Top Infrastructure Investment Opportunities
The US economy is going to grow nicely this year as it comes back from the Covid-19 shutdown. Investments in the recovery will continue to do well in the coming years if they are focused on American infrastructure. What are the top infrastructure investment opportunities for 2021? You need to think about what materials and technologies will be used to repair and advance infrastructure. And, then you need to look for the companies best positioned to profit from a broad range of projects.
Best Infrastructure Stocks
We found a set of good suggestions about infrastructure stocks to buy from The Motley Fool. They did not look for the newest technologies but rather the folks who can profitably supply materials and equipment. The three stocks they suggest are Vulcan Materials, United Rentals, and Nucor.
Vulcan Materials is the biggest producer of aggregate in the USA. They provide gravel, crushed rock and sand used for construction of bridges, buildings, highways, runways, and more. Their stock sold for $136 a share before the pandemic, fell to $109 and now sells for $145. It has a 0.90 percent dividend yield which is four times what it was six years ago. They are not going to grow by multiples but will see impressive profits as the country gears up to fix everything that needs aggregate and concrete.
United Rentals is the largest renter of heavy equipment in the world. Although folks like Caterpillar should do well as more heavy equipment is needed, many companies will choose to lease equipment for as long as they need it instead of purchasing. Their stock sold for $156 a share and fell to $70 before climbing to $316 today. The only problem we see with this choice is that much of the profit may have already been made as their business has ramped up in anticipation of the recovery and infrastructure projects.
Nucor is a very efficient steel producer and the largest in the USA. Their extremely efficient mini-mills use electric furnaces making them highly profitable. The Biden infrastructure program will have two purposes. One is obviously to fix a lot that is broken in our infrastructure as well as to introduce advancements that are long overdue. The other is to create lots of American jobs. As such, we expect any legislation that funds infrastructure programs to give preference to American companies and suppliers. This could provide the basis for a turnaround for American steel producers with Nucor leading the pack. Their stock sold for $47 a share going into the pandemic, fell to $30 and sells for $71 today. We do not think they are anywhere near topping out at this time.
Types of Infrastructure Investments
Traditional infrastructure investments are in roads and highways, mass transit, ports and waterways, airports, electricity, and water services. All of these are critical and all are likely to be addressed in the coming legislation. However, technological infrastructure is important as well. We wrote about 5G investments but there are also basic things like having enough masks, syringes, and other essentials produced and stockpiled in the USA should the pandemic come back. We wrote about how batteries are essential to clean energy and how the USA is likely to start mining rare earth minerals in the country and building lithium-ion battery factories at home.
Ways to Invest in Infrastructure
Choosing individual stocks can be profitable if you have done your research. But, many investors have done just fine in recent years by putting their money into ETFs that track the broader market or, in this case, infrastructure-related investment opportunities. Three good choices are PAVE, IFRA, and NFRA. They all track a broad set of companies that work in infrastructure-related areas. Invest in an infrastructure ETF if you want to skip the research.
Top Infrastructure Investment Opportunities – Slideshare Version
Top Infrastructure Investment Opportunities- DOC
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How Long Will the Economic Boom Last?
In our article about investments for the Post-Covid Economic Recovery, we noted that economists expect the US economy to grow by 7% by the end of 2021. But, there are good reasons to believe that the US economic boom will continue through the entire decade of the 2020s and beyond. First of all the Democrats have learned their lesson from the Obama years and will not shrink back from spending whatever it takes to drive down employment, bring manufacturing back to the USA, beef up US infrastructure, and protect America’s position in the global economic hierarchy. And, there are more reasons as we will explain.
End of Changes Due to Outsourcing Off-shore
In an article about economic optimism, The New York Times makes the point that the global adjustment for cheap Chinese labor was a one-time adjustment and it is mostly over. While China’s population ages, its wages increase, its pool of cheap labor is being depleted. While some of the same dynamics apply to other nations seeking to enter global markets, we are coming to a point where these nations are as much consumers as they are cheap producers.
