We continue our Post Election Roundtable with our authors who focus on energy and contributors. We asked our authors the following:
Assuming the U.S. election results stand, how will this affect the investing environment in your area of expertise? Name a few companies or ETFs that you believe will outperform as a result of these developments and explain your rationale.
Energy Contributors
Value Investor’s Edge from J Mintzmyer: Big picture, I believe the impact of the election itself is overrated in terms of how it impacts investments in energy and shipping. More importantly, getting the election behind us should allow more singular focus on getting past the pandemic, which should bring a heavy rotation back into value stocks, of which energy and shipping should see the strongest benefit. We already saw this last week with a major reduction in volatility and many value stocks surging.
My favorite areas of shipping are containerships and LPG transport, both of which have performed exceptionally well during 2H-2020 and should continue to outperform into next year. Top stock picks inside these sectors include Global Ship Lease (GSL), Danaos Corp (DAC), and Dorian LPG (LPG).
I am long DAC, GSL, LPG
The Investor's Edge® from Joseph L. Shaefer: Hardly at all. Contrary to what most believe, the 2020 presidential election has not affected the energy sector investing environment. But wait, you say! Didn’t President-Elect Biden say he wanted to see the end of the fossil fuel industry? He did. And it would be nice if we had the ability to generate energy for transportation, heating and cooling, manufacturing, et al, solely from renewable sources. We will take steps to “lessen” our use of oil and natural gas, but we cannot do without what this sector provides today.
According to the US Energy Information Administration, 81% of US energy consumption by energy source is from natural gas, oil, and coal, with coal, fortunately, on a declining slope. Nuclear is 8%, which leaves just 11% from renewables. Of total US energy usage, wind is 2.64% and solar is 0.99%. I do not believe our economy, which desperately needs to grow out of the current malaise, can recover at a combined usage of less than 4% of what we need to manufacture things, transport them to where they need to be, keep ourselves warm in winter and cool in summer, etc.
In my Investors Edge® model portfolio, I own the Fidelity MSCI Energy ETF (FENY). Since FENY is cap-weighted, Exxon Mobil (XOM) and Chevron (CVX) constitute, between them, 43% of the total portfolio. The three biggest refiners take it to more than 50%. I believe I can own this crme de la crme of an essential sector and enjoy a 10% yield in the process.
Did the election change things for the energy business? No. What matters to the markets is “direction.” Once we see a reduction of new COVID-19 cases, we will see movement in the economy. Direction is what moves markets! I see energy as one of the best ways to invest for both income and rebound. The economy does not move forward without it.
I am long FENY.
Margin of Safety Investing by Kirk Spano: Clean energy is the hands-down biggest story of the 2020s. Not only are governments around the world pushing toward a lower carbon future, but corporations are too, including most American companies. Three ETFs stand to be big winners from this secular trend: Invesco WilderHill Clean Energy ETF (PBW) for diversity of holdings, Invesco Global Clean Energy ETF (PZD) for its global scope and Global X YieldCo & Renewable Energy Income ETF (YLCO) for income investors. The Invesco Solar ETF (TAN) will be a favorite among traders as it has above average volatility.
I am long PBW, PZD, YLCO, TAN.
Econ-Based Energy Investing from Laura Starks: Virtually independent of which candidate is declared the presidential election winner, the outcome remains bright for many electric utilities and ESG stocks due to demand from investors and state-level energy preferences. The two major presidential candidates both essentially favor electricity growth: Joe Biden leans to its growth in the transportation sector and Donald Trump leans to electricity growth brought about by economic growth, in turn stimulated by deregulation. Moreover, as with the overall election picture, the play is in the states, particularly as they guide their utilities to preferred generation fuels, often renewables plus nuclear.
Finally, it appears that Florida growth will continue regardless of who wins nationally. The stock that satisfies all these factors is NextEra Energy (NEE) with a tremendous, growing electric utility base in Florida and a renewables project arm that develops for and joint-ventures with other utilities meeting their own renewable-generation targets - recently NiSource (NI) for example. This is not an undiscovered stock: It has already had a price run-up and even a 4-for-1 split. On Friday, Nov. 13, 2020, NextEra Energy closed at 93% of its split-adjusted 52-week high.
I am long NEE.
Oil & Gas Value Research by Long Player: Probably the election is not going to do what so many appear to expect. The reason for this is that unions have long been a major part of the Democratic Party and those unions are getting a lot of pipeline jobs. So maybe one or two very visible pipelines will be sacrificed at the political alter in the name of compromise. But unions will push back if too many jobs are lost and they are a major part of the Democratic Party.
The most obvious outperformer will probably Enterprise Products Partners (EPD). This Cadillac of the midstream industry is way undervalued. Oil and gas is going to be around for a long time simply because other "green" technologies turn out to have their own pollution problems in the manufacturing process or the technology needs time to develop more. Not only that, but oil and natural gas have so many uses besides the obvious fuel and there simply is not a replacement available.
Another company that should benefit is Hess (HES). This company is partnered with Exxon Mobil (XOM) and the partnership has announced a series of discoveries off the coast of Guyana. The discoveries will be extremely significant for a smaller company like Hess even if the partnership is barely on the significance radar of Exxon Mobil. At the very least, the production of Hess should at least triple over the coming decades even if there are no more discoveries (and they are still drilling exploration wells).
I am long EPD and HES.
Energy Profits in Dividends from Power Hedge: Joe Biden has been pushing heavily for renewables. He has promised to outlaw fracking, although I very highly doubt this will happen to that degree. We already have seen incredible performance from renewable energy stocks and I expect that to continue. The top performers will likely be those companies that are involved in this space. I expect the Global X Lithium and Battery Tech ETF (LIT) to do well. A company like Brookfield Renewable Partners (BEP) could also do pretty well, although it has already seen a huge run-up this year so it's performance could be tempered.
