AGL vs. Origin: which company will energise your portfolio?

AGL Energy (ASX: AGK) and Origin Energy (ASX: ORG) are two companies that really need no introduction for investors. Not only are they both large and widely owned stocks but their major market shares in the provision of electricity and gas to millions of Australians across the country makes them household names.

Although there are plenty of similarities between the two energy companies there are also plenty of differences.

AGL describes itself as a leading renewable energy company and Australia’s largest owner, operator and developer of renewable generation assets. AGL’s renewable assets include investments in hydro and wind power, as well as ongoing developments in solar, geothermal, biomass and landfill gas. As well as this renewable energy focus, AGL operates retail, merchant-energy and upstream gas businesses.

In contrast Origin Energy has focused on positioning itself as Australia’s leading integrated energy company, with operations that span across the energy supply chain, from gas exploration and production to power generation and energy retailing. Importantly, Origin also holds a 37.5% interest in Australia Pacific LNG (APLNG), which is developing Australia’s largest coal seam to liquefied natural gas project. With this project nearing completion, the billions of dollars of investment should start to reap a return for shareholders.

Foolish takeaway

While there is much to like about Origin Energy’s vertically integrated business model and shareholding in the APLNG project, AGL’s focus on renewables also offers significant appeal to investors who have a long-term investment horizon. Regulations such as carbon taxes and the general increase in power costs have the potential to put AGL at an advantage in the future.

On balance, both companies offer solid growth outlooks. However the weak performance of AGL’s share price over the past 12 months, which has seen the stock price increase by just 2%, compared with the near 20% rise in Origin’s and the 12% increase in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) makes AGL arguably more interesting from a valuation perspective. Indeed, research house Morningstar recently increased its price target for AGL to $16, which compares favourably with the stock’s current price of $14.62.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy.

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