By Avi Salzman

Energy has taken center stage in the first month of President Donald Trump's second term. It's the linchpin of his plan to tame inflation, because oil drilling can drive down prices at the pump. And Trump sees oil and gas as America's most powerful asset in trade negotiations. The U.S. has an abundance of those resources, and some of its biggest rivals, like China, don't.

"We're going to make more money than anybody's ever made with energy," Trump said in the Oval Office earlier this month.

It's less certain that energy investors will be rolling in dough, too.

Trump's early moves in energy have been dramatic and controversial -- and haven't been great for stocks. Some, like his decision to halt already-approved payments on energy loans and grants, quickly landed in court. Others, like his tariffs on Canadian and Mexican energy and other products, have unsettled American companies and upset allies. Those tariffs are on hold until early March. But the fallout, and the possibility that Trump will remove sanctions on Russian oil, have knocked oil prices and stocks lower. The Energy Select Sector SPDR exchange-traded fund, which mostly reflects shares of large oil producers, is down 1.2% since the day before his inauguration, and up 3.8% since he won the election, versus the S&P 500 index's 5.8% gain.

Some of the best opportunities in energy align with Trump's interests, but they tend to be in areas that have demand drivers beyond federal policy. As things stand today, natural gas looks best positioned among energy segments, followed by, in order, nuclear power, oil, solar, and wind.

The centerpiece of Trump's plan has been to declare an energy emergency, which he says gives his administration broad powers to do things like approve pipelines and power plants without going through the usual regulatory hoops. Trump describes the state of American energy in dire terms, calling it "dangerous" and "precariously inadequate." But there's ample evidence to the contrary. U.S. oil production is at record highs, and the country produces so much natural gas that suppliers had to curtail production last year to avoid an all-out crash. Even with those production cuts, natural-gas prices fell to their lowest inflation-adjusted levels ever.

"There's not an emergency, as an objective matter," says Ari Peskoe, director of the electricity law initiative at the Harvard Law School Environmental and Energy Law Program. If the U.S. were really in an emergency situation, Trump wouldn't have also curbed permits for new renewable-energy resources, and made it easier for oil and gas producers to send U.S. resources overseas, he says. Peskoe adds that it's "not at all clear" which special powers Trump's emergency order will give him. Any attempt to bypass normal permitting will probably end up in court. If Trump loses there, it could markedly slow some of his plans.

Another problem with his orders is what they leave out. In defining energy sources subject to his emergency declaration, Trump listed every major source of electricity and combustion in the country except three: wind, batteries, and solar. But renewables are the fastest-growing electricity sources in the country, accounting for more than half of new generation. A recent Dallas Federal Reserve report said that solar and battery power "saved the Texas grid last summer." Solar output in Texas rose more than 40% in the brutally hot summer of 2024 from 2023 levels, and battery storage nearly tripled. Even though power loads hit a record in August, state regulators didn't have to ask consumers to cut back their electricity use even once, after having to do so 11 times in 2023.

To expand on that success, renewables could use help from the federal government in areas like speeding the rollout of new electricity transmission lines -- one factor holding back deployment of renewables today. But the Trump administration's early moves don't point to much help for renewables.

Asked why wind and solar didn't make the list of important energy sources, a White House official wrote that Trump will support "any energy infrastructure projects that increase our energy supply and security, whether it's the Keystone XL Pipeline or a similar project, because a reliable energy supply is essential to our economy, national security, and well-being."

When it come to energy, Trump is clearly focused on expanding fossil-fuel development and transportation. As evidenced by the past month's drop in oil stock prices, choosing winners won't be as easy as picking his favorite industries.

Natural Gas

Natural gas has long played second fiddle to oil. Historically, its price was even pegged to crude prices. But it's now taking on a more central role in U.S. energy policy, and the stocks of producers and exporters have benefited handsomely.

The industry has two major growth drivers in the years ahead: growing exports of liquefied natural gas, or LNG, to Europe and Asia, and rising electricity demand from artificial-intelligence data centers and industrial uses. Together, those industries are likely to boost natural-gas demand 10% to 20% by 2030. An end to sanctions on Russian gas could dent that growth but not derail the investment thesis.