Thus, there will be a natural flow of work back to the USA and Europe. This will be a long-term correction back to a new normal. It will also be hastened by the two largest economies, the USA and the EU-UK changing their posture in regard to China in order to protect their own markets and sovereignty. We can expect that this factor alone will help bring jobs back into the USA, especially when the Biden infrastructure efforts create jobs that only can be done within the USA.
Covid-19 Era Savings
As terrible as the Covid-19 pandemic has been, not everyone has lost their job but everyone is able to spend less. Thus Americans have socked away roughly $1.8 Trillion more than usual during the last year and much of this is waiting to be spent on long-delayed vacations, purchases of homes, or business improvements. Although spending this money will be a short-term economic stimulus it will be part of the reason for the 7% US economic growth this year.
Biden Infrastructure Surge over the Long Term
Provided that Biden’s infrastructure plans go through, government spending to accomplish this will be cheaper now during a period of low interest rates than it would have been when rates were higher. The sorts of projects that are envisioned, like modernizing ports and airports, repairing bridges and highways, installing a 5G network nationwide, and others will start creating jobs by the end of the year and will continue to do so for years to come as these types of projects commonly take a decade or so to complete. The payoff after that will come from increased efficiency of the US economy directly from these projects and from the maturing of new technologies. This will very likely be the first leg of a long-term economic boom.
New Technologies Come of Age
We wrote recently about battery production as part of the move towards clean energy. When advanced technologies are first developed, they are not always profitable. AI (artificial intelligence) seems to fit the picture at the current time. However, as AI, advanced battery storage devices, and other new technologies become integrated into industry and society, they could help fuel an economic boom that lasts and lasts. The key for the USA is to get on board with these technologies, use them to create jobs, and use them to create sales.
Assessment of Intrinsic Stock Value for the 2020s
A key to successful investing during the coming economic boom will be the assessment of intrinsic stock value. Who is positioned to take advantage of infrastructure projects, which is best-positioned to make money by integrating new technologies? Very often the first companies in an investment niche are not the ones who dominate in the long term. Competent management is important and here is where the governance aspect of ESL investing is important.
How Long Will the Economic Boom Last? – Slideshare Version
How Long Will the Economic Boom Last?- DOC
How Long Will the Economic Boom Last? – PDF
Should You Invest in Shorted Stocks?
GameStop and other meme stocks have started to surge again. Most folks thought that the retail investment frenzy was over. Over a month ago we asked the question, Should You Invest in GameStop? Our conclusion was that when you can successfully time such investments both in getting in and getting out, they can be quite profitable. But, over the long haul, the reason that the majority of stocks are being shorted is that they are overpriced and will eventually fall. Much to our surprise, GameStop stock is up again!
The Return of Investors to GameStop
The Washington Post notes that GameStop and other meme stocks are surging again.
GameStop shares closed up 19 percent Thursday, after surging as much as 88 percent, as retail investors returned to the shorted stock that set off a trading frenzy last month that shocked Wall Street and sparked federal scrutiny. GameStop ended the session at $109.15, pushing the video game retailer’s market cap past $7.6 billion, even as the broader market slumped.
What fueled this rise were more small retail investors who benefitted on shorted stocks including GameStop and reacted to news about the company CEO stepping down. This time around investors simply want to see GameStop do well and would like to repeat their previous success with the stock.
What Are Meme Stocks?
A meme stock is one that is both heavily shorted and subject to manipulation to prove a point. The Reddit subsite, WallStreetBets, is popular with young investors. They do not get their investment ideas or advice from Kiplinger, Barron’s, The Wall Street Journal, The Motley Fool, or Jim Cramer. They studiously follow what is posted on WallStreetBets and then invest via Robinhood or another online investment platform. These folks have found that they can make money trading options.
The Post interviewed a software engineer who set aside money in hopes of winning this time around with GameStop. It was money he could afford to lose. Unfortunately, some Robinhood users have mortgaged their homes in order to buy or sell options on Robinhood. Getting your investment advice on Twitter, YouTube or Reddit is fine. As we noted years ago about stock tips, you need to check them out independently. Look at intrinsic stock value if you are looking to invest for the long term and beware of selling options unless you are purchasing as an offsetting measure. As noted in the article, a lot of people are going to learn this the hard way!
