Our Top 5 Energy Stocks for 2012

It's been a chaotic year in the energy world. To help make some sense of it and figure out where you should be investing now, I polled our energy writers to come up with our top five energy stocks for 2012.

Before we get to the selections, let's first review where we've been.

The year in energy
The hot news in January was that China would be cutting its rare-earth export quotas by 35%. China accounted for more than 90% of the world's rare-earth supplies, and the news sent rare-earth darling Molycorp (NYS: MCP) soaring as the project it is developing would be a fresh source of rare-earth minerals.

Arab Spring
Also in the beginning of the year was the start of the Arab Spring (see full timeline here). On Dec. 17, a student turned merchant in Tunisia set himself on fire after police took his cart, setting off the Arab Spring. Unrest spread from Tunisia to Egypt to Algeria. The movement then really came into the news in late January, when the president of Tunisia fled to Saudi Arabia.

By February, the president of Egypt had announced he was stepping down. Five days later, protests had spread to Libya, a producer of 1.8 million barrels of oil per day, and soon the country fell into chaos. To combat social discord, many countries increased their social programs, which were paid for by the rising oil prices. By summer, production in Libya from the state-owned company and partners like Eni (NYS: E) had dropped to next to nothing and oil prices were at their highest in years. The OPEC meeting in June failed to come to agreement as the Saudis wanted to push down prices while Iran and others were happy to profit from the high prices. Since then the Middle East has calmed down somewhat. While we are still worried about tensions heating up between Iran and Saudi Arabia with the U.S. out of Iraq, some of the majors, including ExxonMobil (NYS: XOM) , appear less concerned.

The other hot story around the beginning of the year was the apparent coming resurgence of nuclear energy. Some investors believed the time was right to take small positions in speculative uranium stocks like nuclear-enrichment specialist USEC (NYS: USU) . However, the March 11 earthquake and tsunami in Japan and subsequent Fukushima Daiichi nuclear disaster changed all that. World opinion shifted back to negative on nuclear, with many countries halting nuclear development plans and Germany going as far as to promise to shut down 8 gigawatts' worth of nuclear power.

U.S. oil and gas
U.S. oil and natural gas production has continued to surge forward in 2011. Production in the Gulf of Mexico swung back toward full force after the moratorium in 2010, welcome news for deepwater drillers like ATP Oil & Gas (NAS: ATPG) . The boom in deepwater drilling has made DryShips' (NAS: DRYS) diversification into deepwater rigs look particularly savvy, though it remains to be seen how the company will do as it deals with a massive debt load and a terrible shipping market.

On land, shale drilling has continued to boom as producers have found that the techniques used to get natural gas out of the ground can also be used to get oil and other liquids out of the ground. With the price of natural gas continuing to fall, more producers followed SandRidge (NYS: SD) in shifting their production mix from natural gas to oil and natural-gas liquids. Production is increasing so much that in the next few years we could stop importing oil from outside the continent. For a primer on the boom and the technologies involved, check out fellow Fool Aimee Duffy's shale boom primer (part 1, part 2, part 3).

What you've all been waiting for
It's from this vantage point that we look ahead to 2012. With the new year fast approaching, here are our top energy stocks for 2012:

1. Peabody Energy
Coal stocks got crushed in 2011. Fool metals guru Christopher Barker surveys the wreckage and shows how you can buy the king of coal at a truly amazing price.

2. Kinder Morgan
The U.S. oil and gas business is booming, but prices for commodities are all over the place. Aimee Duffy explains how Kinder Morgan is a great way to earn dividends from the natural gas boom while not being beholden to volatile oil and gas prices.

3. SunPower
The solar industry has been in turmoil as countries drop subsidies and an oversupply of photovoltaics pushes down prices to the point where weak companies, like Solyndra, are priced out of business. Fool renewable energy expert Travis Hoium explains why he thinks SunPower will be the biggest winner long-term in the solar industry.

4. Schlumberger
While some would argue otherwise, fracking is here to stay, and David Lee Smith thinks the 800-pound gorilla of the oil-field services group is set to soar as production using the technique continues to expand.

5. Ultra Petroleum
While petroleum is in this company's name, Ultra is actually one of the lowest-cost natural gas producers there is. Fool energy editor Dan Dzombak reveals his secret for commodities investing and why Ultra Petroleum is the best stock for your energy portfolio in 2012.

If after these five picks your thirst for stock picks is still not satiated, our analysts have selected a stock that they believe is poised for tremendous growth in 2012. Find out which company in our new free report: "The Motley Fool's Top Stock for 2012." Thousands have already requested access and it'll only be available for a limited time. Simply click here -- it's free.

At the time thisarticle was published Dan Dzombak owns shares of ATP Oil & Gas and Ultra Petroleum, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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