Dave Gilbert here, Editor of Smart Money.
Let’s kick our Thursday off with a story.
Back in 1994, one little e-commerce company wasn’t doing so hot.
Things were so slow then that in order to celebrate their meager successes (and perhaps garner some motivation), employees rang a bell every time a sale was made.
The business? It was we now call e-commerce.
The “office”? It was the garage of the founder, Jeff Bezos.
And the company, of course, was Amazon.com Inc. (AMZN).
Nearly 30 years later, Amazon is one of the most influential companies ever.
- It sells just about everything and ships it to your door, sometimes in a matter of hours…
- It generated nearly $500 billion in sales last year – more than the economy of entire countries like Israel, Norway, and Egypt…
- And it is one of just five companies valued by the market at more than $1 trillion.
If Amazon employees were to ring that bell now, it would be a never-ending cacophony… and people would get sick of it really quickly.
It’s true; Amazon reshaped the entire retail industry. According to the Department of Commerce, e-ecommerce sales (that is, sales made online) totaled $870.8 billion last year, which is about 20% of total retail sales.
Flip that number around, and what do you get? 80% of sales are not yet e-ecommerce.
Still, the trend is so powerful that companies who operate the “old” way – brick-and-mortar stores – must adapt… or get left behind.
The energy sector is in the same situation today, and Eric Fry will tell you it’s at least as good an opportunity as the continuing growth of e-commerce…
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Profiting from the Old and the New Trends
Energy is in a sweet spot for investors right now, and this isn’t a short-term phenomenon.
The “old way” – oil and gas – has ongoing strong demand and short supply to push it higher. At the same time, we can see the next generation of energy, so there is big long-term potential in alternative and renewable energy sources.
We have oil’s swansong, which will take a long time to play out and looks to be a big moneymaker as it does so, and the growth in new energy sources that everyone can see coming.
It’s like two megatrends coming together – an energy gigatrend, if you will.
The path to a world powered by alternative energy has been a longtime coming, but few doubt it is inevitable. Governments around the world are increasingly behind greener energy sources to reduce carbon emissions.
Solar, wind, hydro, and even tidal (wave) energy all continue to advance. The International Energy Association (IEA) forecasts global renewable energy capacity will increase more than 60% from 2020 to 2026 and surpass the capacity of fossil fuels and nuclear power combined.
This makes sense, as new capacity coming online is almost totally renewable energy. The IEA says renewables are set to account for nearly all – almost 95% – of the increase in global capacity through 2026. Solar is expected to account for more than half of that.
As renewables grow, oil is setting up for one heck of a finale. Eric has written about this before. The same IEA expects worldwide oil demand to be at least 25% higher in 2050 – nearly 30 years from now – than it is today. Most conventional oil-consuming technologies will die a slow death.
As oil demand grows, supply is not in a position to keep up. As Eric pointed out previously, data from Rystad Energy shows that global investments in oil and gas exploration and production peaked eight years ago and has plummeted about 65% since then.
He wrote back in January:
Everywhere you look, the world is turning away from fossil fuels and turning toward renewable energy technologies. Because of this powerful megatrend, many folks assume oil stocks, and the returns they can deliver, are a thing of the past.
But oil stocks may not be as passé as most folks assume. Like the Rolling Stones, they probably have a few solid performances left in them…
To put it simply, the road to a $10-per-barrel oil price might pass through $150, or even $200, on the way…
Are you ready for $200 oil? Analysts believe that we could see oil prices soar past $200 a barrel – and investors need to get ready. To help people prep their portfolios, Louis Navellier just named his #1 oil stock for 2022.
Get in Ahead of the Big Money
The most interesting part of these megatrend convergence is that the so-called “smart” money hasn’t caught on yet to the potential in oil and oil-related stocks.
To illustrate this, Eric recently sent me fascinating observations about where investors are putting their money:
In the month of March, Energy Select Sector SPDR (XLE) suffered its biggest outflows of the last 10 years – $2 billion fled the fund.
In that same month, the Invesco QQQ Trust (QQQ) reaped its largest monthly INFLOWS of the last 10 years – $9 billion poured into that tech-heavy ETF.
In other words, investors are still in denial, both about what IS working and what isn’t.
That’s a good contrarian signal for oil stocks. After the end of March, when these divergent flows occurred, XLE soared nearly 20% into early June while QQQ tumbled 15%. Even with the recent selling, XLE is flat since late March while QQQ is down more than 20%.
The managed money readings on oil and gas are sort of neutral, which is probably net bullish. That’s because pro investors have not piled into a mega-bullish market like they normally would. They are mostly ignoring it, even though the energy sector is now the ONLY sub-sector of the S&P 500 that is in the black year-to-date.
Even after the recent selloff, that sector is up 32% year-to-date. The next best sector of the other 10 is the S&P Utility Sub-Sector, which is down 7% YTD. The numbers only get worse from there…much worse. The IT sub-sector – the same one that attracted all those billions of dollars in March – is down 27% YTD.
The beginning of the end for one energy megatrend and the end of the beginning for another is a fascinating a potentially lucrative convergence for investors. Taken together, they provide the kind of asymmetrical opportunity – more upside potential than downside risk – that are key to building wealth.
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On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.