Oil used to be the stuff that the markets couldn’t do without. The then-regular Organization of Petroleum Exporting Countries (OPEC) meetings were met with traders, economists and governments around the world — and many energy stocks — trembling with fear. Even James Bond films referenced oil supplies as one of the great threats to her Majesty’s Kingdom.
One of my former business partners long ago wrote a very successful book titled: The Oil Factor, Protect Yourself and Profit from the Coming Energy Crisis in 2005. In the book, Stephen Leeb discussed the then biggie theme of peak oil. This concept was that the world only had so much of the vital stuff and that producers were or had reached the peak of what was possible to bring to the market.
But this was all before technology really ramped up in the oil patch. Fracking had been around for many decades, but eventually would really take hold, making the U.S. the largest producer of the stuff. But now, peak oil has another meaning. Demand, not supply, might be reaching a peak.
Of course, the economic fallout of Covid-19 has made this a near term argument as cars and planes are not moving in volumes seen prior to the virus mess.
Big oil companies are suffering right now. ExxonMobil (NYSE:XOM) has been selling oil field interests, including in the North Sea, along with others — including Centrica (OTCMKTS:CPYYY). Chevron (NYSE:CVX) has also announced a series of field troubles around the globe and is cutting its capital expenditures (CAPEX) by 26% for 2021. Total (NYSE:TOT) is selling fields including in Kurdistan. These announcements garner lots of market attention, but really are just admittances that there is no need for expensive fields when US oil and gas is so cheap and plentiful if and when its needed.
In fact, XOM is working on a field that was the site of an ancient coral reef in La Barge, Wyoming which is rich in natural gas, helium and highly desirable carbon dioxide (CO2).
And peak demand, at least for now, is also impacting refineries around the world. Numerous shutdowns around the globe, including in Europe and Australia, have been announced or are underway. Petrol (gasoline) and jet fuel demand is way off, at least for now, making refineries less economically viable.
But while near-term demand from cars and planes might be a problem, there is the highly likely return post the Covid-19 crisis. And electric cars are there — there are many, many infrastructure challenges along with over a billion motor vehicles as calculated by Ward’s Communications that still need petrol.
Meanwhile, power supplies are still dominated by natural gas and other fossil fuels despite massive inroads by wind and solar. This means that petrol is still a necessity for now – but not forever.
This means that to get ahead of post-peak-petrol demand, you need to understand and invest in the leaders in the next energy solutions.
Post-Peak Profits and New Energy Stocks
Getting past oil and natural gas is going to take time. Natural gas is mission critical (for now) when it comes to the chemicals industry, including for plastics, pharmaceuticals, fertilizers and other necessary products. And yes, there are labs working on alternatives — but these are not proving out in practical fashion to make the jump or even major steps.
Oil, of course, is primarily about refined products. And this comes down to transportation. Cars can work on alternatives with some major infrastructure changes. And the same can be said of busses and trucks. And in a moment, I’ll present better alternatives now and in the works, and the companies behind them.
Planes, of course, are not going to make the jump soon. Jet fuel is how modern planes move safely and quickly around the globe. And there are some labs working on alternative fuels and technologies, but they are not going to be ready for a while.
But where post peak oil and gas is and will work more is in stationary power generation. Utilities feeding power grids and localized off grid distributed generation (DG) is where the biggest potential is happening right now and moving along quickly.
Overall, post-peak energy alternatives are gaining ground. And a privately held investment group called Cirdan Capital Management based in London has developed an index tracking green energy from an ESG (Environmental, Social & Governance) perspective. The Cirdan ESG Green Energy Index shows a surge of 112.04% from late March to date.
Here are some of the post-peak-problem energy stocks and their underlying technologies that work now and should be bought.
Utilities are the first-line companies in the shift away from fossil fuels. Wind and solar are known and proven technologies that, outside of trade tariffs and trade restriction costs, are increasingly cost competitive to cost advantageous for energy stocks and the markets that they serve.
Aiding the shift are two government entities. First are public utility commissions (PUCs) that come with various state and local names, but all comes down to the same mission. PUCs negotiate and set rates and plans for energy production and distribution as well as rates charged. This impacts utilities’ regulated markets whereby they negotiate capital budget for both new energy and maintenance of existing facilities and equipment. And PUCs can and are demanding shifts to more green energy away from oil, gas and other fossil fuels.
Then there are state and local governing authorities. Increasingly, state houses as well as governors and even city councils are passing or issuing edicts for utilities to use green power sources either directly or via contracts from wholesale markets and even off-setting credits in carbon dioxide (CO2) schemes.