I am long LIT.
Dividend Growth Income+ Club from Robert Honeywill: Excerpts from my Aug. 3 article, exclusive to my Dividend Growth Income+ Club members, “2030, Hydrogen And The Age Of Aquarius” : "The Big Secular Change That Is Coming - I see the shift to renewable energy-based transport changing from a gradual movement to an avalanche of change by 2030. Whoever wins the November US presidential election, expect a massively increased infrastructure spend, in an attempt at economic recovery in the wake of COVID-19. This will happen not only in the US, but around the world. Preference will be given to new renewable energy-based transport infrastructure over upgrades to legacy systems. Why? Because it makes political sense. And, it also will likely make economic sense.
BEVs Or FCEVs - which will win out? My view is the path toward a dominance of FCEVs for all forms of transport will be through large commercial and industrial applications. This will include large trucks and semi-trailers, trains, large mining and farming equipment, and even airplanes. I see batteries as a "dirty" technology, creating huge environmental problems in manufacture and in eventual disposal, but with a place in short-term storage of energy. Both batteries and hydrogen fuel cells rely on a source of electricity for their continued operation, and that will come increasingly from renewable energy."
My company to watch is Fortescue Metals (OTCQX:FSUMF). They recently announced, “…will aim to build 235 GW of installed energy capacity - greater than Chevron's (NYSE:CVX) entire 2019 energy production - and already committed $1B in investments out to 2023” - Fortescue to expand into green energy, competing with fossil fuel giants (OTCMKTS:OTCQX:FSUMF) The age of large scale cheap hydrogen is under way, and unstoppable.
I am not long any of the above mentioned.
Commodities Contributors
The Hecht Commodity Report from Andrew Hecht: The election is not over as the Georgia runoff contests will determine the future majority in the Senate. If Democrats capture the two seats, it could create a clean sweep and allow for a more progressive agenda. If Republicans can hold at least one seat, it would result in a more moderate course for the Biden Administration. Whichever way the runoff goes, I remain bullish on gold and silver for the coming year.
Central bank liquidity and government stimulus increase the money supply and create a potent bullish environment for gold and silver. The end of the year is typically a weak time for gold and silver prices. I would use price corrections as an opportunity to buy the GLD and SLV ETF products on a scale-down basis.
If the Democrats achieve a majority in the Senate, I will view it was a very bullish development for energy prices as US output would like decline, perhaps dramatically. The world continues to depend on crude oil and natural gas. US energy policy that limits or bans fracking could create shortages of energy commodities in a post COVID-19 world.
The leading energy companies that survived the turmoil in 2020 are likely to thrive if oil and gas prices rise. I would be a buyer of the diversified XLE or VDE ETF products that hold shares of the leading US energy-related companies. I also would look to buy British Petroleum (BP), Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), Total (TOT), and Petrobras (PBR). PBR could experience a significant recovery as the Brazilian energy company would benefit from a rising oil price and a strengthening of the Brazilian real against the US dollar. Higher commodity prices would likely cause the real to appreciate, given Brazilian substantial commodity reserves.
I am long gold, silver, and platinum.
The Endgame Investor from Austrolib: Regardless of who is president, trillions more in debt will be issued to fund the next bailout, and the Fed will print the money to buy substantially it all of it. The main difference between Trump and Biden for our investment strategy is short-term timing. With Trump, the extra spending would have happened sooner. With Biden, more likely late January or February. Republican opposition in the Senate will be token. It's primarily the Fed that's begging for more debt so as to monetize it. The GOP may stand up to the Democrats, but not to Jay Powell.
A secondary difference between Trump and Biden is that national lockdowns are more likely under Biden, which would necessitate even more money creation in order to mask the damages.
The problem is that another circa $2 trillion in spending would require triple the rate of Treasury issuance in the 2Y-10Y maturity bracket compared to the rate of the last six years. The sizes of these auctions already are consistently hitting new records every month. Foreign demand at primary auctions is already dropping fast, which means substantially all of the next bailout will be financed, ultimately, with newly printed money by the Fed.
The dollar index has as of July broken through its long-term up trend established at the 2011 bottom. If it drops below 88 we could see a quick waterfall decline, and a panic out of the dollar internationally with the Fed in danger of losing control of interest rates at home. Meanwhile, gold (GLD) is likely to move to new records, along with dividend leaders in the space like Newmont (NEM), which already hiked its quarterly dividend by 185% since March from 14 cents to 40 cents a share.
It will likely continue doing so in the quarters ahead with margins at all-time records.
I am long GLD and NEM.
The Natural Resources Hub from Laurentian Research: No matter who occupies the White House, more fiat money will most likely be pumped into the system in the U.S. as well as overseas, which will likely trigger a commodity super-cycle. I believe this commodity super-cycle will be led by gold and silver, with the green stuff including copper, nickel, PGM, and perhaps natural gas in the middle of the pack, and followed by uranium and oil.
A rotation from the currently-overvalued sectors to the value depressions (i.e., the natural resources sector), even if to a limited degree, should help amplify the commodity bull market.
Companies with a long growth runway and a winning business strategy will outperform in this commodity super-cycle. Two examples are deeply-undervalued exploration play GR Silver Mining (OTCQB:GRSLF) and 10.6%-yielding income play Diversified Gas & Oil (OTCQX:DGOCF), both extensively covered at The Natural Resources Hub. I believe companies such as these two examples will reward shareholders abundantly in the unfolding commodity super-cycle.
I am long GRSLF and DGOCF.
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