.

Chevron Corp (CVX)

A leading oil and gas company with a global presence

Chevron Corp (CVX) has a strong position in the US shale industry, as well as in liquefied natural gas (LNG), deepwater drilling, and refining. It also has a solid financial performance, cash flow generation, and dividend record.

Chevron is also facing similar challenges as Exxon Mobil from environmental pressures and shareholder activism. However, it is also taking steps to adapt to the energy transition. It is investing in renewable fuels, hydrogen, carbon capture, and electric vehicle charging. It is also maintaining its capital discipline, cost efficiency, and operational excellence. ²Chevron is currently trading at a reasonable valuation and offers a decent dividend yield.

Shell PLC (SHEL)

Shell's stock has been recovering from the pandemic-induced crash in 2020.

One of the most ambitious oil and gas companies

Shell is one of the largest integrated oil and gas companies in the world. It has a diverse portfolio of upstream, downstream, and new energies businesses in over 70 countries. It also has a robust financial performance, cash flow generation, and dividend history.

It is one of the most ambitious oil and gas companies in terms of its energy transition goals. Shell PLC (SHEL) aims to become a net-zero emissions company by 2050 and to reduce its carbon intensity by 45% by 2035. It is investing heavily in renewable power, biofuels, hydrogen, carbon capture, and nature-based solutions. It is also reshaping its portfolio by divesting some of its oil and gas assets and acquiring more low-carbon assets.

PetroChina Co Ltd (PCCYF)

PetroChina is the largest oil and gas company in China and one of the largest in the world.

It has a dominant position in China's upstream, midstream, and downstream sectors, as well as in international markets. It also has a stable financial performance, cash flow generation, and dividend history.

PetroChina is facing some economical challenges

PetroChina is facing some challenges from a slowing Chinese economy, trade tensions with the US, environmental regulations, and competition from other energy sources. However, it is also taking advantage of the opportunities from the growing Chinese energy demand, the Belt and Road Initiative, the natural gas market, and the energy transition. It is investing in shale gas, LNG, coal-to-gas, hydrogen, and renewable power. It is also improving its operational efficiency, cost control, and corporate governance.

PetroChina's stock has been lagging behind its peers for the past few years, but it could catch up in 2024 if the Chinese economy rebounds and its transition strategy bears fruit.

TotalEnergies SE (TTE)

TotalEnergies is one of the most proactive oil and gas companies in terms of its energy transition strategy. It has changed its name from Total to TotalEnergies to reflect its commitment to becoming a broad energy company.It is investing in solar power, wind power, biomass, hydrogen, and electric vehicle charging. It is also divesting some of its oil and gas assets and acquiring more low-carbon assets.

TotalEnergies' stock has been performing well for the past few years, but it still has potential for growth in 2024 if oil prices remain supportive and its transition strategy enhances its competitive advantage.

³TotalEnergies announced on 27 April 2023 the first interim dividend of €0.74/share for fiscal year 2023, an increase of more than 7% compared to 2022.

Final thoughts

The five energy stocks we have discussed are probably among the best candidates for potential breakouts in 2024. They have strong fundamentals, attractive valuations, high dividends, and promising transition strategies. They could benefit from the recovery of oil prices, the growth of energy demand, and the innovation of low-carbon technologies.

Of course, there are many other factors that could affect their performance, such as but not limited to geopolitics, regulation, competition, and consumer behaviour. Therefore, investors should do their own research, monitor the market trends, and adjust their portfolios accordingly. Energy stocks are not for everyone, but they could be for you if you are looking for some excitement and opportunity in your investments. However, it’s important to remember that these stocks can be highly volatile and are often influenced by international political and economic instability. Therefore, they may not be suitable for those who prefer stable and low-risk investments.

Sources:

¹Source: MarketWatch shows Exxon Mobil Corporation (XOM)

²Source: Chevron Corporation (CVX) Dividend Date & History

³Source: TotalEnergies announces the first interim dividend of €0.74/share for fiscal year 2023