This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
Oil Becomes a Weapon of War
As the Ukrainian-Russian conflict enters its third week, investors are rightly asking themselves “What’s next?”
The answer is simple:
The fear of escalation.
Russia’s attack on a Ukrainian nuclear power plant last Thursday has naturally put markets on edge. Dutch TTF Natural Gas Futures are now up 170% since the start of the year; on Sunday, Secretary of State Antony Blinken revealed that U.S. leaders are mulling a total ban on Russian oil imports.
Many Western firms have already felt these early effects. Shares in oil firm BP (NYSE:BP) have fallen 10% since the start of February over its 19.75% stake in Russian oil company Rosneft. Many of its peers have gone the other direction.
If history is a guide, more volatility is on the way. As Russian forces dig in, markets will face increasingly volatile swings between greed and fear. Now more than ever, investors need to avoid sleepwalking into disaster.
Five Things to Expect This Week: 1. Energy Stocks Continue Rising
Over the past month my top energy pick Peabody Energy (NYSE:BTU) has climbed another 88%. Shares now trade at $26, a 31x gain from my $2 entry price.
Other fossil-fuel companies have also seen stunning returns. U.S. Well Services (NASDAQ:USWS) is up 96%, while Indonesia Energy Corp (NYSEAMERICAN:INDO) has risen 422%.
The reason is obvious:
Oil supplies are tightening.
“$150 might not be far away, even if the Ukrainian invasion ends soon,” noted InvestorPlace.com analyst Eric Fry. “Because so many oil companies around the world have slashed investment in both exploration and production, they cannot boost supplies… no matter how high the oil price soars.”
Shortages will only worsen. Western governments have started finding themselves considering oil and gas sanctions in an attempt to bring Russian President Vladimir Putin to the bargaining table. If these measures (or a hefty carbon tax) materialize, $150 oil will only be the start.
2. U.S. Government Combats Oil Prices
At the same time, the U.S. government will likely take greater steps to reduce gasoline prices. Though fuel only makes up 3% of American budgets, it has an outsized impact on inflationary expectations, especially when prices rise above $3.50, according to the research by the Brookings Institute.
Pausing the 18.4 cent-per-gallon federal gasoline tax — an unthinkable action just months ago — is beginning to gain bipartisan support. Additional oil drilling on federal lands could be next.
The winners will be a hodgepodge mix of electric vehicle (EV) firms, traditional energy companies and renewables.
Moonshot favorite Bloom Energy (NYSE:BE) has risen 43% since February. EV charging companies may well be next.
3. Cybersecurity Returns to the Forefront
When Russia invaded Ukraine on Feb. 24, many expected a heavy dose of cyberwarfare to follow.
That hasn’t happened — yet.
“Cyber-attacks aimed at Ukrainian computer systems seem to have played hardly any role,” observed the Economist. “That is a puzzle. Computer systems run more and more of modern society, and are riddled with bugs and inadvertent weaknesses.”
But cyberwarfare has a habit of sneaking up on its targets. When the SolarWinds (NYSE:SWI) hack was discovered in December 2020, authorities quickly realized that the breach had been active for well over 14 months.
That’s why all eyes will be on CrowdStrike (NASDAQ:CRWD) when it reports earnings on Wednesday. Analysts expect a large jump in revenue, with median estimates suggesting a 64% growth rate. As cybersecurity and ransomware become even larger concerns, investors should expect the firm to report increasingly bullish guidance in this increasingly uncertain world.
4. Food Startups Report Earnings
(Wheat isn’t the only food on Wall Street’s minds).
On Wednesday, Oatly (NASDAQ:OTLY) and Tattooed Chef (NASDAQ:TTCF) will both announce earnings.
Expectations will be… hard to digest. Wall Street has already cut expectations multiple times for the two firms, but poor showings by companies like Beyond Meat (NASDAQ:BYND) suggest estimates are still too rosy.
As food startups continue to struggle, even iron-stomached investors should avoid buying the dip. The packaged food and meal delivery service industries are extraordinarily competitive; new entrants have historically disappeared once dietary fads fade.
Even Real Good Foods (NASDAQ:RGF) will face an uphill battle when it announces earnings on Friday. No matter how many diets we try, it always seems as if it’s the next one that will be the answer to all our prayers.
5. Rivian Closes Out EV Earnings Season
Finally, investors should brace for volatility when Rivian (NASDAQ:RIVN) announces earnings on March 10.
On the one hand Amazon (NASDAQ:AMZN) has long shown a willingness to squeeze suppliers — in 2019, FedEx (NYSE:FDX) ended its domestic contract with the firm to increase profit margins, noted Bloomberg Intelligence’s Lee Klaskow. Amazon’s dealings with Stellantis (NYSE:STLA) suggest that the company is coming for Rivian’s margins next.
But on the other hand, oil’s sudden rise could give Rivian’s management a reason to up sales guidance. Should that scenario come to pass, RIVN’s shares could rise double digits.
Blink Charging (NASDAQ:BLNK) could also provide some good news when it reports earnings this week. The startup has few entrenched competitors in the electric vehicle charging space besides Tesla (NASDAQ:TSLA), and Street analysts are headed into earnings with very mild expectations.
Too Late to Buy Oil?
I’m a former commodities trader — and I’ve never been a big fan of buying oil ETFs. Oil traditionally trades in “contango,” (i.e., futures prices typically trade higher than spot). That means oil investors typically lose money each time contract futures are rolled forward, which harms ETF returns. The United States Oil Fund ETF (NYSEARCA:USO) has declined 87% since its 2006 inception, compared to a 43% rise in WTI crude.
But recent market turmoil has sent oil markets into “backwardation.” August futures prices are now 15% lower than April’s, meaning that investors could see double-digit returns even if spot oil prices remain the same. In other words, it isn’t too late to buy in for potential returns.
Nevertheless, green energy picks are looking even better. My favorite blue-chip solar company SolarEdge (NASDAQ:SEDG) is up 4.5% this year (It technically isn’t a Moonshot pick because of its conservative profile). And as previously mentioned, Bloom Energy is also having its moment again.
So those looking for short-term speculation might consider USO options. But those with an eye on the future will do better buying more sustainable choices for the long-run.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at firstname.lastname@example.org or connect with me on LinkedIn and let me know what you’d like to see.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.