Should You Invest in Shorted Stocks?
As noted in an informative article by Market Watch, the vast majority of investors should never short-sell stocks. Folks who do this and make money have done their research and often have what amounts to inside information. They can afford to lose their investments. And, they spend all of their time watching over these investments so that they can reverse course on a dime if need be.
If you have a short position, there’s no limit to how much money you can lose if the shares rise. If the share price increases soon after you place a short position, you could quickly “cover” by buying back the shares and returning them to the investor you borrowed them from. If you’re lucky, you might not lose very much.
Our view of the current meme stock frenzy is that the market is being manipulated by a few savvy investors who also are skilled at using social media to recruit lots of folks to help them achieve their goals. Following these folks may work out for you at times and at other times you are simply being pulled into another pump and dump scheme. The basic problem is that you are betting that enough people will follow the leader on Reddit to cause the short sellers to buy again and give you a profit.
Should You Invest in Shorted Stocks? – Slideshare Version
Stimulus Money and Stock Market Investments
The Democrats are barreling past Republican opposition in the U.S. Senate to pass Biden’s stimulus bill. The $1.9 Trillion relief package will include funds to fight Covid-19, money to states to support vital work, and $1,400 each to Americans who make less than $50,000 a year. There will be some money for folks making more but it will taper off and be gone for those making $100,000 a year. Our interest at this point is the relationship between stimulus money and stock market investments.
Stimulus Rally of the Stock Market
The Biden stimulus payments will affect the stock market in two different ways. The economy will improve and stimulus checks will go directly into the stock market. Barron’s published an insightful article about how the stock market stands to win big. It turns out that young investors who will get stimulus money plan to immediately put it in the market! Young millennials aged 25 to 34 plan to put half of their stimulus money into stocks according to a survey by Deutsche Bank. Gen Z 18 to 24-year-olds are planning to invest 40% of their stimulus money. The proportion goes down as age goes up as the 35 to 54-year-old group plans on investing 43% while baby boomers over 55-years of age plan to invest only 16% of their stimulus payment in stocks.
Who Will Get Money to Invest?
The original stimulus or rescue bill had a cutoff of $75,000 for those to receive $1,400 and the amount was to taper down until someone earned $150,000 a year. As the bill has been reworked the top amount for the full $1,400 is $50,000 a year and that payment will taper to nothing by the time someone is making $100,000 a year. Our belief is that many of the folks surveyed by Deutsche Bank have not been excluded from potential payments. Nevertheless, a significant portion of the money included in the bill will end up going directly into the stock market and causing a mini rally.
Investing in the Economic Stimulus of the Biden Rescue Plan
When Congress passed the rescue plans in 2020, both the early and the late bills paid money directly to people and resulted in stimulus of the economy and a bump in the stock market. Consumer stocks will be the first to benefit from the $1,400 payments. The bulk of people who get the money will immediately buy food, clothing, medicines, and other necessities. Money will go into catching up on rent as well. As we saw last spring, this amount of money will help the economy and bring back some jobs as it throws a lifeline to hurting and hungry families. The extension of other benefits such as for children will provide needed relief but also add stimulus. We expect to see stimulus payments go into the market and stimulus payments go into consumer goods that will help drive the market up. The next wave will be the infrastructure plans which will be meant to create American jobs as well as bringing infrastructure back from its current sorry state.
Stimulus Money and Stock Market Investments – Slideshare Version
Smith & Wesson Investment Risks
The business section of The New York Times has an article entitled, “The Most Important Gun Lawsuit You’ve Never Heard Of.” On the surface this has to do with advertising fraud by Smith & Wesson but it could be a lot more. American arms manufacturers have been protected by the Second Amendment to the Constitution of the United States as well as other federal legislation from too much scrutiny of their internal affairs and communications.
