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Thirty-five years ago, oil was selling for around $30 a barrel. In July 2008, it hit an all-time high of $147.27. And since then, it's been in a 12-year, albeit choppy, downtrend.
In April 2020, it hit an all-time low and even traded negative for a day.
Today, the commodity sits at $42 a barrel.
So much has happened this year; the oil price war between Russia and Saudi Arabia that caused the 65% quarterly fall in prices seems to have been mostly forgotten about.
So, is it time to dump oil stocks?
Not completely.
You see, us traders – we’ve paid attention. And we’ve found a new way to profit on energy.
We just needed to shift our thinking...
The Better Path to Energy Profits
As top oil companies search for alternative ways to make money, the answer is clear: renewable resources.
The world's seventh largest oil company, BP Plc. (NYSE: BP), with a $78 billion market cap, recently announced that it will pump the brakes on oil and gas production and pour billions of dollars into clean energy.
It seems that BP sees "the writing on the wall." Just ask the company's chair, Helge Lund. He expects that the demand for fossil fuels will fall by 75% over the next 30 years, and he's not going to let BP get left behind.
With fossil fuels headed down, globally, we are seeing an increase in the demand for renewable energy.
In the United States alone in 2018, 11% of energy consumption was renewable. This is expected to grow by a whopping 24% in the next 10 years.
Climate change is causing people to look at cleaner energy options, and big oil companies are feeling the heat.
Gas giant Saudi Aramco used to be the largest company in the world. Now, it has fallen behind Apple Inc. (NASDAQ: AAPL). The stock price has dropped over 6% this year with plummeting oil prices.
Oil is deeply ingrained in our livelihood, so we're not getting rid of it completely anytime soon.
That said, it's undeniable that money is being pumped into renewable energy - like wind, solar, geothermal, and hydro.
The Writing Is on the Wall - It's Time to Invest in Renewable Energy
In the chart below, you can see the trajectory that crude oil has been on for the past 10 years.
And while crude oil and other fossil fuels are on the decline, many renewable energy companies are rising with velocity and setting all-time highs.
The following chart of the Invesco Solar ETF (NYSE: TAN), the ETF that tracks solar energy companies, says it all:
TAN has been in a strong uptrend since bottoming in March. There are many renewable energy companies with the same pattern.
Now, there are two ways that you can profit on these energy stocks. The first is by looking at the energy company's stock outright.
Here are three that have recently set all-time or multi-year highs. They're the ones leading the pack...
- NextEra Energy Inc. (NYSE: NEE)
With a $136 billion market cap, NEE owns Florida Power and Light, which is a massive company that has over 4.9 million accounts, and has reduced its power generation costs by 50% by adopting natural gas. It plans to increase its solar power generation capabilities by 2028.
- Vestas Wind Systems A/S (OTCMKTS: VWSYF)
VWDRY is a global manufacturer and installer of wind turbines. A $28.59 billion company, the stock just gapped up to an all-time high on Aug. 11, 2020.
- Renewable Energy Group Inc. (NASDAQ: REGI)
At a $1.2 billion market cap, REGI develops and distributes biofuels, renewable chemicals, and related products. It just set an all-time high and with a price/earnings ratio (which determines if a company is over- or under-valued) of 3, this is a great value play!
The second way to profit on these renewable energy companies is by investing in an exchange-traded fund (ETF). ETFs offer diversification across numerous companies in the space and are considered less risky than picking specific stocks to invest in.
Here are three current leading renewable energy ETFs by market cap:
- Invesco Solar ETF (NYSEArca: TAN)
With a $3 billion market cap, TAN is one of the largest ETFs in this space. It tracks two dozen global solar energy companies, including First Solar Inc. (NASDAQ: FLSR) and SolarEdge Technologies Inc. (NASDAQ: SEDG). Just this week, it set an all-time high at $40.14 and appears destined for more upside.
- iShares Global Clean Energy ETF (NASDAQ: ICLN)
This $5 billion company provides a diverse exposure to companies in the biofuels, ethanol, geothermal, hydroelectric, solar, and wind industries. Its holdings include FSLR and SEDG, mentioned above, as well as Enphase Energy Inc. (NASDAQ: ENPH) and Plug Power Inc. (NASDAQ: PLUG).
- Invesco Wilderhill Clean Energy ETF (NYSE: PBW)
At a $9.76 billion market cap, PBW just hit an all-time high of $53.62. This ETF is on fire and tracks stocks that operate in the clean energy or energy conservation spaces. Its top holdings include Vivint Solar Inc. (NASDAQ: VSLR), Sunrun Inc. (NASDAQ: RUN), and Nio Inc. (NYSE: NIO).
Now, you can profit on these stocks and ETFs by buying them outright, but that can be an expensive investment for a low rate of return.
The best way to play the renewable energy sector is by purchasing options on stocks and ETFs.
With options, you can minimize risk and maximize returns. Longer-term (30- to 60-day) options will typically increase returns by tenfold as opposed to purchasing the stock outright.
You can make incredible profits with a smaller move to the upside on these renewable energy companies.
With clean energy increasing by 24% in the United States and 45% globally within the next 10 years, we want to get into these trades at the forefront.
Now, these are stocks you'll want in your portfolio - but there's also a vast number of stocks that you don't want to touch...
Almost no one realizes it, but some of the most dangerous, portolio-wrecking stocks are also some of the most popular picks on the market.
That's why the Chief Investment Strategist for Money Morning is going live to shine a light on these unstable names. In this fast-paced, lightning round event, he'll help you make sure none of these toxic stocks are lurking in your portfolio.
To learn how you can tune in, click here. And be sure to download and print your "BUY THIS, NOT THAT" note sheet. You'll want to have this handy during the event - believe me, you're going to get a ton of information.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.
