How to Evaluate Energy Stocks

by Ben Taylor

The market for energy stocks contains many types of companies, ranging from traditional coal, natural gas and petroleum companies to those specializing in green and alternative energy. Some companies blend traditional and alternative energy sources to diversify their sources of revenue. Evaluations of energy stocks requires information such as the type of energy the company produces and in what quantity, as well as the company's market share and its plan to compete against other energy companies. To evaluate an energy stock -- and to determine how it fits into your investment or trading portfolio -- you also need a time frame to contextualize its performance.

1. Establish your investment or trading goals to contextualize the energy stocks you will evaluate. Stating your long-term and short-term goals, and your expectations associated with energy stocks, will help you prioritize the information you gather while evaluating each stock. Consult unbiased resources such as the U.S. Department of Energy or SNL Energy for industry-specific data with which you can compare stocks.

2. Download the financial statements for each company whose stock you plan to evaluate. Public companies file these statements quarterly and annually with the Securities and Exchange Commission, and many post them on their websites. Record financial data such as the company's earnings per share, revenue, assets and its reported performance for the periods it reports.

3. Group the stocks into sectors such as traditional energy, green energy, and stocks whose companies are involved in both. Note the sorts of consumers that each firm supplies, its financial performance and its market share. Consult third-party research firms, such as Hart Energy and Evaluate Energy, to gather data such as cash flow throughout the energy market, mergers and acquisitions, explorations, and progress in developing new technologies.

4. Record all market data pertaining to each energy stock, its market and its competition, using a computer spreadsheet. Use the data you gathered and the reports and recommendations from third-party firms to determine which energy stocks would make good long-term investments and which are candidates for short-term trades. For example, in an article on the Barron's website, BlackRock Energy & Resources Fund Manager Daniel J. Rice III predicts oil companies are a good long-term investment because of his analysis of oil prices.

5. Expand the pool of energy stocks you are evaluating, to create the clearest image of the energy market or of the segment on which you are focusing. Sound investment decisions are grounded in representative research, so update your data regularly and consider subscribing to automated emails and other notifications that alert you when a stock's financial position changes.

Items you will need

  • Financial statements
  • Energy market research
  • Computer spreadsheet

About the Author

Ben Taylor has been writing since 2005 and has had work published by WEKU-FM and West Virginia Public Broadcasting both on air and online. Taylor holds a Master of Arts in English from Eastern Kentucky University and currently teaches composition and ESL there.

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