Are Energy Penny Stocks The Right Call in 2021?
Although there have been a few selloffs in energy penny stocks recently, investors seem keen on finding value in this industry. After oil prices crashed last year, the energy sector was trading at extremely low levels. However, this has turned around greatly in the past few months.
In 2021, the energy sector is one of the top performers in the S&P 500. Data from Yardeni Research shows that YTD, as of March 23rd, the energy sector partly outperformed all other sectors within the S&P 500. While the S&P enjoyed a 4.1% rise YTD, energy has grown by over 26.3%. Also, energy & oil sector ETFs, such as the ProShares Ultra Bloomberg Crude Oil ETF (NYSE: UCO), have shot up by almost 50% this year.
Top Energy Penny Stocks to Watch
A lot of this sentiment is based on the idea of the economy reopening as Covid cases continue to drop. And this seems fair, as vaccine distribution is at an all-time high, with cases continuing to trend down. Also, investors should consider the short-term effects of the Suez Canal blockage. If you’re not familiar, a huge shipping vessel is currently wedged sideways in the Canal, which is one of the most trafficked shipping arteries in the world.
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This has led to worries of a drop in oil supply, which has led to heightened oil prices. While this extenuating circumstance most likely will be a short-term issue, it is something to consider. So with this in mind, here are four energy penny stocks that could be worth watching.
- Southwestern Energy Company (NYSE: SWN)
- Ur-Energy Inc. (NYSE: URG)
- Kosmos Energy Ltd. (NYSE: KOS)
- Uranium Energy Corp. (NYSE: UEC)
Southwestern Energy Company
As far as pure-play energy penny stocks go, SWN is definitely worth a mention. Southwestern Energy explores and produces natural gas, natural gas liquids, and oil. Last month, shares of SWN rose after it announced its fourth-quarter and full-year earnings.
“In 2020, Southwestern Energy delivered on its commitments, exceeding expectations on all key metrics while navigating the uncertainties of a global pandemic and the associated challenging commodity price and operating environments. Southwestern Energy has entered 2021 with greater scale and resilience prepared to capture increasing value from more than one trillion cubic feet equivalent of expected annual production flowing into diverse and key markets.”Bill Way, CEO of Southwestern Energy
While it maintained balance sheet strength, the company also announced the completion of its Montage Resources acquisition. Also, it invested capital of almost $900 million and delivered over 100 wells to sales during that period. It’s important to consider that as a large energy company, SWN is subject to greater exposure to the energy industry as a whole.
Since the beginning of March, shares of SWN have jumped by over 15%. The company works off of four main principles. Those are; creating sustainable value, protecting financial strength, increasing scale, and progressing best-in-class execution. With these pillars considered, SWN remains an interesting pure-play energy penny stock to watch right now.
URG is a penny stock that we’ve written about plenty of times in the past year or so. On Friday, March 26th, analysts at HC Wainwright increased the firm’s price target on URG to $2.10 per share from $1.40. This is a substantial increase, and the price target also comes with a buy rating for Ur-Energy. Also, we see that Ur-Energy is well-capitalized after completing a $15.24 million public equity offering only a month ago.
As with any industry, capital is the most important factor for growth. This is why energy companies often engage in fundraising like this. While Ur-Energy is an energy company, it is quite different from SWN. Ur-Energy is a uranium mining company working in the Lost Creek area of southern Wyoming.
Its Lost Creek facility has produced and shipped more than 2.6 million pounds of uranium ore. Currently, it has an application to begin working at its LC East project and the Shirley Basin project. While you may think that uranium is not an effective form of energy, nuclear power is, to date, one of the most efficient and renewable ways of producing power.
Although total dependency on nuclear energy may not be the case, the uranium energy industry’s vast potential is mostly untapped right now. Despite receiving a bad name from events like Chernobyl, nuclear power is usually extremely safe if all operations are going correctly. So for an alternative energy penny stock to watch, URG could be an interesting call.
Kosmos Energy Ltd.
Since its massive upsized $450 million offering earlier in March, investors quickly began to pay attention to Kosmos Energy. As stated earlier, financing like this is crucial to the success of any energy company. For some context, Kosmos operates similarly to Southwestern Energy in that it produces oil and gas.
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Its key assets are located in offshore Ghana, Equatorial Guinea, and the Gulf of Mexico in the U.S. These oil-rich areas helped bring in more than $366 million in revenue during the fourth quarter of 2020. While EPS in this time dropped by 33% YoY to $0.12, this is still a good sign of profitability. Last month, the rating agency Moody’s also changed its outlook on KOS stock to stable. This is supported by Kosmos’s commitment to producing high-quality oil from its broad range of assets.
Also, the rating details that KOS has “relatively low base decline rates, balanced geographic exposure in West Africa and the U.S. Gulf of Mexico, a solid track record of organic and acquisition-driven growth, and a visible pipeline of low-risk development projects.
But with its well-funded operations, Kosmos should be able to benefit from any economic reopening in the U.S. and abroad. While it is a difficult time to try and predict the future of the energy sector, KOS looks like it could be well-positioned and might be worth following.
Uranium Energy Corp.
Similar to URG, Uranium Energy Corp. is a U.S.-based miner of uranium ore. Investors consider it to be one of the most pure-play uranium penny stocks due to its market position. The company specializes in low-cost and environmentally friendly in-situ recovery or ISR uranium mining. In addition to its other facilities, UEC holds claim to the Reno Creek project. This project is regarded as the largest permitted pre-construction ISR uranium project in the whole U.S.
Uranium Energy Corp. also has a large pipeline of uranium-based assets that contribute to its value profile. This includes equity stakes in several uranium companies around North and South America. At the beginning of this week, Uranium completed a fundraising round, bringing in gross proceeds of $30.5 million in a registered direct offering. It states that these proceeds will go toward uranium purchases as well as general and working capital.
In addition, its resource reserves total 1.4 million pounds of uranium with another 1.4 million expected to be delivered by May of this year. Reports show that nuclear power provides electricity to 1 in 5 homes in the U.S. Although this is a large amount, it could be much more. EVP of UEC, Scott Melbye, states that “nuclear power can work hand in hand with other green technologies, like wind and solar, to help advance the American clean energy revolution.”