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Higher Energy Prices Change Everything – These Sectors Look Likely to be the Most Affected

justin freeman
Justin Freeman trader
Updated 23 Jun 2022

Monday 23rd March 2020 marked the bottom of the Covid market crash for three of the world’s major stock indices. From that day on, the NASDAQ 100, S&P 500, and FTSE 100 all began to climb out of the depths of the Covid shakedown, but their rates of recovery were significantly different. By December 2020, the FTSE 100 had gained in value by 35.23%, and the S&P 500 by 69.03%, but the NASDAQ 100 had outperformed and was up 94.1% from the March lows.

There are several ways to approach a market crash, as outlined by this article on what to do when markets sell off. Investors need to have an understanding of when the market has bottomed out, but they also need to keep a clear head and be able to spot the opportunities which come from any realignments in the global economy. If you missed the potential for Zoom, Netflix and Microsoft shares to shoot up in price thanks to the ‘new way of doing things’ in lockdown, then another major realignment, and trading opportunity, is working through the markets right now. Higher energy prices are creating winners and losers in other sectors, and this article picks out some of the best stocks to buy when energy prices go up.

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Higher Energy Prices Change Everything

With energy prices on the up, it's good to keep informed. Below, we'll explore the best stocks to buy when energy prices rise.

FTSE 100 – Daily Price Chart – February 2020 – January 2021 – Up 35.23% From March Lows

ftse 100 daily chart up 35

Source: IG

S&P 500 Index – Daily Price Chart – February 2020 – January 2021 – Up 69.03% From March Lows

sp500 daily chart up 69

Source: IG

NASDAQ 100 Index – Daily Price Chart – February 2020 – January 2021 – Up 94.1% From March Lows

nasdaq 100 index up 94

Source: IG

Best Stocks to Buy When Energy Prices Rise

What Stocks to Buy When Energy Prices Rise

Energy prices have soared in recent months all across the world. Natural gas, oil, electricity and coal are just some of the commodities that are surging in value, but there are some firms which look likely to benefit from the new situation.

1. Best Energy Efficiency Firm – 1Spatial PLC (LSE:SPA)

1spatial plc spa

Source 123RTF

Spiralling wholesale energy prices have led to a range of firms springing up to offer expert advice and business solutions for clients looking to make their operations more efficient. Some of these firms work on making premises more energy efficient or helping businesses setup their energy supplies, but our top pick is small-cap UK-based 1Spatial.

1Spatial Plc operates in an area of the sector with higher operating margins, their business model is about more than insulating business premises. 1Spatial’s focus is on improving the way customers manage their data. This can be in the form of analysing the most energy efficient location for a data centre or helping firms capture and utilise their data in a way that reduces the total spend on energy.

1Spatial PLC – Monthly Price Chart –2010 – 2022 – Thriving on Higher Energy Prices

1spatial plc monthly chart 2022

Source: IG

The 1Spatial share price is already showing signs of upwards momentum and doubled in price between March 2020 and February 2022. It is a small cap company with a market capitalisation of £47.5m, so it might not be a stock to go ‘all-in’ on, but buying 1Spatial stock now offers some insurance against rising fuel prices and provides exposure to an exciting growth stock.

2. Best Renewable Energy Firm – Tesla Inc (NASDAQ:TSLA)

tesla inc tsla renewable energy

Source 123RTF

EV manufacturers tick the box in terms of clean energy but could see demand for their products rising even more as energy prices climb. Legacy vehicles are reliant on one form of energy, petrol or diesel, whereas the electricity EV’s use can be generated by carbon, nuclear and renewable processes.

With rising energy prices casting a shadow over household budget plans, this could be the time for those who have been holding off on switching to EV to take the plunge. Tesla is our favoured EV pick thanks to the company’s strong brand looking likely to be attractive to those who are being squeezed into buying an EV for the first time.

Tesla Inc – Weekly Price Chart –2019 – 2022 – Rebounding On Strong Fundamentals

tesla weekly chart 2022

Source: IG

TSLA stock has recently experienced a pullback and in February printed as low as $691 per share. The subsequent rebound was driven by strong fundamentals rather than high-profile Tweets from founder Elon Musk that reflect optimism about the firm’s ability to meet demand for its product thanks to the Berlin Gigafactory coming online. The German plant alone is expected to be able to produce 500,000 EVs per year, which is a significant step forward considering total global output in 2021 was 930,422 cars.

3. Best Consumer Goods Sector Firm – Electrolux AB (STO:ELUX)

electrolux ab elux

Source 123RTF

High energy prices can be expected to act as a catalyst for other consumer spending decisions to be brought forward. The acute pressure that is being applied on household budgets opens the door to everything from white goods to televisions being upgraded.

Electrolux AB is the world’s second largest household appliance manufacturer based on units sold. Its range of top-end brands includes AEG, which manufactures products that consistently top the rankings in terms of energy efficiency. Crosswinds for the sector include pressure being applied by inflation and higher interest rates, but this is already reflected in the Electrolux share price. With shares almost revisiting the lows of March 2020, Electrolux looks to be undervalued. It currently has a dividend yield of 5.16% and has a P/E ratio of 10.6.

Electrolux AB – Weekly Price Chart –2019 – 2022 – Currently Undervalued

electrolux ab weekly chart 2022

Source: IG

Buying Electrolux shares offers a chance to take a position in a solid performer which is currently out of favour with investors, but which is at the same time well positioned to take advantage of higher energy prices generating demand for its products.

