As markets prepare to shift into the new cycle created by potential interest rate cuts from the Federal Reserve (the Fed), a few specific sectors may have greater odds of outperforming the rest of the market. Investors may turn to energy stocks, especially now that Goldman Sachs analysts set their expectations for up to $100 a barrel of oil this year.

But not all energy stocks are created equal. With straight oil and gas plays like Exxon Mobil Co. (NYSE: XOM) reaching all-time highs, maybe the run is relatively exhausted after all. However, investors have other ways to hop onto the energy wave, which is still tied to rising oil prices. 

Alternative energy stocks like NextEra Energy Inc. (NYSE: NEE) could be attractive as more expensive oil makes other energy sources more attractive. After the company reported its first quarter 2024 earnings, arguably the most important release to set the year's tone, investors may walk away with new expectations for the rest of the year. 

Location and Energy Trends: NextEra’s Profit Center

[content-module:CompanyOverview|NYSE:NEE]Operating in arguably one of America's fastest-growing economies, NextEra serves the Floridian market. According to the company's presentation, after seeing a nearly $800 billion boost in gross domestic product (GDP), NextEra's primary market allows it to keep compounding its income. 

Over the past 12 months, NextEra's segments have shown investors what the future may hold. Florida Power & Light (FPL) reported earnings per share (EPS) of 57 cents, a rise of four cents a share. Energy resources, the segment responsible for renewable energy in NextEra, saw an EPS decline of 25 cents to 47 cents. 

The divergence makes sense when investors note that oil prices remained below $80 a barrel over the past 12 months, thereby making renewable energy sources less attractive. Now that oil could become an issue, NextEra’s renewable energy business could swiftly return. 

Knowing this is a likely possibility, analysts at Wells Fargo & Co. boosted their price targets for NextEra up to $85 a share as of March 2024. The stock will need to rally by 28.4% from today's prices to prove these projections right. 

The Market's Voting System

Size matters when it comes to stocks, and markets chose NextEra’s $136 billion market capitalization to reign over competitors like Dominion Energy Inc. (NYSE: D) and its much smaller $42.4 billion size. This selection comes through the market's voting system, as seen in how future EPS projections are valued today. 

With a forward price-to-earnings (P/E) ratio of 18x, NextEra stock trades at a premium of 23% to Dominion's 14.7x valuation. There must be a reason why markets are willing to overpay for NextEra's earnings rather than Dominion's, and one reason could be underrated EPS growth.

Dominion's primary business is providing electricity through natural gas, with minimal regard for renewable energy. Because of this, analysts projected up to 18.5% EPS growth in the stock for this year, while NextEra's projections show only 7.6%. 

However, these projections need an update as changing energy markets have made investors more willing to pay for renewable sources. Price action crystallizes this preference, as NextEra underperformed the Energy Select Sector SPDR Fund (NYSEARCA: XLE) by as much as 27.6%. 

Investors looking to fill the gap created by these bullish valuations, justified by a fundamental breakout, can find one in the company's financials. Despite a higher inflationary environment in the United States, investors can find safety in NextEra's 3.1% dividend yield. According to management, dividend per share growth is expected to be roughly 10% through at least 2026. 

Institutions are preparing for this shift in energy source preferences, as up to $108.6 billion of institutional inflows were recorded for NextEra in the past 12 months. Of course, the growing demand for electricity created by the growth of artificial intelligence and data centers is one sure push for NextEra's business. With Amazon.com moving its headquarters to Miami and a lot of electric demand, NextEra's EPS growth could come from more than just higher oil prices.