A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.
None of the protections that have a bearing on the right to bear arms offer any protection to Smith & Wesson in a consumer fraud case. What is this all about and what does it have to do with Smith & Wesson investment risks?
Consumer Fraud and Your Investment in Smith & Wesson
As explained in The New York Times, what started all of this was an advertisement on television. In the ad a woman put a handgun in her handbag and takes it with her in her car, to the office, to lunch at a café, to the gym, and then to a shooting range at the end of the day where she goes for target practice. The consumer fraud part of this advertisement is that in 35 states much of what is depicted would be illegal unless the woman has a concealed carry permit! The ad does not mention that fact.
What Are the Smith & Wesson Investment Risks?
So, you are thinking, Smith & Wesson could be fined and forced to remove or modify the ad with a disclaimer about needing a concealed carry permit. What is the big deal? The big deal is that none of the Second Amendment or other protections that an arms manufacturer enjoys have anything to do with a consumer protection lawsuit. No one has ever been able to look inside of a company like Smith & Wesson to learn what they know about the effects their products (firearms) have on society.
Will the Arms Industry Go the Same Way as the Tobacco Industry?
This was the same with the tobacco industry until lawsuits forced tobacco companies to disclose that their internal research showed that smoking causes cancer and that they had been lying to the public for decades. As The Times notes,
Gun manufacturers have long been immune from liability for gun crimes and deaths because of federal laws that protect them. As a result, virtually no one has been able to mount a legal case that would allow for access to records from inside a gun manufacturer, be it internal emails, memos, notes or other material showing what gun industry executives say behind closed doors about the products they make.
Investment in Smith & Wesson Brand Inc.
Smith & Wesson is an American firearms company that was founded in 1856 by Horace Smith and Daniel B. Wesson. It was privately owned until 2001 when it was acquired by Saf-T-Hammer Corporation. It was part of American Outdoor Brands from 2016 to 2020 when it was spun off. Its current stock price is in the $16 to $17 range having come up from $6 at the start of the Covid-19 pandemic when sales skyrocketed. In the last 20 years the stock price has been as low is $0.16 a share and as high as $22.64. The company pays out a fourth of its income as dividends which gives investors a dividend yield of 1.13% at the current share price.
Investment Risk to Smith & Wesson and the American Firearms Industry
The bottom line risk in this matter is that the same Smith & Wesson weapon, the AR-15 style rifle was used in the 2018 Stoneman Douglas High School shooting, the 2012 Aurora, Colorado shooting, and the 2015 San Bernardino attack. If the consumer protection lawsuit uncovers any internal communications indicating that they knew of the risks their products have to the public, it could sway public opinion, as well as juries, like information from inside tobacco companies did in the 1990s. That could spell doom for Smith & Wesson and the rest.
| Smith & Wesson Investment Risks – Slideshare Version |
Treasury Yield and Growth Stocks
Last week we wrote about investments for the post-Covid economic recovery. In the same vein, we have been thinking about how interest rates are going up and investors are becoming wary of growth stocks. Treasury yield and growth stocks bear watching. Low interest rates have driven money into the stock market. Low interest rates have kept a lot of “zombie companies” afloat. And, many investors have simply followed the leader by investing in FAANG stocks like Apple as its shares go up faster than its earnings.
How Far Will Interest Rates Rise?
Kiplinger writes about 1.5% Treasury rates going to 2% by the end of the year. Along the way this will be accompanied by mortgage rates and long term loans for purchases like automobiles going up as well. They predict that mortgage rates will go from 3% to 3.5% by the end of the year. What will drive rates higher will be a recovering economy and the first Biden stimulus/rescue package followed by legislation to repair American infrastructure and create American jobs. The first legislation looks fairly certain but the follow-up which will come in at near to $3 Trillion will be more of a struggle. The Fed is unlikely to increase the short term funds rate unless or until inflation goes well above 2% which could take a couple of years.
What Part of the Market Will Correct First?
