The Coming Energy Revolution
10 Stocks to Buy & Hold Forever
Remember back in the 1990s and 2000s, when interest rates were falling? Every time they dropped, there was someone saying, “You better refinance your house now and lock in this low rate before they go back up.”
But I learned long ago that trends tend to persist longer and go further than expected, so I didn’t heed their advice.
In fact, I had an adjustable rate mortgage back then and I was happy to let it reset automatically every year, almost always at a lower rate.
Most people couldn’t imagine a future where rates fell lower and lower. They’d grown up in world of higher rates and were much more comfortable believing that that world would return some day.
But I saw the trend to lower rates clearly, and because others didn’t, I was confident that it would continue (that’s part of the social science of contrary opinion).
In fact, trying to see where this trend might go, several years ago, I asked a number of people, “Could interest rates actually go negative, so that lenders will pay you to borrow money?”
No one believed they could.
Well, we haven’t gotten there yet, and maybe we won’t, but it’s interesting to see that jumbo mortgages are now cheaper than standard mortgages, because lenders see those borrowers as a lower risk.
In any event, today’s focus isn’t mortgages or interest rates.
Today’s focus is the energy revolution that’s recently begun, and which will transform the world as we know it.
The Energy Revolution
Numerous large forces are currently in the process of disrupting the energy industry, and the result will be changes so great that most people today have a hard time imagining them, just as they had a hard time imagining that interest rates could actually fall for more than 30 years.
The forces include these:
Extraction of natural gas is booming, thanks above all to fracking technologies.
The solar power industry is booming. (See last week’s recommendation of SolarCity.)
People in the U.S. are driving less.
The younger generation is buying fewer cars.
Cars are becoming increasingly fuel-efficient. The EPA is targeting corporate average fuel-efficiency (CAFÉ) of 54.5 mpg by 2025.
Electric cars are becoming increasingly practical and affordable.
The rental/sharing economy is growing on many fronts.
The Amazing Result of These Forces
Belong long, the U.S. will be an energy exporter, which means not only that energy will be cheaper, but that we’ll be free of the political costs of energy as well. The long-term trend will be that energy costs—as a percent of the cost of living—will fall dramatically.
Costs of burning high-hydrocarbon fuels will rise, as forces (including Obama’s latest carbon-tax proposal) drive users to healthier alternatives.
Gas stations will become less numerous, particularly in high-value locations.
Revenue from fuel taxes will fall, and be supplemented from some kind of road use tax.
The air will be cleaner, so people will have fewer respiratory problems.
The roads will be quieter, as noisy internal combustion and diesel engines are replaced by quieter power plants, from electric to fuel cell. Noisy trucks and busses on city streets will someday be but a memory.
Eventually, self-driving cars that we share (like ZipCars) will drive us about far more efficiently and with far less loss of life than today.
How You Can Profit
If you could time-travel back to 1980, you could buy 30-year Treasuries yielding 12%. That would have been a great investment, but people were scared to death to make it then.
So what’s the scary thing to do today that would pay off big in the decades ahead as the energy revolution unfolds?
You could short a big oil company like Exxon-Mobil (XOM), or more prudently, an oil index fund.
But Exxon-Mobil could diversify; those guys aren’t stupid. And I’m not a fan of short selling, anyway. I much more enjoy betting on winners.
So who might the winners be?
Solar power companies, as I’ve already mentioned.
ZipCar—now owned by Avis (CAR)—is a leader in ride-sharing.
Uber (not yet public) has great potential.
Google (GOOG) is certain to be a force, though I hesitate to recommend such a large, well-respected stock.
Tesla Motors (TSLA), which was a glamour stock last year, still has great potential, if it can continue to drive the prices of its cars down while increasing volumes.
And lastly, the stock recommend in today’s installment of my series, “10 Stocks to Buy and Hold Forever.”
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10 Stocks to Buy and Hold Forever
The goal, remember, is not to identify stocks that can give you a decent long-term return, like Johnson & Johnson (JNJ) and DuPont (DD). You can hold those forever, but they won’t make you rich.
I want to identify the next Amazon.com (AMZN), the next Apple (AAPL), the next Google (GOOG) and the next Green Mountain Coffee Roasters (GMCR).
To recap, the key attributes I look for are these:
1. A product or service or business model that is revolutionary.
2. A mass market.
3. A company that’s still small enough to grow rapidly.
4. A company that is not respected—perhaps not even known—by the majority.
5.And last but not least, a stock that’s trending up, indicating that investors’ perceptions of the company are improving. This is important because perceptions are always at least as important as reality.
Also, I keep in mind the words of Thomas Phelps, who wrote “Perhaps the greatest advantage of all in buying top quality stocks without visible ceilings on their growth is that when we do so we give ourselves the chance to profit by the unforeseeable and the incalculable."
In these days where information flows so rapidly that we risk drowning in it, I like Mr. Phelps’ reminder that the unknown can be even more important. It reminds me to think long and hard about where a company might be years down the road, when it’s far out of sight of the vision of today’s analysts.
Which brings me to today’s stock, number four in the Series, “10 Stocks to Buy and Hold Forever.”
GasLog ties into my Energy Revolution theme.
It’s focused on owning, operating and/or managing a fleet of ships for transporting liquefied natural gas.
The company was founded in 2003, and has been growing revenues steadily since as its fleet has expanded.
These ships are usually inked to multi-year deals, so there’s very good visibility about future revenues.
And there’s even a dividend, currently yielding 1.8%.
But I wouldn’t buy this for the dividend; I’d buy it for the great long-term potential.
Because the long-term potential for export of U.S. natural gas is absolutely huge. We have more natural gas than we need in this country, and our natural gas is cheaper than the rest of the world’s.
No one knows how big this export market could be, and the fact that the average person has no idea that the U.S. could be a major energy exporter tells me this trend has along way to go.
In fact, GasLog’s management has compared the state of the LNG shipping business today to the state of the oil shipping industry in the 1950s.
And speaking of management, it’s interesting to note that GasLog’s top two people are first cousins. Chairman Peter Livanos is the shipping expert while Philip Radziwill is the finance expert.
And the finance in these companies can get complex, because the building, owning, leasing and managing departments all have different capital needs and thus can operate better (and pay fewer taxes and more dividends) when they are structured independently.
In the latest quarter, revenues were $59.3 million, up 224% from the year before, while earnings were $0.28 per share, up 833% (up from $0.03).
Looking ahead, analysts are looking for full-year earnings of $1.21 in 2014 and $1.69 in 2015.
As to the chart:
The company came public in March 2012 at 14 and promptly began a 10-week decline to 9.
But it’s been trending up since. The stock finally found a ceiling at 28 in April, and was stopped at that level three times before correcting down to 23, where’s it’s been building a base in recent weeks.
The stock’s 200-day moving average is down at 19, so falling to—or even below—that level is possible. Prudent investors could wait for that.
But if the stock holds up here, buying at 23 might work out very well.
For the record, GLOG has been previously recommended by Mike Cintolo in Cabot Market Letter, and if you really want continuing advice on investing in the top stocks, I sincerely recommend you follow his advice by clicking here.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory