When governments shut down their economies last year to slow the spread of the coronavirus, it caused energy demand to fall off a cliff. While demand has steadily recovered as some restrictions have been lifted, it’s not yet back to its pre-pandemic level since not all economies have fully reopened. However, the rollout of vaccines should allow governments to open things wide up in the coming months.
That should give energy demand a shot in the arm, boosting the fortunes of energy stocks. Three that our contributors believe could directly benefit from the economic reopening are utility Consolidated Edison (NYSE:ED), refiner Phillips 66 (NYSE:PSX), and oil producer Devon Energy (NYSE:DVN). Here’s why they have the most to gain as the economy reopens.
Getting back to work
Reuben Gregg Brewer (Consolidated Edison): Consolidated Edison’s utility business is focused on the New York City area. That’s been a headwind during the coronavirus pandemic because people moved out of the city and, more important, offices and stores were shut down. Basically, people wanted out of the population dense Big Apple in the hope of avoiding getting COVID-19. In the early uncertainty of the crisis, that made a lot of sense and it’s reasonable that investors were worried about the impact on Con Ed’s business.
But times have changed and Con Ed’s stock is offering up a historically generous 4.1% dividend yield. The big turning point here is the vaccine push currently taking shape across the nation, which should result in more people moving back into cities, and offices and stores reopening for business. Sure, there will be changes like increased remote work, but the upshot for Con Ed is likely to be a return to more normal operations. And that is good news that will eventually flow into the stock price.
Con Ed is, at best, a slow growing utility. But it is a reliable dividend payer, with over four decades of annual dividend hikes under its belt. For conservative income investors it’s worth a closer look as the economy starts to reopen.
On the road to recovery
Matt DiLallo (Phillips 66): Pandemic-related economic shutdowns caused demand for refined petroleum products like gasoline, diesel, and jet fuel to crater early last year. While consumption has steadily recovered, it’s not yet back to its pre-pandemic level. That has kept the pressure on refining margins, impacting the earnings of refinery operators like Phillips 66.
However, with vaccines rolling out, refined product demand is about to get a booster shot. Increasing mobility should drive higher gasoline consumption as more workers return to their daily office commutes. On top of that, there’s a lot of pent-up demand for traveling to see family, take vacations, and hold in-person meetings as Zoom fatigue grows. That should help fuel a rebound in jet fuel. Likewise, economic growth should drive a…
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