commodities

Cheap oil means bargains in these energy stocks

If one good thing can be said about cheap oil, it is that the trend it generates is a relatively stable one and the cascading effects can bring some lucrative opportunities to those who know where to look.

Naturally, oil companies may not be seeing things in the same light, but the fact is things are changing and traders need to watch out for these. For instance, ConocoPhillips lost $3.5 billion in the last quarter and their dividends are less than a third of what they were not too long ago. All in all, as most people are distraught over the declining oil prices and the panic that inevitably ensued, everybody seems to have forgotten that there are some lucrative opportunities up for grabs as a result.

Aside from that, cheap oil in most instances means cheap gas, more consumer spending and an entire array of effects that go above and beyond cheap energy stocks, although buying them while their price is low does seem like a good idea. While a decreased demand and an increased production being a result of various geopolitical events coming together may seem like this situation will last at least for a little while longer, there is one inescapable fact: energy demands may spike or plummet, but they never go away. Sooner or later, people are going to need more energy and whatever energy companies survive until then will see a sharp increase in stock market value.

A particularly interesting side note is that, even if oil companies are hurting right now, the alternative energy sector is in even bigger problems, even if they are only temporary. Lots of cheap oil means the demand for alternative energy sources is on the decline. This reduced pressure may result in a temporary loss of value as people tend to make rash decisions once panic sets in. The key word is ‘temporary’ loss of value, as the alternative energy business will start booming again as soon as the energy demand spikes or the oil production drops again.

What enables shrewd traders to cash in on cheap alternative energy stocks is the fact that even though solar panels have not been in high demand lately, long-term trends and the general outlook are in favor of these companies, so moments like these are the only time one can get in on the action at (relatively) bargain prices. All it takes is to see beyond the sea of cheap oil and look at all that green sector that lies beyond.

For instance, the U.S. has not wavered their incentives on renewable energy. Regardless of who ends up in the White House after the next election, every budget that Congress passes in the next few years will allow for generous incentives to the renewable energy sector. This is especially true for companies specializing in wind and solar energy. According to some estimates, over the next five years, there will be more new renewable energy sources built in the U.S. than all of the existing ones combined. In other words, the number of new energy sources and the amount of gigawatts they will produce will surpass all of the existing ones in the United States – this is especially true for solar panels, which are currently in relatively low demand.

This safe, reliable trend will enable companies to plan ahead, taking full advantage of financial incentives and tax cuts, plus the long-term expectations in light of fluctuating supply and demand, means that companies specializing in production of solar-power systems have a stable and prosperous future ahead of them. According to Bloomberg estimates, in the next five years the tax credit will expire and may or may not be replaced by a similar or even larger form of monetary incentive. However, what is certain is the fact that this new electricity gained from solar and wind sources will be cheapest in several U.S. states, while in the others it will be in a position to compete against the rest of the energy sector on an equal footing, more or less.

Furthermore, legislative measures are expected to reign in the companies who rely on dirty energy. Otherwise, it would still be more economically feasible for them to make use of coal and other sources to produce the energy which they would later sell to consumers at a far more favorable margin. If all they had to go on was sheer energy demand, nothing would ever get done – not until it was too late, anyway. But court decisions could and probably will change all that, making the alternative energy more attractive to produces and consumers alike, especially from the financial standpoint.

 

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