LNG faced some uncertainty last year after President Joe Biden paused approvals of new LNG export terminals to study their environmental and economic impacts. Enough terminals had already been approved to ensure that the industry's capacity would double by 2028, but the industry's fate after that was up in the air. Trump quickly reversed the pause, and announced his administration's first new LNG permit approval earlier this month for a project that could go into service in 2029.

Exporting LNG is a lucrative business. The stock of industry leader Cheniere Energy doubled in the past three years. But the field is getting more competitive, and analysts see a glut of LNG emerging by 2027. Those challenging economics may be one reason that Venture Global, another top LNG firm, has seen its stock fall 30% since going public in January.

Some think natural-gas producers can benefit as Trump opens up more LNG exports. Doug Rachlin, portfolio manager at Neuberger Berman, says he likes Antero Resources because it's positioned to sell 75% of its gas into the LNG market. While the stock rose 70% in the past year, it still trades at a reasonable 13.3 times expected 2025 earnings.

The companies providing equipment for new LNG plants are also well positioned to benefit. That includes Chart Industries, a Georgia company that makes equipment like cryogenic tanks and modular liquefaction plants. Chart just signed a multiproject deal with Exxon Mobil, one of the top global names in LNG. Analysts expect Chart's earnings to jump 36% this year. "We think it deserves a revaluation," says Rob Uek, a portfolio manager at Essex Global Environmental Opportunities Strategy, which owns Chart stock. Chart trades at 15.5 times its expected earnings, but Uek thinks it will eventually fetch a multiple of at least 20 times, more like other high-growth industrial companies. That would take the stock to $240 from a recent $195.

Nuclear

Nuclear power also came into 2025 with enormous momentum. In 2024, the industry woke up suddenly from a decadelong slumber. Tech and industrial companies turned to upstart nuclear developers for clean, reliable power for facilities like AI data centers. Microsoft even agreed to buy nuclear power from a shuttered Three Mile Island reactor in Pennsylvania, at what analysts said was a major premium to market electricity prices.

The Trump administration appears to be pro-nuclear. Trump has included the technology in his energy executive orders, and appointed nuclear advocate Chris Wright as secretary of energy. Wright served on the board of nuclear company Oklo, and has listed "commercialization of affordable and abundant nuclear energy" as one of his department's top priorities. Enthusiasm about the industry continues to grow, as do valuations of the stocks. Attendance was up 50% at the Nuclear Energy Institute's annual finance summit in New York earlier this month.

The Biden administration was also pro-nuclear, offering loans and grants to several projects -- including the restart of a shuttered Michigan nuclear plant. Biden's Inflation Reduction Act was generous to the industry, using tax credits to help establish a baseline price for nuclear-power generation and ensure that no current plants retire early.

The industry has a few requests for Trump. They want him to keep the tax credits Biden introduced, and they hope that low-rate loans will remain available.

Their other request is to get the federal government more directly involved in funding new nuclear plants, by agreeing to cover cost overruns when they get built. The last big U.S. nuclear plant expansion came in more than $15 billion over budget. "We have to have federal dollars," says Caroline Golin, Google's global head of energy market development and innovation, at the Nuclear Energy Institute conference. Google, part of Alphabet, has lately been investing in nuclear plants, agreeing to buy electricity from private reactor developer Kairos Power in the future.

Investors in nuclear stocks profited handsomely last year, but it could be hard to match those gains in 2025. The start-up nuclear stocks look extremely pricey, particularly given that none has built commercial plants yet. Oklo and Nuscale Power, which make next-generation reactors, were up 300% and 680%, respectively, in the past year.

The more promising stocks today are providers of fuel for nuclear plants, says Arthur Hyde, portfolio manager at Segra Capital, a hedge fund that invests in nuclear companies. That includes Cameco, a Canadian company that mines uranium in Canada and the U.S. and owns a stake in nuclear-reactor designer Westinghouse. He also likes smaller uranium miners, including Uranium Energy and enCore Energy. Hyde, whose firm also funds private companies, thinks that public-market investors could get more options soon. "I expect additional go-public activity across the nuclear technology space in the next 12 months," he says.