To successfully predict this part we need to look at how the stock market rallied while the US economy experienced the worse fall in GDP since the Great Depression. Cyclical or value stocks suffered with the economy while investors were willing to throw fistfuls of money at tech growth stocks. The rationale for FAANG stocks going steadily up over the last decade has always been attributed to their impressive earnings. But, as the market soared back a year ago, stock prices outpaced earnings as noted with Apple whose stock price doubled from before the pandemic until the end of January of 2021. During the same time its earnings went up by about 25%. We note that Apple has fallen by about $20 share since its most recent peak.
The global and US economy are coming back and will continue to do so over the next months. The first part of this will be easy as people get back to work and back to spending due to the pandemic subsiding. Then, the continued growth of the economy in the USA at least will probably depend on projects like infrastructure rebuilding and enhancements. Many companies will benefit, including the tech giants. But, as investors will have more options and many stocks in the tech sector are over priced, we expect to see the slow down and correct.
Economic Recovery versus an Inflationary Economy
If you are wondering if inflation is going to raise its head as the economy improves, you may be surprised to hear that it already has. Although commodities collapsed at the beginning of the pandemic and its associated recession, copper, silver, wheat, soybeans, iron ore, beef, and poultry are now all hitting all-time highs. As these prices trickle down to the consumer level, prices will go up as will pressure for higher wages. This will especially be the case in the USA if a further stimulus bill tied to infrastructure and American jobs is passed. There has been a lot of money thrown at the economy but actions by the Fed such as quantitative easing do not go directly to people. But, stimulus checks do as will money spent on infrastructure projects. When all of this accumulates, inflation will finally go up badly enough that the Fed will need to step in and raise rates which will be the final blow of overpriced tech and growth stocks. They will not collapse but they will probably experience meaningful corrections.
Treasury Yield and Growth Stocks – Slideshare Version
Investments for the Post-Covid Economic Recovery
The US economy is going to grow impressively in 2021. How long will the recovery last? What are some investments for the post-Covid economic recovery? These questions came to mind after we saw a thoughtful article in The Washington Post about the possibility of the U.S. economy growing at a seven percent rate for the rest of 2021. Bottled up demand and the ability to get people back to normal work are likely to help drive an impressive economic recovery this year. But, what happens in the years to come? Your choices of investments for the post-Covid economic recovery will be based on whether we have a short burst of economic steam or if things like infrastructure investment drive the GDP up for years.
Will the Economy Boom After Covid-19 Is Gone?
According to the Post article, Goldman Sachs is predicting a 7% growth of the U.S. economy this year. This would be the best rate of growth since the middle of the Ronald Reagan presidency. However, the bulk of this year’s recovery will come from rescue and stimulus spending and a return to normal as vaccines drive the virus from our everyday lives. The answer will lie in the following round of legislation and spending. While the Democrats at least are on board with the current rescue package, the following round of legislation may be more contentious.
Will America Invest in Infrastructure?
Once Congress passes the proposed $1.9 Trillion rescue package, in whatever form, the Biden administration is set to introduce more legislation mean to repair U.S. infrastructure and create lots of jobs in the process. The legislation will also be strong on domestic manufacturing, clean energy and care for children and the elderly. Every one of these will have a major focus on creating jobs. Those who are already lining up to oppose such legislation say that it will drive the deficit too high and cause inflation. The inflation will cause higher interest rates which will, in turn, cause another recession. What the Biden administration, the Fed, and the new Secretary of the Treasury are saying is that now is not the time to think small. Our bet is that the second stimulus round, as opposed to the rescue plan, will pass in some form.
How Long Will the U.S. Economic Post-Covid Recovery Last?
A prolonged economic recovery would be likely if Biden’s plans for spending on infrastructure in all of its forms as well as domestic manufacturing work out. How prolonged might have to do more with who holds political power than the economics of what is planned. Democrats believe that they “went small” in the stimulus measures coming out of the Great Recession. Their “half-measures” resulted in a weak recovery and the loss of the House of Representatives and seven seats in the Senate. They would prefer not to repeat their mistake.