This is also adding to the push to adopt or deploy green energy generation by both local regulated companies as well as unregulated wholesale companies.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) is a company that I’ve followed and recommended for years inside Profitable Investing, and have mentioned in InvestorPlace numerous times. And there are plenty of good reasons. The company is the writer of the playbook of modern utilities in the U.S. as it moved from its regulated business in Florida to become one of the world’s largest wind and solar companies in the world by power generation capacity throughout North America.
Let’s start with the stock, which has returned 663.65% for Profitable Investor subscribers including this year’s year to date return of 24.35%.
The stock is not just going up, it reflects a building value in the underlying company. The underlying intrinsic value (book) of the company has been rising by an average of 9.72% on a compound annual growth rate (CAGR) basis.
And with a yield of just shy of 2% it is a good total return buy in a tax-free account.
Excel Energy (XEL)
Xcel Energy (NASDAQ:XEL) is another utility that has taken the playbook of NextEra and is running it successfully. With its base of regulated businesses in the central to western U.S., it is expanding its green energy capabilities and is expanding its unregulated wholesale market reach.
The stock is working — increasingly reflecting the green energy capabilities of the utility. It has returned 117.98% over the trailing five years — outpacing the S&P 500 Index.
The stock is cheaper than its bigger peer, NextEra, but it has also been ramping up its value for shareholders in growing its intrinsic value (book) by a good annual average margin.
And with its yield of 2.64%, which has been rising in distribution by an average of 6.11% over the past five years, it makes for a good total return stock in a tax-free account.
Next up in green energy solution companies involves the movement of cars, trucks, busses and other vehicles with batteries rather than petrol. The big challenge is moving away from lithium batteries that come with major environmental costs in mining and gathering. In addition, these batteries are also very heavy — negating some advantages of green energy in cars. And then there’s the whole explosion thing. Lithium batteries overheat and either ignites or explodes. And in crashes, lithium batteries can provide deathly challenges for passengers or first responders.
Solid state batteries are the next new-new thing for vehicles that moves vehicle technology to much more efficient, lighter and much safer batteries. There are two leaders in this technology.
Samsung Electronics (SSNLF, 005930 Korea)
Samsung Electronics (OTCMKTS:SSNLF, 005930 Korea) is the global leader in so many technologies that are mission critical for everything from phones and other personal electronics to major industrial components. It has been working on and offering solid state batteries that are the next level for vehicles as well as for a myriad of other products.
The stock is one of the cheapest mega tech companies in the world. It is valued not far from its trailing sales and underlying intrinsic value (book) which are at massive discounts to its U.S. and European technology stock peers.
And the stock delivers to U.S. shareholders with just the past five years alone returning 250.30%.
It can be a pain to buy. Many U.S. brokerages make you call in the trade, which may incur additional fees. And you will have to agree that it is a foreign stock with foreign market risks. To make it easier, note the ISIN # of the shares which is KR700593003 and the SEDOL number of 6771720 KR. These are brokerage and stock exchange and stock trading platform identifiers to access the stock.
With a yield of just shy of 2%, it is a buy in a taxable account given its foreign status.
TDK (OTCMKTS:TTDKY) is a Japanese company with a long history of varied product specialties, including its long-ago fame for cassette tapes. But now it is one of the go-to companies for electric vehicles.
Nearly every carmaker has electric cars now or in development. And what they all have in common as well as with hybrid cars and even mild-hybrid systems found in Porsche, Audi — both owned by Volkswagen (OTCMKTS:VWAGY) and other cars are the common products of TDK.
Capacitors and inductors receive, store and transmit power that makes all of these products move and stop. And those voltage monitors noted that keep phones from exploding – yep – those are even more critical for cars.
What also makes cars move from electricity are magnets. TDK has developed the go-to magnets. And storing that power takes lots of batteries – again – TDK is a big leader here. And while lithium and still lead in some cases remain the go-to means for batteries – solid state batteries are what’s going to really solve for electric cars and trucks to power up more quickly, hold power more efficiently and not create massive environmental devastation that’s occurring now on a daily basis.
Yep, TDK is one of the leaders developing and already deploying them.
And there is more to TDK that I’ll get to in a moment for another major groundbreaking green energy solution.
The stock has been a great initial success for subscribers of Profitable Investing. And this continues the performance of the stock for U.S. investors with the trailing five-year return of 105.08%.
With its yield of 1.27%, it is a buy in a taxable account given the foreign status.
Batteries, More Than Vehicles
Batteries are also one of the prime solutions for green power beyond vehicles. Wind doesn’t always blow, and Mr. Sun isn’t always at his shiny best. This means that backup is a necessity. California is a prime example of what doesn’t work for backup either in slack wind or cloudy days — but also heavy load demand conditions.
It mandated more green power — but cut off a collection of traditional backup in natural-gas-fired power plants. The idea was that the utilities would just buy power from wholesale unregulated markets when needed. That hasn’t always been available, and blackouts and brownouts have ensued. Add in the grid cut-offs with fire risk in transmission lines and it is not a good green energy market.