4. Best Firm Able to Pass Energy Costs On – Nutrien Ltd (NYSE:NTR)

nutrien ltd ntr energy costs

Source 123RTF

The degree to which rising energy prices are an issue can come down to how easily the additional costs can be passed on to customers. Fertiliser companies are relatively power hungry, with Stanford University calculating that the sector accounts for 1.2% of the world’s energy use. Natural gas is also used as a raw material in the production of ammonia, which is a building block for many types of fertilisers.

That would paint a bleak picture for the sector if certain supply and demand side issues weren’t combining to mean that fertiliser producers are in a position where they can easily pass any extra costs on. The inelasticity of demand for fertilisers may result in food prices ultimately rising as well, but the share prices of fertiliser stocks are already surging.

Investors are snapping up fertiliser stocks due to the fact they are insulated from any further price rises, and the pick of the bunch is Nutrien Ltd.

Nutrien Ltd – Weekly Price Chart –2019 – 2022 – Breakout Trading Strategy

nutrien ltd weekly chart 2022

Source: IG

5. Best Energy Sector Stock – ITM Power PLC – (LSE:ITM)

itm power plc itm energy sector stock

Source 123RTF

One obvious beneficiary of higher energy prices are firms directly involved in the production of fuels. Traditional carbon-heavy firms such as ConocoPhillips have come back into favour with investors, but the best renewable energy stocks to buy now merit their own research report thanks to those firms being part of two trends, higher energy prices and the shift towards clean energy.

London listed ITM Power has a market capitalisation in the region of £1.58bn and is a big player in the hydrogen energy sector. The jury is out as to what extent hydrogen will compete with solar, hydro, bio and nuclear-based fuel sources, but that uncertainty is reflected in the share price. ITM is a high volatility stock, which will be attractive to growth stock investors looking for scaled up risk-return but also protection from energy price rises.

ITM Power Plc – Weekly Price Chart –2019 – 2022 – Energy Sector Growth Stock

itm power plc weekly chart 2022

Source: IG

To give an idea of the potential returns offered by ITM, the stock shot up by +609% between January 2020 and January 2021.

Some Stocks to Avoid During Periods of High Energy Prices

Some sectors look less able to prosper in a world of high energy prices.

Tech Stocks

One likely loser is the tech stock sector, and the poor performance of the NASDAQ 100 index in Q1 of 2022 reflects shareholders selling out of positions. The catalyst for the exodus seems to be the likelihood that increased manufacturing costs of items such as mobile phones won’t be as easily passed on to consumers in the same way that fertiliser costs are passed onto farmers. Everyone needs to eat, but while they might want a new iPhone 13, a purchase of the latest handset can be put off.

Travel Sector

International leisure and tourism will become more expensive due to rising fuel costs, so the sector needs to be handled with caution. Filtering through the best travel stocks to buy now will allow you to pick out those firms, such as Airbnb, which could benefit from an increase in the number of local holidays being taken. Airlines, on the other hand, face a double whammy of becoming more expensive and under increasing scrutiny in terms of their carbon footprint.

Commodities & Logistics

Logistics companies will be able to pass on some of their additional fuel costs, but trading volumes could decline as products price themselves out of the market. The commodity sector also traditionally struggles during times of higher inflation. Questions also have to be raised about demand levels for the raw materials required to make consumer goods.

What Next in Terms of Energy Prices?

The breakdown of which firms are winners and losers because of higher energy costs does have some grey areas. In some scenarios, firms with the best management team and the ability to make the right calls could outperform their peer group. Finding the best candidates to invest in requires looking at firms on a case-by-case basis.

Take the move towards more people working from home for example. Cyber-security firm Avast PLC has made the decision to give its staff the freedom to manage their own day-to-day working patterns, to choose where and when they work depending on individual situations. This will save on staff commuting costs and could result in greater staff retention.

Goldman Sachs, on the other hand, has called for staff to return to their desks and states this is so that the firm and ambitious staff can benefit from on-site synergies between colleagues.

Avast PLC- Weekly Price Chart –2019 – 2022 – Working from Home

avast weekly chart 2022

Source: IG

Learn to Trade

Online brokers have made trading super easy. Choose one from this list of regulated brokers and you’ll also be signing up to a platform which follows stringent client security protocols.

It takes minutes to open an account and the process is completed using handheld or desktop devices. Practice using a Demo account and once you’ve got to grips with the basic principles of risk management, then booking a live trade using real cash is as simple as entering the quantity of stocks you want to buy into a data field, and clicking ‘Confirm’.

At that point, cash which you have deposited in your brokerage account will be converted into a stock position which will fluctuate in value in line with market prices. When the time comes to sell your energy-proofing position, simply reverse the process to crystalise your profit or loss.

Final Thoughts

Few stocks are immune to the effects of rising energy prices and even fewer appear set to prosper because of them. Spiralling energy bills do appear to be part of the landscape for the foreseeable future, so the time to take action is now.

Navigate to one of these trusted brokers to ensure you get your trading off to the best possible start. Opening an account with a well-regulated broker and buying into the firms which offer protection from rising prices is a quick and easy process.

justin freeman
Justin is an active trader with more than 20-years of industry experience. He has worked at big banks and hedge funds including Citigroup, D. E. Shaw and Millennium Capital Management.