Alpha Buying: Unpacking the Complexities of the Global Energy Shift

For over a decade, the energy transition has captured headlines, fueled by surging investments in solar, wind, and storage technologies. The latest analysis from J.P. Morgan’s 15th Annual Energy Paper, Heliocentrism, paints a nuanced picture of progress, challenges, and the enduring role of traditional energy.

For investors, the conclusions offer a compelling case for a diversified approach that includes both renewable and traditional energy stocks.

Solar power is leading the growth in global capacity additions. J.P. Morgan notes that solar installations more than doubled in the past three years and could double again by 2027. Solar will represent roughly 75 percent of new global capacity additions by then. However, the challenge lies in utilization.

Due to solar’s low capacity factors (15 percent to 20 percent), actual power generation lags far behind installed capacity.

Despite trillions in global spending, renewables still account for just 2 percent of global final energy consumption, with expectations to reach only 4.5 percent by 2027. The path forward is linear, not exponential. Crucially, electricity itself is only about a third of total energy use worldwide. Energy intensive sectors such as steel, cement, chemicals, and transportation still rely overwhelmingly on fossil fuels.

The report’s bottom line is clear: human prosperity remains tethered to affordable natural gas and fossil fuels for the foreseeable future. Industrial production, global trade, national defense, and even clean technology manufacturing are deeply reliant on hydrocarbons.

Natural gas, in particular, stands out as both a critical bridge fuel and an investable theme. Its role is expanding, not shrinking, as coal retires in Europe and the United States.

JP Morgan projects continued reliance on gas plants to meet baseload power needs, especially as renewable intermittency challenges grid stability.

Investors should also note the United States’s ascent to energy independence. United States oil and gas production, largely driven by fracking, now represents over 60 percent of domestic primary energy consumption.

Additionally, global LNG demand is poised to surge, with export capacity growing by a third by 2030. This provides upside for United States energy companies positioned in natural gas and LNG markets.

One underappreciated investment theme is the high and rising cost of decarbonization. Wind and solar power purchase agreement prices have jumped due to supply chain constraints, tariffs, and insurance premiums. Meanwhile, carbon capture and storage (CCS) remains prohibitively expensive and technologically limited, despite massive research and development efforts.

Electrification of industrial processes and transportation also faces hurdles. Electricity prices are 2 to 4 times higher than natural gas on an energy equivalent basis, slowing the shift from gas powered heating and manufacturing.

Grid bottlenecks, transformer shortages, and transmission line stagnation further challenge rapid electrification.

For equity investors, this landscape argues strongly for maintaining meaningful exposure to traditional energy producers alongside selective renewables.

Oil and gas companies, many of which now boast low breakeven prices, rising dividends, and strong cash flows, are poised to benefit from sustained global demand. LNG exporters, pipeline operators, and diversified energy companies remain attractive in a world that needs more energy, not less.

Meanwhile, selective investments in renewables, battery storage, and grid infrastructure offer growth opportunities, but with careful attention to valuation and technological risk.

The energy transition is real, but slower and more capital intensive than many anticipate. Fossil fuels, especially natural gas, will remain indispensable for decades.

For investors, the smart strategy is not to pick sides, but to embrace the full energy spectrum, capturing growth from renewables while harvesting cash flow from traditional energy sectors that continue to power the global economy.

Historical analysis of insider buying activity across sectors reveals that energy stocks have been particularly sensitive to insider signals. Studies, including research by the University of Michigan and empirical work covered in finance journals, show that insider buying in cyclical industries such as energy often precedes periods of market outperformance.

When energy prices are volatile or sentiment is poor, insiders’ purchases can serve as contrarian indicators, signaling undervaluation or improving fundamentals not yet reflected in stock prices.

For example, during the 2015 to 2016 oil price downturn, clusters of insider buying in exploration and production (E&P) companies were observed at cycle lows.

Subsequent 12 to 24 month returns for these companies significantly outperformed broader energy indices.

Similarly, in 2020 during the COVID induced oil crash, insider buying surged in several midstream and upstream names. The subsequent recovery in energy stocks was one of the strongest sectoral rebounds, and companies with heavy insider purchases often led the rally.

According to data from OpenInsider, stocks with concentrated insider buying activity have historically outperformed the market over a 12 month horizon by 4 percent to 8 percent on average. In the energy sector, this outperformance has been even more pronounced during cyclical troughs.

Insiders tend to have better visibility into capital spending plans, reserve replacement metrics, hedging positions, and regulatory risk, all crucial factors in energy stock performance.

Using insider buying as a filter can help investors identify energy companies poised for recovery or growth, especially in times when broader market sentiment is negative.

While insider buying is not widespread so far in 2025 given all the economic and tariff related activity that will impact the industry, there are two notable C suite buying situations that have developed.

The CEO, CFO and Chief Operating Officer at Matador Resources MTDR have all been buying shares of their company in recent months.

Matador Resources (MTDR) is a Texas based independent exploration and production company focused primarily on oil and natural gas assets in the Delaware Basin, part of the larger Permian Basin.

Known for its operational efficiency and disciplined capital allocation, Matador has grown production and reserves consistently while maintaining a strong focus on shareholder returns.

Recent results reflect solid free cash flow generation, supported by favorable commodity prices and efficient drilling programs. Matador’s low cost structure, high margin acreage, and integrated operations position it well to benefit from continued Permian Basin development.

Financially, Matador maintains a strong balance sheet with leverage ratios among the lowest in the small to mid-cap E&P space. The company has steadily reduced net debt while increasing shareholder returns through dividends and buybacks.

Valuation remains attractive, with Matador trading at a discount to peers on forward enterprise value to EBITDA metrics, reflecting its solid free cash flow yield and improving return on capital.

Analysts view Matador as well positioned for long term value creation, with upside potential tied to higher production, midstream expansion, and potential industry consolidation in the Permian Basin.

We have also seen CEO buying at TXO Partners TXO  a high yielding oil and gas production MLP.

TXO owns oil and gas current acreage that is clustered in the Permian Basin of West Texas and New Mexico, the San Juan Basin of New Mexico and Colorado, and the Williston Basin of Montana and North Dakota.

The company recently announced that it expects to pay total dividends in 2025 of $2.25 a share, giving the stock a yield of over 12 percent at the current price.

We will always use enormous amounts of energy. Not doing so would mean the collapse of civilization as we know it.

The form of producing that energy may change over time but that change will be much slower than the activists and politicians are willing to admit.

Fortunes will be made investing in energy as has been the case throughout history.

Tracking the insiders as they position themselves for the majority of the massive profits can help us get into the inner circle of energy fortune building opportunities.