Buzz on the Bullboards: the BEST energy opportunities?

The “energy sector” is no longer one sector at all. In the 21st century, “energy” is spread across at least two sectors, and some investors and analysts may wish to subdivide it into an even greater number of categories.

In general terms, it may be helpful for investors to think of this equation as having two components:

1. New Energy
2. Conventional Energy

New Energy is exactly what the label implies: new energy technology that has been brought to market (primarily) since the turn of the century. More specifically, this can be thought of as the lithium-ion battery industry, and all the spin-off applications that can operate off of this electricity-based form of power generation.

There are also the (new) renewable energy sources that have finally come of age. A recent Stockhouse article – focusing on solar power – spread the news: renewable energy prices will be cost-competitive with fossil fuel generated energy by 2020. Going forward, greater use of renewable energy (solar power, wind power, etc.) no longer needs to be based solely upon environmental issues but can be equally driven by economics.

Conventional Energy is also self-descriptive: these are the established forms of power generation that were already fully commercialized prior to the end of the last century. Specifically, we can think of Conventional Energy as primarily a combination of fossil fuel generation (oil & gas plus coal) along with nuclear power.

Bio fuels complicate this equation somewhat, but don’t fundamentally alter it. While bio fuels eliminate some of the (negative) issues associated with the use of fossil fuels, they create other problems – such as the gross misallocation of some crops that are vital as food sources. Bio fuels would/could never replace either New Energy or Conventional Energy.

While the economics of New Energy and Conventional Energy are now similar, there are few parallels when it comes to either industry dynamics or market valuations. Roughly speaking, Conventional Energy is seen as having already peaked. While fossil fuels, nuclear power, and (even) coal continue to play important roles in the overall energy equation, Conventional Energy is gradually ceasing to dominate economically.

Conversely, New Energy is seen to still be in the early stages of driving several paradigm shifts in the global economy:

• Steadily replacing internal combustion engines in the automobile industry with electric vehicles, powered by lithium-ion batteries
• Steadily increasing our reliance upon clean/renewable power (and helping to reduce the increase in global CO2 emissions)

Given these dynamics, it’s not surprising that there are currently large differentials in the valuations of companies associated with New Energy versus those companies associated with Conventional Energy. This gap in valuations is even greater with respect to small-cap companies associated with the resource sectors that power New and Conventional Energy.

As oil & gas investors can attest, sentiment (and valuations) in O&G have been terrible for more than a year. Even rising crude prices have not been sufficient to bolster the valuations of most oil & gas companies. In other words, there is a clear disconnect between sector fundamentals and market valuations.

With the New Energy space, dynamics have generally been much better. While valuations for most Battery Metals mining companies have taken a hit in recent months, those valuations began at a higher plateau, and share prices have not been in decline for nearly as long with the oil & gas stocks.

This provides an interesting trade-off for investors wondering where they should focus the “energy” component in their own portfolios. Sentiment and valuations are somewhat better on the New Energy side, providing more of a comfort zone for most investors.

Conversely, contrarian and value investors would look at the more anemic valuations in oil & gas and say that these companies represent better value opportunities. The same argument can be made with nuclear energy and the current weak valuations for most uranium companies. The trough in the uranium market has persisted for so long that a strong argument can be made that uranium stock valuations are also not a fair reflection of uranium stock value.

That’s the Big Picture in this week’s edition of “Buzz”, but there is also plenty to discuss in the Smaller Picture, meaning what has been taking place on the Stockhouse Bullboards in recent days. To start with, reads for our Healthcare Bullboard leaders were roughly parallel with reads on our cannabis leaderboard. This is something we haven’t seen on Stockhouse for many months.

Leading the way in Healthcare (in more ways than one) is ProMetic Life Sciences Inc. (TSX: PLI, OTCQB: PFSCF, Forum). As regular Stockhouse readers already know, PLI has one of the strongest hubs of any publicly listed company visible at Stockhouse.

ProMetic’s large, loyal following has been rewarded in recent days with a near-doubling of the Company’s share price. The strong upward move has been fueled by momentum generated in PLI’s clinical research.

(click to enlarge)

Also continuing to attract considerable investor interest in Healthcare is iCo Therapeutics Inc. (TSX: V.ICO, OTCQB: ICOTF, Forum). This stock has quadrupled over the past month and is strongly higher again today. This is another company generating positive results in its clinical research.

On the cannabis side, reappearing on the leaderboard this week for the first time in a couple of months is Newstrike Brands Ltd. (TSX: V.HIP, OTCQB: NWKRF, Forum). This cannabis company is firmly positioned on the recreational side of the industry. With Canada’s October 17th date for legalization of recreational cannabis fast approaching, activity may continue to heat up on this Bullboard.

Continuing to dominate discussion among Industrials is Bombardier Inc. (TSX: BBD.A, OTCQX: BDRBF, Forum). We showed investors BBD’s strong performance in the last issue of Buzz, via a glance at its one-year chart. Planes aren’t the only thing soaring at Bombardier these days, and as long as the share price keeps rising, expect the robust dialogue on the BBD Bullboard to continue.

For investors looking at markets today, healthcare is trending higher, cannabis is (relatively) flat, and pretty much everything else is moving lower. For investors thinking about where markets are headed tomorrow, now might be a good time to start planning your "energy strategy".