The Democrats’ plan is to bring the economy back, create jobs, bring “Trump Democrats” back into the Democratic fold and maintain or increase majorities in Congress at least through Biden’s first time and then beyond. In our opinion, the likelihood of a sustained and impressive economic recovery will depend on the U.S. government getting behind programs that make the economy more efficient and are driven by jobs at home. This will be possible if congress “bites the bullet” and passes not just the current rescue package but a substantial stimulus bill to follow.
In addition, the Biden administration is likely to allow increased immigration similar to what Reagan did. Reagan loosened immigration rules and offered paths to citizenship for illegals. It was the biggest surge of immigration since the 19th century and coincided with a U.S. economic boom.
Will Stimulus Spending Cause Inflation?
Economists like Larry Summers (former Treasury Secretary) warn that too much government spending will dump too much money into the economy and drive up inflation. Then the Fed will be forced to raise interest rates and that will cause a recession. However, according to Jerome Powell, the Fed chairman, they are in no hurry to raise rates if their stated 2% inflation target is passed and that the preferable course today is to spend and bring the economy back.
What Are Some Investments for the Post-Covid Economic Recovery?
We have written about this already. Investments based on eventual recoveries of the hospitality and travel sectors should do well in the short term as Covid-19 recedes and especially if the proposed rescue package goes through. Infrastructure-related investments and investments tied to an increase in domestic manufacturing will do better if the proposed stimulus bill passes with all of the infrastructure and green energy bells and whistles attached. For more thoughts about investments for the post-Covid economic recovery follow these links.
Infrastructure Implications of Biden Agenda
When Will Travel Stocks Recover?
Your Investments When Interest Rates Rise
Energy Investments for 2021
Clean Energy Investment Specifics: Battery Production
Carbon Sequestration Investments
Investments for the Post-Covid Economic Recovery – Slideshare Version
Investments for the Post-Covid Economic Recovery – DOC
Investments for the Post-Covid Economic Recovery – PDF
Carbon Sequestration Investments
Exxon Mobil is going to make $3 billion in carbon sequestration investments over the next five years. Exxon Mobil has gotten a lot of criticism for not branching out into green energy solutions. This is their first move towards fighting global warming and a greener earth. Aside from buying stock in the oil company, how can you invest in as part of your ESG investing and profit from this activity. Exxon’s approach will be to capture carbon dioxide from industrial plants and storing it so that it does not enter the atmosphere in the first place. There will be many ways to reduce carbon dioxide and potential carbon sequestration investments go forward.
What Is Carbon Sequestration?
The short version is that carbon sequestration is getting carbon dioxide out of the atmosphere and putting it somewhere. The actual version is a lot more complex as you can see by browsing the USGS report about Baseline and Projected Future Carbon Storage in the Great Plains. This forty page document discusses land use, reforestation, planting trees on unforested land, and preserving wetlands as well as giving a nod to technologies for storing carbon dioxide.
As noted in an informative article by EcoWatch, there are many ways to accomplish carbon sequestration. Planting trees works because they take carbon out of the air and turn it into wood. The sort of approach that Exxon Mobil is aiming at is already in use as EcoWatch notes in a power plant in Decatur, Illinois by Archer Daniels Midland, the agricultural and ethanol-production giant. They capture the carbon dioxide as it is created by burning fossil fuels, concentrate it into liquid, and inject it into deep rock formations. Alternatively, the CO2 can be captured and used in the creation of plastics or concrete.
A way to sequester carbon that does not require burying it far beneath the surface of the earth is to create biochar, this is partially burned material which is still rich in carbon. This material can be spread on agricultural land where it enriches the soil.
Direct Carbon Capture Technology
A process that shows long-term promise was developed by a University of Arizona professor, Klaus Lachner. It captures CO2 directly from the air which means it can be set up anywhere. At the current time the process takes a lot of energy and costs about $30 for each ton of CO2 it captures. It has the potential to remove a hundred million tons of CO2 per day from the air but that would cost $3 billion a day or about $1 trillion a year! But, this sort of approach set up with solar or wind power could collect CO2 day and night without using any fossil fuel or nuclear energy to power the process.
