The price of energy, particularly in the consumer marketplace, can be a major driver of inflation. After all, the type of energy a region or country depends upon has the potential to greatly impact the cost of its goods and services.
For example, in oil-rich states in the U.S. and globally, the price of crude oil tends to be lower due to a lack of transportation and storage costs. This, in turn, results in cheaper derivatives of oil, such as gasoline or diesel, ending in cheaper products that need crude oil for their synthesis. In other places, cheap and accessible uranium enables nuclear power as an option for even cheaper energy and thereby electricity.
However, not all energy providers are created equal, and some energy stocks are more susceptible to macroeconomic trends than others. Whether it’s wind, solar, nuclear, or natural gas, no form of energy is immune to the effects of a broader regional impact on its supply. As such here are three energy stocks to sell due to risks of rising production costs and, ultimately, lowered competitiveness.
Invesco Solar ETF (TAN)
For decades, solar has been touted as one of the cleanest forms of energy. Even Elon Musk has repeatedly called for using wide expanses of American desert lands to power the nation. According to him, 10,000 square miles of solar farms could power the whole country. While not technically feasible with current technology or resources, it’s the kind of talk that has made investors bullish on solar power exchange-traded funds (ETFs) like the Invesco Solar ETF (NYSEARCA:TAN).
Unfortunately for the fund, investor fervor for solar energy has taken a dip in the last year, leading to a 32% loss over the last 12 months. As with all ETFs, TAN gives investors insights into the overall adoption and feasibility of a specific sector. In this case, solar energy as a whole has not performed to expectations while nuclear energy continues to gain traction globally. Thus, it’s not likely that Invesco’s Solar ETF is the way to go for mid- to long-term returns, as solar may remain a niche energy source for the foreseeable future.
Global X Wind Energy ETF (WNDY)
Another clean energy ETF, the Global X Wind Energy ETF (NASDAQ:WNDY), has seen nearly 20% of its value vanish over the last year and almost 50% gone over the last five. In large part, this is due to the sheer cost of scaling wind energy. Considering that the very largest turbines cost in the ballpark of $400 million while only generating 12 megawatts, it’s easy to see why an ETF relying on wind farms has struggled to go anywhere.
Moreover, when compared to nuclear energy, the industry appears even less profitable. For reference, one average American nuclear reactor generates as much energy as 431 2.32-megawatt turbines (which is the average utility-scale turbine size). These commercial turbines cost on average $3 million to produce, which extrapolates to nearly $1.3 billion and hundreds of acres of land to match one operating nuclear reactor.
While the megawatt-hour cost of wind and solar is often less than that of nuclear, the capital investment needed to reach optimal energy production simply isn’t on WNDY’s side. Thus, with limited mid-term profitability, WNDY is among the energy stocks to sell.
Ameren (AEE)
Despite an attractive 3.8% dividend and long-running reputation among American energy companies, Ameren’s (NYSE:AEE) best days could be behind it. This isn’t simply because the stock has lost 12% of its value over the last year; the bigger issue could be its relationship with coal power plants.
While the company has committed to phasing out its largest and most polluting plants, the capital investment required to overcome the loss of energy production is likely to dampen the stock’s growth in the short term. Moreover, though its goal is venerable and likely to improve the company’s long-term trajectory, a second quarter of dipping revenues and net income could cause a selloff that pushes its price further down.
Thus, Ameren is among the energy stocks to sell for now, until it finds a new floor, after which it could be a strong candidate for a more forward-looking portfolio.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.