There are solutions right now in distributed generation (DG) that I referenced earlier. DG is localized power that is off-grid and may well be part of the major solution for much of the US and global power demand.
And to make it work, you need solar and wind equipment with batteries and fuel-cell power capabilities. Fuel cells use chemical processes to make electric power. And there have been some companies that have been entering the market such as Bloom Energy (NYSE:BE) — but its backup power relies on natural gas or natural gas derived fuel. This really isn’t any better than a natural gas-fired generator in homes and businesses when there is a power outage. And it is far from being really green.
Hannon Armstrong (HASI)
Hannon Armstrong (NYSE:HASI) is a green energy financial that is structured as a real estate investment trust (REIT). It provides financing that tends to come with government financial guarantees that provide lots of cash for shareholders with credit protection. And since green-energy-producing assets are on foundations on the ground, it complies with basic REIT company structure standards. This enables the company to largely avoid traditional corporate income taxes — making for more cash for investors.
Hannon Armstrong has an impressive collection of green energy investments — but the one that I am focusing on is with Engie SA (OTCMKTS:ENGIY). Engie is a European utility company based in France that is partnering with Hannon to rollout DG systems throughout the U.S. and potentially beyond.
It will be deploying solar systems for business and residential customers that come with battery backup systems that are pure turnkey that takes the customer off-grid.
Hannon has a very successful history as a company and a stock. Since added to the Profitable Investing Portfolio late last year — it has returned 77.27% for subscribers. And it comes with a tax-advantaged yield of 2.48%. The tax advantage comes thanks to the Tax Cuts & Jobs Act of 2017 (TCJA) which provides a 20% deduction of dividend income for individual investors.
With its very green portfolio, it makes for a great total return stock in a taxable account.
B. Riley (RILY)
B. Riley (NASDAQ:RILY) is one of my tails-you-win-heads-you-win stocks inside Profitable Investing. This means that this financial company has various divisions that provide opportunities for downturns in the economy including bankruptcy workouts including retail store closings as well as other financial operations that cash in in boom times.
One of the boom time investment operations has been in the renewed market for special purpose acquisition corporations (SPACs). SPACs are not my favored structure and they can be pig in a poke deals for shareholders. But in the case of RILY, it did a deal to bring EOS Energy Enterprises (NASDAQ:EOSE) to the market and holds a sizable chunk of the shares.
EOS is a prime alternative to Bloom Energy and its natural gas backup and it way better than Tesla’s (NASDAQ:TSLA) lithium battery backup system that requires lithium and major cooling systems for safety.
EOS has proprietary zinc-based batteries that utilize carbon in its power storage and delivery systems. Clean, and able to operate at high or low temperatures — it is a true green power battery solution for both backup and DG systems.
RILY has been a star for investors with the past trailing five-year return of 350.28%. And yet the stock is only valued at 1.40 times trailing (and rising sales) and barely more than 2 times intrinsic value.
Revenue is soaring, with the past year alone gaining 54.2%. And it comes with a yield of 4.2%, making for a great total return stock in a tax-free account.
Hydrogen: Air Liquide (AIQUY) & Air Products (APD)
Hydrogen is a fuel that is perhaps one of the best green energy sources for the future. But it tends to be made using natural gas that makes it not much better than natural gas for the environment. But green hydrogen that is made without natural gas through electrolysis with water or other friendly chemicals is an older technology that is increasingly working on an economic scale.
Two of my favorite hydrogen producing companies are Air Liquide (OTCMKTS:AIQUY) and Air Products (NYSE:APD). Along with other industrial chemicals including frozen carbon dioxide (CO2) known as dry ice that is crucial for Covid-19 vaccine deployment for Pfizer’s (NYSE:PFE) and Moderna (NASDAQ:MRNA) — these are go to companies for now and going forward.
But what I want to circle back on it’s the hydrogen batter and fuel cell development of TDK. TDK has as one of its core operations its investment development division. And it recently made a ground-breaking deal with Gencell of Israel to take a major stake.
This will bring Gencell’s ammonia to hydrogen green energy fuel cells to the broader market. This is major for green hydrogen and will be a major source for further TDK revenue and profits as well as for solving for green energy needs post petrol peak for years to come. Again, but TDK now as this development is just coming along on top of the other major initiatives — including many, many more that I haven’t mentioned in this missive.
About Neil George:
On the date of publication, Neil George did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
As the editor of Profitable Investing, Neil George helps long-term investors achieve their growth & income goals with less risk. With 30+ years of experience in the financial markets, Neil recommends undiscovered and underappreciated companies that offer subscribers double-digit yields now and triple-digit returns over time.