Modern society adds about 40 billion tons of CO2 to the atmosphere. Removing 110 million tons a day would take out 36.5 billion tons a year which would make a serious dent in the yearly increase of CO2 in the air.
Climeworks, a Swiss company, is using this process at the current time. Their costs at this time make the process too expensive but they aim to reduce how much it costs to do this and hope to start making a dent in global emissions by 2025.
Companies Employing Carbon Sequestration Technology
Your carbon sequestration investments will be targeted at companies employing one or more of the effective technologies and developing new ones. Today these include Exxon Mobil, NRG Energy, Fluor Corporation, Dakota Gasification Company, and Chevron in the USA. Carbon Engineering Ltd. is located in Canada. Others are Shell in the Netherlands, Total in France, Equinor in Norway, ADNOC Group in the UAE, and China National Petroleum Corporation in China.
As with all developing technologies the race may not be won by the one that invents a process but those that adapt it and employ it efficiently. As the USA gets back into promoting and enforcing energy policies aimed at reducing global warming, those companies that best-comply with existing regulations will also benefit the most.
Carbon Sequestration Investments – Slideshare Version
Clean Energy Investment Specifics: Battery Production
As we have noted, ESG investing is on the rise. One branch of this investment method is targeted at green and clean energy. When investing to help create a greener world and to make a profit along the way, you need to delve into the specifics, one of which happens to be battery production. As the world pivots to electric vehicles, solar and wind farms, and other green methods of generating electricity, battery storage is essential. Unfortunately, the USA lags far behind Europe and China and will be in a position of having to rely on foreign supply chains for essential tools in green energy development.
Government Programs for Green Energy
The Energy Efficiency and Renewable Energy branch of the US Department of Energy currently offers funding following evaluation of energy projects.
Through cooperative agreements, EERE provides financial or other support to stimulate the development and deployment of renewable and energy efficient technologies authorized by federal statute. Under cooperative agreements, the government and recipients share responsibility for the project direction.
However, these programs and the amounts of money involved need to increase greatly in the area of battery production if the USA is not to fall farther behind China and Europe.
Unfortunately, green energy programs withered during the Trump administration, leaving the USA further behind like what happened with solar panels and 5G. As we noted in our 5G article, none of the industry leaders in developing 5G are US companies employing US workers.
Battery Production as Part of Clean Energy
The Washington Post writes about clean energy jobs and how the USA is far behind its competitors.
As the Biden administration promises to jump-start the clean-energy economy, it faces an uphill climb: The United States has fallen behind Asia and Europe in the race to produce the central technology, the high-tech batteries that power electric cars and store solar and wind energy.
The Post goes on to explain that China has ninety-three huge factories manufacturing lithium-ion battery cells while the USA has four. If current plans are followed, China will have one hundred thirty such factories by 2030, Europe will have seventeen, and the USA will have ten. This will leave the USA in a vulnerable position if supply chains are interrupted, will continue to terrible balance of payment issues that the USA currently has with China, and will cause the USA to miss out of a gold mine of clean energy jobs and investments!
Taking Advantage of US Research and Development
The USA is the leader in early stage battery research via federally funded universities and national laboratories. What the USA does not do is support local efforts to convert this edge in technology into modern, high-tech, industrial capacity that creates jobs, provides investment profits, and helps maintain US technological and modern industrial leadership in the world.
Clean Energy Investment Opportunities in the Biden Administration
If you read the clean energy proposals to be put forth by the Biden administration you will see that funding will go toward the sort of investments we are discussing.
Power Sector: Move ambitiously to generate clean, American-made electricity to achieve a carbon pollution-free power sector by 2035. This will enable us to meet the existential threat of climate change while creating millions of jobs with a choice to join a union.
