Investment bank picks the best energy stocks to buy right now — here are 9

Published Thu, Sep 2 20217:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Investment bank RBC has published its latest "global energy best ideas list," featuring stocks that it says provide attractive entry points for investors. "The RBC Capital Markets Global Energy Best Ideas List highlights our Research Analysts' highest conviction names across the global energy sector at the time of their addition into the list," RBC said in a Aug. 31 note. It said the list's objective is to highlight individual stocks that are expected to outperform and flagged that since it started the list in 2013, its picks are up 39.4% compared to the S & P Global Energy Sector ETF, which is down 15%. RBC's picks slipped 0.3% in August, while the ETF fell 0.9%. In Tuesday's note, RBC added Finnish renewable fuel firm Neste to its list. While the firm's profit has been "underwhelming," according to the analysts, the stock is now "skewed to the upside" and provides a good entry point in the longer term, the bank said. NextEra Energy , a large renewables developer, has also seen its stock underperform, RBC said, creating a "unique buying opportunity." "We expect the overall industry will see accelerated growth, and that NEE will maintain or further its standing as a renewable mega player," the analysts stated. Shell currently has an "undemanding" valuation, the analysts said. They flagged that the Anglo-Dutch oil firm had a 14% free cashflow yield on average between 2021 and 2025, which is "significantly" ahead of peers. Investors use cashflow yield to assess a company, with a higher number suggesting a firm has enough money to pay dividends as well as clear debts. The bank also expects Shell to return around 50% of the value of its market capitalization to shareholders between now and 2026. RBC's analysts also like Canadian firm Algonquin Power & Utilities for its "strong growth profile" and renewable energy arm likely to benefit from President Joe Biden's zero carbon plans. They also noted its utility business, which has more than 1 million mainly U.S.-based customers. Oil and gas stocks were pummeled during the pandemic, with a record drop in oil production in 2020 . The sector is now in focus as the world starts to open back up, with analysts at Goldman Sachs noting the companies on its natural resources conviction list returned more than 10% on average since mid-July . More RBC stock picks Indian solar firm AZRE also makes RBC's list for its government clients and recent power auction wins and the bank said it is likely to benefit from the country's renewable energy targets. The analysts also highlighted its track record in buying land for projects, providing a "significant" advantage over competitors. Oil firm California Resources Corp provides "an attractive entry valuation point, strong balance sheet and peer leading FCF [free cashflow yield] outlook," the analysts wrote. They also highlighted the company's renewable efforts in carbon capture and storage, and solar projects, which they said could match the oil and gas business for cashflow in the long term. U.K.-based power firm Drax is a pick for RBC because of its acquisition of renewable energy firm Pinnacle, as well as its focus on bioenergy with carbon capture and storage, known as BECCS, a process of extracting energy from biomass and storing the carbon produced. "We see the balance sheet strengthening longer term," the analysts added. U.S. energy firm ConocoPhillips is on RBC's best ideas list for its "well-defined and attractive investment proposition," including annual dividend growth and potential to return about 80% of its current market capitalization to shareholders over the next 10 years, the analysts said. Norwegian energy firm Equinor is set to benefit from "booming" commodity prices, RBC said, and it also expects a strong improvement in free cashflow yield this year. "We continue to see a constructive risk-reward, and our cash flow estimates are well ahead of consensus," the analysts wrote.

A cyclist passes oil silos at the Royal Dutch Shell Pernis refinery in Rotterdam, Netherlands, on Tuesday, April 27, 2021.

Peter Boer | Bloomberg | Getty Images

Investment bank RBC has published its latest "global energy best ideas list," featuring stocks that it says provide attractive entry points for investors.