NextEra Energy's recent weakness is surprising, but that doesn't damage the case for the stock potentially benefiting from high oil prices.
When petroleum prices surge, investors often rush to embrace the usual suspects. Those include exploration and production equities as well as shares of integrated oil giants. With conflict raging in Iran, that approach has been rewarded.
Still, there are other beneficiaries of elevated oil prices, some of which may surprise investors. Renewable energy stocks, including solar energy names, have a knack for shining when oil surges because the commodity is costlier to consume, and the economic allure of renewables comes into focus.
That brings us to NextEra Energy (NEE +0.30%).
This utility stock could be a $100 oil winner. Image source: Getty Images.
As NextEra operates a regulated utility, it would be reasonable to expect the stock to show its defensive mettle during geopolitical turmoil; however, it's actually down 2.5% over the past month. Obviously, that's disappointing. After all, utilities stocks are viewed as shelter-from-the-storm plays when market turbulence runs hot.
A case can be made that NextEra's recent lethargy is an example of the market getting it wrong, or that the stock is a baby being thrown out with the bathwater, because the company has multiple avenues to potentially benefit from $100-per-barrel oil.
First, NextEra is one of the top renewable energy developers and operators in the country. It was quick to embrace wind power, allowing it to secure long-term contracts and prime locations for wind farms. It's also a major player in the solar energy arena. So if oil prices stay "higher for longer," NextEra doesn't need to pivot to benefit because it's already where it needs to be to capitalize on that scenario.
Second, NextEra is also a prominent natural gas utility. Previous eras of high oil prices confirm that when crude is expensive, end users often switch to cheaper natural gas. Put these two points together, and it's fair to say NextEra covers a lot of high oil price bases.
And for good measure, the company's natural gas footprint gives it some exposure to the data center trade because that commodity powers some data center hubs.
Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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