The problems in the way include the Covid-19 pandemic, rescue funds for struggling businesses and families, and getting enough folks vaccinated to get the economy back to a semblance of normal. Then, the estimated price tag of $2 trillion will cause concern. However, much of that can be financed with long term bonds guaranteed by the federal government and paid for over many years at historically low interest rates. What remains to be seen is if Biden and congress will be able to work together to get this done. If so, there will be substantial investment opportunities in the green energy sector staring with production of batteries in the USA.
Clean Energy Investment Specifics: Battery Production – Slideshare Version
Energy Investments for 2021
The economy is going to start to recover and green energy will benefit from government policy. Both factors will affect your energy investments for 2021. Energy investing today is much different from what it was years ago. It used to be that you could buy an energy stock like Exxon Mobil, sit back, collect the dividends, and watch it grow over the years. For example, Exxon Mobil sold for $3.91 a share at the end of 1981 and rose to $93 a share by December of 2007. And during all of those years, it paid a dividend. But, prior to the Covid-19 crisis, the stock sold for $69 a share and it fell to $32 a share by November of 2020. The path back of a company like Exxon Mobil will be a mix of success as the economy recovers and energy consumption increases and the drag that green energy policy and competition have on its market. What are your best investment choices for 2021?
Energy Stocks With the Most Momentum
If you want to invest profitably, don’t invest in the biggest energy stock but rather the one most likely to grow. Because recent success is commonly a good predictor of future success, look at energy stocks with the most momentum coming out of 2020. The Motley Fool writes about the best energy stock for 2021.
Solar energy was one of the biggest growth stories of 2020. The Invesco Solar ETF (NYSEMKT:TAN) returned roughly 14 times more than the market last year. Wind energy also shows promise. And there remains value in oil and gas stocks, which have rebounded nicely so far this year.
NextEra Energy (NYSE:NEE) is the largest U.S. utility by market capitalization. The majority of the company’s earnings come from fossil-fuel-based sources, but it’s investing heavily in renewables — so much so that renewable capacity could eclipse its fossil-fuel capacity by 2024. Here’s why NextEra could be the best energy stock for 2021.
As noted by their discussion of NextEra, investing in wind and solar can be profitable as shown by their five-fold increase in stock price over the last ten years. Because they use both renewable energy sources and traditional sources like natural gas, they will benefit from the pivot to green energy as well as the resurgence of traditional energy sources as the economy recovers.
Nuclear Power Stocks 2021
The USA currently generates thirty percent of its baseload of power (generated at any time) from nuclear power plants. Twenty-five percent of current capacity comes from nuclear plants and the USA imports 95 percent of its uranium. (Investor Intel) This explains why uranium stocks are doing well. These include Appia Energy Corp., Energy Fuels Inc., Fission Uranium Corp., Ur-Energy Inc., and Western Uranium & Vanadium Corp. These stocks are up because investors think that the USA will use more nuclear power in order to reduce greenhouse gas emissions.
The costs of nuclear power generation are largely in the construction of plants. The low cost of operation allows for money to be put aside for storage of spent fuels. Nuclear can run even when the sun does not shine and the wind does not blow. And, it does not create greenhouse gases. As such, nuclear plants will be part of the picture going forward and are likely to benefit from any phasing out of fossil fuel plants.
A major player is Exelon whose stock has gone up from $39 a share to $43 a share since Biden’s election. This stock sold for $6 a share back in 1981 but peaked at $90 a share in 2008 before the financial crisis. It stayed in the $30 to $40+ range during the last decade. Nuclear will probably be part of the puzzle going forward but not the most profitable piece.
Oil and Natural Gas Stocks
As we noted at the beginning, oil and natural gas stocks used to be solid investments. Even today we might expect stocks like Exxon Mobile to recover a bit as the economy improves and their new oil in the water off Guyana comes on line. But, the world is moving towards renewable energy, electric cars, and the like. The election of Joe Biden has accelerated this movement. Our take on the situation is that stocks like Exxon Mobil will do well over the next year or two as the economy comes back but will face significant headwinds unless they diversify into green energy as well as their current fossil fuel products.
Energy Investments for 2021 – Slideshare Version