Energy Favorites

01/23/2014 7:00 am EST

Focus: ENERGY

Despite impressive gains this year, leading energy stocks remain cheap relative to other market sectors, suggests Robert Rapier. Rather than focus on one specific stock, the editor of The Energy Strategist offers a package of favorite ideas in various energy sub-sectors.

Given the likelihood of continued strength in energy commodity prices, 2014 should prove another fruitful year for these underappreciated overachievers. Below are stock recommendations predicated on our outlook for the energy patch next year.

Natural Gas prices surged recently to an 18-month high, as a cold snap gripping much of the US spurred big withdrawals from storage.

Supply, meanwhile, is constrained by the fact that, even at the current elevated price, few gas projects outside of the bountiful Marcellus shale can compete with the returns available in crude oil. Our favorite Marcellus drillers are Cabot Oil & Gas (COG) and Antero Resources (AR).

Among the alternatives to oil and gas, solar has flashed the most promise of late; coal remains buried in a painful slump, nuclear continues to be dogged by safety issues in the wake of Fukushima, and biofuels remain too unproven and risky as an investment.

We're big fans of solar pioneer First Solar (FSLR), which continues to drive down the cost of photovoltaic cells, to win new business from US utilities.

The coming year looks auspicious for selected refiners. The domestic margin for the refining industry will likely depend on the continuation of recently encouraging US demand trends, and on that score, many refining stocks appear to have priced-in quite a bit on the potential good news.

Our recommended stocks in the camp are HollyFrontier (HFC), Valero (VLO), and Western Refining (WNR).

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