The S&P 500 has had a rough 12 months. Between February 3, 2022 and February 3, 2023, the large-cap index of premier U.S. stocks lost 20% of its value, before crawling back to a 7.6% deficit. The downturn hasn't impacted all sectors equally, however. Hidden in those losses are huge gains in the energy sector.
Among the index's top 20 stocks over the past year, a full 10 of them are energy companies. Most are in the oil and gas space, but solar has representation, too. Read on for a closer look at these 10 big energy movers, plus a look at what's driving their growth, how the trend is changing the S&P 500 and energy's outlook for 2023.
10 Fast-Moving Energy Stocks for 2023
The table below introduces 10 S&P 500 energy companies with 12-month gains of 33% or more. For a longer-term view, each stock's five-year performance is also included. All but two of these big movers show at least double-digit gains over the past five years.
Note that the top three gainers on this list aren't technically classified as energy stocks. First Solar and Enphase Energy are in the tech sector, while Constellation
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First Solar (FSLR)
First Solar makes and sells efficient, high-performance solar panels. The company is a recent addition to the S&P 500, joining the index in December 2022.
First Solar generates about $2.5 to $3 billion in annual revenues, but profitability has been inconsistent. First Solar recently reduced its 2022 guidance to a loss per share of $0.35 to $0.65.
The solar panel maker
Enphase Energy (ENPH)
Enphase makes solar energy converters and storage systems. Enphase is also relatively new to the S&P 500. The index added the clean energy tech company in January 2021.
After generating losses for several years, Enphase turned a corner in 2019 and has been more consistently profitable since. In 2021, the company produced $1.3 billion in revenues and $145 million in net income. Through the first three quarters of 2022, Enphase had earned $1.6 billion in revenue and net income of almost $244 million.
Enphase has strong gross margins relative to peers and enjoys a leading brand reputation among residential solar installers. As with First Solar, Enphase does face some industry risks and uncertainty. The company also has a short profitability track record.
Constellation Energy Group (CEG)
Constellation Energy is a leading producer of carbon-free energy, which it supplies to homes and businesses throughout the U.S. The company generates energy through nuclear, wind, solar, natural gas and hydro resources.
Constellation Energy joined the S&P 500 in early 2022, just
In 2021, CEG reported revenues of $19.6 billion and a net loss of $205 million. Through the first three quarters of 2022, CEG generated operating revenues of about $17 billion and a net loss of $194 million. Despite the losses, analysts like CEG for its solid balance sheet and dominance in the clean energy space. The company does pay a small quarterly dividend of $0.141 per share.
Occidental (OXY)
Occidental acquires, explores and develops oil and gas properties in the U.S., Middle East and Africa.
OXY completed a sizable acquisition in 2019, which consumed cash, added debt to the balance sheet and disrupted shareholder dividends. The company recorded a big loss in 2020–as many energy stocks did–but now appears to be moving in the right direction.
OXY’s 2021 revenues totaled nearly $26 billion and net income came in at $1.5 billion. Through the first three quarters of 2022, the company repaid 34% of its outstanding debt and repurchased nearly 42 million shares. Occidental also raised its quarterly dividend from $0.01 in 2021 to $0.13 in the first quarter of 2022.
Notably, famed value investor Warren Buffett recently increased his position in the oil company by 35.8 million shares. OXY is now the sixth largest position in Berkshire Hathaway's stock portfolio.
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Valero (VLO)
Valero owns and operates petroleum refineries in North America and the U.K. The company produces gas, diesel, jet fuel and clean-burning corn ethanol.
In 2022, Valero earned net income of 11.5 billion off $176 billion in revenues, ending the year with fourth-quarter results that beat expectations. Valero’s prior-year revenues and net income were $114 billion and $930 million, respectively.
Analysts like Valero for its high-quality refining assets and competitive margins. The company continues to focus on margin efficiency and is also investing in renewable diesel, which could become a good growth source going forward. Investors like Valero for its commitment to return 40% to 50% of its operating cash flow
Marathon Petroleum (MPC)
Marathon Petroleum refines, markets and distributes petroleum products in the U.S.
Marathon posted strong results to end 2022, with fourth-quarter adjusted earnings per share (EPS) beating the consensus estimate by 17%. The fourth-quarter adjusted result of $6.65 also handily beat EPS of $1.30 in the prior-year quarter. For the full year, MPC earned $28.12 per diluted share vs. $15.24 in the prior year.
The oil refiner is benefitting from favorable industry conditions. As well, the close of Marathon’s Speedway divestiture freed up cash and strengthened MPC’s financial position. The company has since spent $15 billion repurchasing stock. Marathon still has several billion left on its share repurchase authorization plus a sizable cash balance.
Hess (HES)
Hess explores and produces crude oil and gas.
For the last quarter of 2022, Hess reported net income of $624 million. That compares very favorably to the prior-year result of $265 million. For the full year, Hess generated net income of $2.2 billion vs. $559 million in 2021.
Notably, Hess has a 30% stake in a promising resource in Guyana, South America, which began production in 2019. The company expects the region to produce 1 million gross barrels of oil per day at favorable economics by 2027. The resource diversifies Hess' exposure and protects it somewhat from potentially restrictive U.S. policies and regulations.
