As we dig out from two feet of snow here in the Region, I know it seems particularly ironic to write a column about global warming.
Whether or not one agrees with the conclusions of climate change proponents, however, is now irrelevant. As has been often said in the climate change discussion, “the science is settled” has definitely become “the debate is settled.” Global climate considerations are driving government policy and corporate decision making, and nowadays “green energy” is driving consumer choices as well. Global scale environmentalism is here to stay, and investors should be aware of the potential trends going forward.
Between the plastics all around us, the natural gas keeping the lights on and the gasoline getting us to work, in a given day we all probably utilize no less than a hundred products derived from carbon fuels. Oil and natural gas have been nothing less than a miracle to humanity and enabled us to evolve our world into the technological marvel of today. This isn’t going to change anytime soon, and yet in my opinion, material investment opportunity in carbon fuels is for the most part “over.”
The U.S. federal government is inhibiting the companies producing, transporting and refining these resources, and international frameworks are being put in place to further compound this reality. If this wasn’t enough, carbon fuel companies have gotten so good at finding and extracting crude oil and natural gas that it turns out the planet seems to be awash in the stuff, which has driven the price of these commodities on a consistent downward trend for over a decade now.
There may be an occasional rally in oil and natural gas prices, and carbon fuel company stocks may rally periodically as well, but from what I can see, the future is not bright in this space. This is not to say companies producing, transporting, using, and refining carbon fuels won’t continue to generate profits and dividends for decades, but the growth story is, in my opinion, done. I see these companies as what is commonly referred to as a “value trap.”
The world, however, won’t stop needing energy. I know the promise of renewable energy is compelling, but in a power-hungry world both solar and wind present serious challenges. After what happened in Texas this week with the frozen wind power grid, I think finding future capital, or even government interest, for large scale wind is going to be tough. So, of the two technologies, as an investor you won’t find me looking at windmills; I like solar much better.
What I like about solar is as costs come down and service capabilities evolve, I can envision a sort of micro-grid system, where within a decade or so most new houses, and even commercial buildings, have an integrated solar power system relieving reliance on the carbon fuel powered electric grid. This vision leaves a lot of room for entrepreneurialism, and so I am openly hunting for new investment opportunities in solar. Solar panels, lithium batteries and solar service companies are all on my radar.
While solar may eventually make our houses less dependent on carbon energy and may in time help us power our vehicles, reducing gasoline consumption, the world is unlikely to transition from carbon energy to solar power by itself.
A modern technological society needs industrial level power generation, and with governments, corporations and consumers intent on moving beyond carbon energy, new sources of energy will need to come online.
The politics around conventional nuclear power (fission) make this technology an unlikely solution, but when I put my futurist hat on there is another type of atomic energy that may just solve much of the world’s energy challenges.
Compact fusion reactors create energy from water, with no toxic byproducts. If this sounds to good to be true, it still is, but the technology is evolving steadily. Two companies are making progress, one is private, and one is public. While discussing individual stocks is beyond the scope of this column, it's not hard to figure out who is leading in compact fusion, and this energy technology, more than any other, definitely has my interest long term.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.