Yahoo Finance Kevin O'Leary says court ruling will have 'major impact' on energy sector — how to get in on the action
In January, U.S. President Joe Biden’s administration announced a pause on issuing new permits for liquified natural gas (LNG) exports. The decision was subsequently challenged by 16 Republican-led states in court.
On July 1, U.S. District Judge James Cain, Jr. sided with the states, overturning the pause. In his ruling, Caine stated that the halt was “completely without reason or logic and is perhaps the epiphany of ideocracy.”
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In an interview with Fox Business, "Shark Tank" investor Kevin O’Leary shared his thoughts on the court ruling.
“You can’t run an economy without energy,” he said. “The debate we’re having in America is the future of fossil fuel and hydrocarbons. Clearly, the existing agenda … the current administration is against that fuel.”
O’Leary acknowledges there are challenges in diversifying America’s energy sector, however, he views this court ruling as a transformative moment.
“This ruling is going to have some major impact on the energy sector, one of our 11 sectors of the S&P [500], which has been depressed, if you want to call it that, from a price earnings ratio [perspective] for the last four years because it was really a blanket decision by agencies that could force them not to expand pipelines, not to expand on refineries. That’s all going to be challenged now,” he predicted.
The energy sector indeed stands out in terms of valuation. According to Finviz, energy has the lowest price to earnings (P/E) ratio and the lowest forward P/E ratio among the 11 sectors of the S&P 500.
'A very vibrant hydrocarbon industry'
O’Leary highlighted the significant advancements in energy technology compared to models of decades past. He also advocated for educating American voters about the role of the hydrocarbon industry.
“When people talk about not building refineries, it’s based on technology from 1972. Today you can build a refinery that’s almost carbon neutral by scrubbing and sequestering carbon,” he said. “So the industry should take some blame on education.”
Indeed, strides have been made in carbon capture and storage technology, however, a recent paper published in Nature contends a truly net-zero refinery may be achievable as early as 2050.
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Looking ahead, O’Leary is optimistic about America’s energy future under potential new leadership. He specifically mentioned Doug Burgum, the Republican governor of North Dakota, as a strong vice-presidential candidate with a focus on energy.
“Burgum, if he is VP, [is] clearly a very strong energy component player, we’re going to have energy security, we’re going to have energy independence and we’re going to have a very, very vibrant hydrocarbon industry here that is compliant with concerns,” O’Leary predicted.
Capitalizing on energy sector growth
Given the evolving landscape of the energy sector and the optimistic views from O’Leary, investors have several strategies available to tap into the potential growth of the industry.
One approach is to seek out stocks of companies that are leading in oil and gas production, especially those investing in technologies to make hydrocarbon extraction and processing cleaner and more efficient. Companies that are proactively implementing new technologies to reduce carbon emissions may warrant particular attention.
Infrastructure is another critical component for the hydrocarbon industry. Investors might want to look into companies that own and operate pipelines, LNG facilities and refineries. These infrastructure assets play a vital role in the efficiency and safety of hydrocarbon transportation and processing.
For investors who prefer not to pick individual stocks, there are also exchange-traded funds (ETFs) that provide diversified exposure to the energy sector. ETFs allow investors to spread their risk across various companies without having to select individual winners and losers. For broad exposure to energy, investors can consider options like the Energy Select Sector SPDR Fund (XLE). For more targeted investments in specific segments of the market, names like the Tortoise North American Pipeline Fund (TPYP) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) can provide a starting point for further research.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
