Sector-specific investing can help you broaden and diversify your portfolio. But each sector comes with a unique assortment of benefits and risks.
What are energy stocks?
Energy stocks fit into the energy sector of the stock market — one of 11 sectors defined by the Global Industry Classification Standard (GICS). Companies in the energy sector focus on the location, mining and production of oil, coal and natural gas.
What subcategories are included in this sector?
Companies that fall within the energy sector can be sorted into the following subcategories:
- Oil and gas. At the start of the supply chain, we find companies responsible for drilling and producing oil and natural gas.
- Pipelines. These mid-stream providers transport oil and natural gas from the drilling site to their respective refineries.
- Mining. Mining companies produce coal that helps fuel power plants.
- Renewable energy. Those that produce wind and solar energy are considered renewable energy providers.
- Chemicals. This subcategory is comprised of companies responsible for refining oil and gas into specialty chemicals.
How to invest in the energy sector
There are two ways to invest in the energy sector: individual stocks or exchange-traded funds. Individual stocks are highly liquid but offer limited exposure. Sector-tracking ETFs are less risky than stocks and offer portfolio diversification but typically pay lower dividends and have higher fees.
You’ll need a brokerage account to invest in stocks and ETFs. Here’s a quick look at the process:
- Select a platform. Explore your brokerage account options to find the platform that best matches your investment goals.
- Open an account. Most brokerage accounts can be opened online. You’ll need to fund your account before you can make trades.
- Pick your securities. Use your platform’s research tools to search for stocks and ETFs by sector.
- Place an order. Once you’ve found a security you’d like to purchase, place your order.
- Track your investments. Monitor your investments by logging into your brokerage account.
What stocks are in the energy sector?
Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.What ETFs track the energy sector?
Popular ETFs in the energy sector include:
- Energy Select Sector SPDR (XLE)
- Vanguard Energy ETF (VDE)
- iShares Global Energy ETF (IXC)
- VanEck Vectors Oil Services ETF (OIH)
- iShares U.S. Energy ETF (IYE)
- Alerian MLP ETF (AMLP)
How is the energy sector performing?
The stock market is in constant flux, and individual stocks can change prices second by second. But you can use the performance of ETFs to gauge the average performance of a stock market sector over time. The graph below tracks the Energy Select Sector SPDR ETF (XLE).
Why invest in energy stocks?
Energy is a resource the world depends on. The energy market is massive, and for good reason — this resource has been in high demand for many years. And even accounting for the shift towards clean energy, the world is still decades away from being free from oil, coal and gas.
Profitability in the energy sector is largely tied to the price of crude oil, but stock prices are typically stable and frequently pay dividends. Income from energy stocks may also be tax-sheltered — an attractive incentive for investors.
What unique risks does the energy sector face?
Politics play a sizable role in the energy sector. If companies explore for energy resources in unstable territories, projects are at risk of being sidelined or halted in the face of political turmoil.
Incorrect geological reports, oil spills and accidents can be costly for investors. This sector isn’t without its risks and investors should weigh the benefits against the drawbacks before allocating funds.
Compare stock trading platforms
*Signup bonus information updated weekly.
Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.
Bottom line
The energy sector offers the opportunity for profit but carries a unique set of risks. The best way to invest depends on your portfolio and your investment goals. Review your trading platform options to find the brokerage account that best meets your needs.
Frequently asked questions
More guides on Finder
-
Best Roth IRA accounts of 2021
These Roth IRAs stand out for their competitive fees, intuitive platforms and practical research tools.
-
Investing strategies: Contrarian investing
Contrarian investing can help you profit by going against the herd. Learn more.
-
Investing for kids: Get started the right way
Custodial brokerage accounts for kids — because it’s never too early to start saving and investing.
-
Preferred stock vs. common stock
Learn the basics of these two stock types that offer company ownership, but with unique differences on shareholder voting rights, payouts and more.
-
10 ways to invest for social justice
Put your money where your mouth is by rethinking how you invest to support BIPOC, LGBTQ+ and other marginalized communities.
-
Sofi vs. Acorns
Two investing platforms, one of which comes with monthly maintenance fees.
-
Why price-to-earnings ratios matter (and 5 low P/E stocks worth a look)
A stock’s price-to-earnings ratio can help you decide whether to include it in your portfolio.
-
T. Rowe Price review
Features, fees and complaints to consider before you apply for a T. Rowe Price account.
-
Edward Jones review
Edward Jones is a full-service brokerage firm that grants every investment account access to a financial advisor.
-
Energy costs by state
Which states have the most expensive and cheapest energy costs?
Ask an Expert