Hess does pay a quarterly dividend. In the first quarter of 2022, the company increased the payout from $0.25 to $0.375 per share.
EQT (EQT)
EQT produces natural gas and natural gas liquids from owned acreage in the Appalachian Basin.
EQT generates about $3 billion in annual revenues, but profitability has been inconsistent. The company has recorded operating losses annually since 2018.
Investors do appreciate the company’s focus on debt paydown and returning value to shareholders. Through the first three quarters of 2022, EQT repaid $830 million in debt, with a stated goal of $4 billion in debt reduction by year-end 2023. On the same timeline, the company will also buy back $2 billion under its share repurchase program. Shareholders also benefit from a $0.60 per share fixed annual dividend.
Exxon Mobil Corporation (XOM)
ExxonMobil explores and produces crude oil and natural gas globally. The oil producer is one of the world's largest companies and holds the elite Dividend Aristocrat status. Dividend Aristocrats are S&P 500 companies that have increased their shareholder dividends for at least 25 consecutive years. (For more on the Aristocrats, see 10 Highest Paying Dividend Aristocrats To Outperform in 2023.)
Exxon generated $55.7 billion in GAAP earnings in 2022, supporting $30 billion in shareholder distributions. The 2022 GAAP earnings more than doubled the 2021 result of $23 billion.
Exxon benefits from scale, a diversified portfolio of assets and a deep project pipeline—including rich Guyana and Permian assets. Exxon did increase its long-term debt balance significantly in 2020, but has made progress paying it down. Over the next few years, shareholders will benefit from the company’s aggressive share repurchase plan for 2023 and 2024.
Shlumberger Limited (SLB)
SLB provides a portfolio of services to oilfields, ranging from innovative technology solutions to project management.
SLB reported big gains in revenue and EPS in its fourth quarter and full-year 2022. The quarterly revenue grew 27% vs. the prior year quarter, while the EPS was up 76%. Full-year revenues gained 23% vs. 2021, and GAAP EPS was up 81%. SLB also increased its quarterly dividend by 43% to $0.25 per share.
SLB’s services create efficiencies for well operators. For that reason, the company enjoys a solid brand reputation and a global customer base. SLB also invests regularly in research and development, which should help maintain its position as a leading innovator in oilfield services.
What's Driving Energy’s Growth
Energy was the S&P 500’s worst-performing sector in 2020—and its best-performing sector in 2021 and 2022. How does that happen?
Here’s the short story: Specific to oil and gas companies, a challenging 2020 backed them into a corner. They had to become more disciplined about how they deployed their cash. Rather than spend freely on capital projects, many buckled down to focus on cost savings and creating shareholder value.
Meanwhile, market dynamics improved. Commodity prices rose. Demand returned as pandemic-related restrictions disappeared. And investors took notice of those changes, scooping up cheap energy stocks and their high dividend yields.
How The Strong Energy Sector Affects The S&P 500
On the strength of profits and investor demand, S&P 500 energy stocks gained more than 50% in 2021 and again in 2022. Due to classification differences, those gains don't include First Solar, Enphase or Constellation Energy Group—the top three on our list.
What's interesting is that outperformance by one sector can change the composition of the S&P 500, but it may not have a big influence on its returns.
Composition Changes
The S&P 500 is weighted by a company’s market capitalization, adjusted for the number of publicly traded shares. This means that companies with more value in the market have a greater influence over the index.
In 2020, downtrodden energy stocks comprised just 2.3% of the S&P 500. After two years of phenomenal growth, these stocks have almost doubled their influence to 5.2%. Sadly, the sector is far from its glory days. In 1989, for example, energy accounted for nearly 13% of the S&P 500.
Performance
Energy’s single-digit representation in the S&P 500 explains how the index can be down in the same year one of its sectors grew nearly 60%. Energy is overshadowed by technology, healthcare and financials. These collectively account for more than 50% of the index. Where those sectors go, the index follows.
What does this mean for you as an investor? Investing in the S&P 500 by itself doesn’t provide full exposure to growth in smaller sectors like energy. If you believe energy will continue its run, you’d want to add individual energy stocks or a sector-specific fund to capitalize on the trend.
Will Energy Continue Strong In 2023?
The 2023 outlook for the energy sector is uncertain. Last September, Moody's adjusted its outlook for the sector down, from positive to stable. The factors in play are slowing demand and rising costs. The Moody’s report also predicted an increase in drilling, which should stoke demand for oilfield services. Service provider SLB stands to benefit there.
Goldman Sachs strategists have a slightly different take. They prefer energy stocks for 2023 (along with healthcare and consumer staples) because they aren't as reactive to interest rate changes.
However things shake out for energy this year, there are sure to be winners and losers. Do your homework and diversify your portfolio. And be ready for some volatility. That’s your best approach to energy stocks in 2023.
Five Top Dividend Stocks to Beat Inflation
Many investors may not realize that since 1930, dividends have provided 40% of the stock markets total returns. And what is even lesser known is its outsized impact is even greater during inflationary years, an impressive 54% of shareholder gains. If you’re looking to add high quality dividend stocks to hedge against inflation, Forbes’ investment team has found 5 companies with strong fundamentals to keep growing when prices are surging. Download the report here.