Oil

The Biden administration put few lasting restrictions on the oil industry but often criticized the companies for their policies on share buybacks and the environment. Oil company executives appreciate the change in rhetoric around fossil fuels now. Trump "recognized that oil and gas has been disfavored in recent years, and I think his intent is to make sure that the country takes advantage of all the energy sources that it's blessed with, including oil and gas," said Chevron CEO Mike Wirth in an interview with Barron's. Trump plans to ease environmental restrictions and open up more federal land to drilling, including in Alaska -- though recent lease sales there have drawn few, if any, bidders.

The outlook is shaky for oil stocks today. Trump wants U.S. oil companies to drill more to force gasoline prices down. But lower prices will quickly discourage plans for new projects. Instead, oil companies are slowing their production growth in the face of tepid demand and hesitancy from investors.

What's more, there's an iceberg ahead. The Organization of the Petroleum Exporting Countries and its allies, including Russia, have been holding more than six million barrels of oil a day off the market, and have said they'll start bringing it back later this year. Even if they don't, the mere threat of a flood of supply should hold the stocks back. Historically, oil stocks have almost always trailed the broader market when that much spare production capacity is being held back.

Renewables

Solar and wind power face a treacherous road ahead because of Trump and a Republican-controlled Congress that is looking to cut climate-related funding. Congress is working on bills that could eliminate the tax credits that have sustained the industry in recent years. Biden's Inflation Reduction Act offers renewable projects 30% tax credits related to the value of a project or the energy it produces, and the opportunity for more credits. A complete withdrawal of those credits would cause a steep downturn in renewables stocks, most of which have already been falling steadily. Morgan Stanley analyst Andrew Percoco doesn't expect a wholesale repeal, but thinks that some tax credits could be axed or end well before their 2032 sunset date.

There's reason for hope, however, say industry CEOs and bankers. For one thing, renewables did OK during Trump's first term and struggled during the Biden years, even though they got more support; their problems had more to do with interest rates.

Companies making investments in renewables have to look at time horizons that span multiple presidential administrations. "The projects pay back over a much longer period," says PJ Deschenes, co-head of Nomura Greentech, which helps finance sustainable energy transactions.

In fact, some savvy buyers think that the stocks have gotten way too cheap. Brookfield Asset Management, one of the world's largest renewables developers, is considering buying beaten-down public companies that it could take private, says Jehangir Vevaina, global chief investment officer of Brookfield's renewable power and transition group. "We follow the sector closely, and we do see opportunities out there," he says. "Given valuations, we would absolutely look at it, consider it, and do it."

Solar energy looks best positioned to keep growing in the Trump years. Industry executives think the president's early actions are evidence of benign neglect. While changes to the Inflation Reduction Act would hurt solar equipment companies, Trump's domestic manufacturing agenda could lift them. Domestic solar factories can now produce enough modules to nearly meet all domestic demand, though the precursor materials that go into modules are still largely sourced from Asia. America's leading manufacturer, First Solar, is down 25% since the election, and trades at just 7.9 times its expected 2025 earnings. Even if tax credits go away, First Solar should benefit from high tariffs on foreign solar panels, says Maheep Mandloi, an analyst at Mizuho Securities. Mandloi thinks the shares could rise to $259 from a recent $164.

Wind power is in more precarious shape. Offshore wind, an industry that had just started to take off in the U.S. under Biden, is facing significant challenges. Trump has paused new offshore wind permits and even directed his administration to review older approvals, with the possibility they could be clawed back. Onshore wind, which needs fewer federal permits, could still persevere. Installations are on track to increase 31% this year, according to Bloomberg NEF. And market expectations are as low as ever; Vestas Wind Systems, the world's leading turbine maker, is trading around where it did at the depths of the Covid-19 pandemic, despite ending 2024 with its largest backlog ever. Citi analyst Martin Wilkie thinks the stock can more than double.

At the right price, even wind power attracts bullish investors. It's another sign that surprises could abound in energy investing for the next four years.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 21, 2025 03:00 ET (08:00 GMT)

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