3 Risky Energy Stocks to Avoid at All Costs

TL;DR

The three risky energy picks are Plug Power, Valero, and Exxon Mobil because they face weak capital returns, rising input costs, or uncertain long-term demand. Plug Power trades at about 22 times sales despite lacking a large-scale commercial demonstration, while Valero faces oil above 100 and Exxon remains dependent on oil and natural gas. Read on for the specific risks behind each pick.

Transcript

[Applause] i think a lot of investors are looking at renewables right and and they're looking at some pretty marginal companies um as a result so and and i think some are also looking at some of those marginal companies that their stocks are well down right over the past year but are still trading for um crazy multiples crazy multiples particularly... Read More

Key Insights

• 🪡 Some investors are interested in renewables and marginal companies but need to be cautious.
• 🤨 Plug Power has a history of raising capital and failing to deliver on promises.
• 😀 Refiners face risks from high oil prices and potential demand destruction.
• 🚙 Exxon Mobil's future is uncertain due to the shift towards renewables and electric vehicles.
• 🛢️ Renewable energy and oil industries may see value destruction similar to what occurred in the coal industry.
• 👨‍💼 Plug Power's main business is hydrogen fuel cells for forklifts.
• 😮 Refiners like Valero have challenges due to rising input costs for corn and fertilizer.

Questions & Answers

Q: Which three risky energy stocks should investors avoid?

The speakers identify Plug Power, Valero, and Exxon Mobil as energy stocks to avoid or approach cautiously. Their concerns differ: Plug Power has repeatedly consumed investor capital, Valero faces near-term input-cost pressure, and Exxon Mobil has a murky long-term outlook tied to oil and natural gas.

Q: Why is Plug Power considered a risky energy stock?

Plug Power trades at about 22 times sales but has not demonstrated its technology at a large commercial scale. The company is more than 20 years old and is described as having a long history of raising and consuming investor capital.

Q: What is Plug Power's main business today?

Plug Power's major current market is hydrogen fuel cells for forklifts. It is also working on technology to make hydrogen, store energy in it, and extract energy from it.

Q: What does Plug Power's return on invested capital indicate?

The speaker says Plug Power's return on invested capital across its existence is negative 10. This is presented as evidence that the company has destroyed invested capital despite achieving some growth.

Q: Why could refiners face near-term risks when oil is above 100?

Refiners must buy oil at prices above 100, creating input-cost pressure even while oil producers benefit. They may also face demand destruction if high gasoline prices cause people to reduce their driving.

Q: Why is Valero viewed as riskier than some other refiners?

Valero does not have the midstream business that Phillips 66 has. Its ethanol operations also face pressure from rising corn and fertilizer prices, leaving its two main businesses exposed to headwinds.

Q: What is the outlook for Exxon Mobil over the next one to five years?

The speaker says Exxon Mobil could generate substantial cash over the next one to five years. However, this near-term possibility does not eliminate concerns about its longer-term dependence on oil and natural gas.

Q: Why is Exxon Mobil's long-term future considered uncertain?

Exxon Mobil is described as a macro bet on the future of oil and natural gas. The speaker expects more renewables and electric vehicles over time and warns that oil and gas could eventually experience value destruction similar to the coal industry, although over a longer period.

Summary & Key Takeaways

• Many investors are interested in renewable energy companies, but they should be cautious of investing in marginal companies with high stock prices and questionable financials.

• Plug Power, a hydrogen fuel cell company, has failed to demonstrate its technology's efficacy on a large commercial scale despite a long history of raising capital.

• Refiners, like Valero, face risks from high oil prices and potential demand destruction, while Exxon Mobil's long-term prospects are uncertain due to the future of oil and natural gas.