Market Pulse: Be energized
In 2020 green energy stocks were market leaders while traditional energy lagged badly. The opposite was true in 2021 when oil stocks jumped about 50% at the same time that green energy entered its own bear market. This year both old and new energy stocks are in sync with both groups leading the market and having year-to-date gains. People have realized that now more than ever we need more energy. It’s not “either or.” Instead, it is “all of the above.”
Green energy stocks were in the doldrums this year until mid-July when the expected passage of the misnamed Inflation Reduction Act became clear. This climate spending bill, signed by President Biden on Aug. 16, allocates about $370 billion to renewable energy, electric vehicles, and batteries over the next 10 years. That’s a lot of money and stocks responded. Instead of picking individual winners, investors that want exposure to this area should consider exchange-traded funds like Alps Clean Energy (ACES).
While wind and solar are good for the environment, it’s become very clear that we can’t shut off traditional energy. After all, oil, gas, and coal account for about 80% of the world’s energy (75% in the U.S.). The anger at the price of gasoline (especially at Tahoe) is a reality check. High gas prices will lead to inflation, social unrest, and election losses. That’s why the Inflation Reduction Act also includes provisions supporting new oil and gas leases.
While the news media cover the price at the pumps, perhaps the strongest bull market is in natural gas, which is at a 14-year high. Gas is $9, up from $4 at the start of the year. Because of their reliance on Russian gas, Europe is ground zero of this energy crisis. European liquified natural gas is trading at $60, nearly double from May. Europe has no back-up plan to get through winter so the U.S. is doing all it can to fill the void. We are now the world’s largest natural gas exporter. The largest U.S. liquified natural gas company is Cheniere Energy Inc. (LNG).
To get to a liquified natural gas export terminal, natural gas needs to move through pipelines. There is no other way. Trucks and trains won’t work. A pure-play natural gas pipeline company is Williams Cos (WMB). I think of WMB as a utility because of its high yield (5%) and stable revenues. WMB is less volatile than most energy stocks, but it does tend to move up and down with the price of oil and gas. This is a good income investment.
David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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