Energy Stocks: How to “Energize” Your Portfolio for the Next 20 Years
by Dave Fessler, Capital Markets Specialist, Investment U
December 14, 2007: Issue #742
An old friend of mine once told me, “Every problem you face is simply an opportunity in disguise.”
That’s certainly the case with the world’s bottomless, unquenchable demand for energy…
At its heart is the explosive economic growth underway in the world’s many developing countries. Of course, China and India are responsible for the lion’s share: Their combined GDP is projected to rise 7.7% annually over the next 10 years, compared to the anemic 1.5% to 2.5% GDP growth in the U.S.
It’s hard to conceptualize just how big of an energy problem we’re talking about, but just consider that between 2005 and 2030:
- Coal usage will explode by 73%, mostly due to increases in India and China.
- Oil use will rise 37%, to over 116 million barrels a day.
- Worldwide electricity use will double.
Overall, energy demand will increase more than 55% from what is used today. But remember, every problem is an opportunity and this particular opportunity lies with energy stocks. Let’s take a look at what’s happening…
The “EIBO” Boom and How to Play It
All this energy has to be produced and distributed somehow. And a massive, worldwide energy project is beginning to take shape…
I like to call it the “Energy Infrastructure Build-Out,” or EIBO for short.
So what’s involved in this build-out?
- Power plants have to be built and fueled with coal, oil, gas or uranium…
- Transmission lines must be strung many thousands of miles…
- Water plants and massive pipeline systems have to be constructed to distribute fresh water and collect and treat waste-water…
- Nuclear reactors, solar panels, rock drills and other mining equipment, pumps, pipes, tanks, monitoring and pollution control equipment…
The list goes on and on.
And it’s going to take a worldwide investment of over $22 trillion between now and 2030 to make it all happen.
Nearly half of all of the EIBO (and the subsequent money flow) will be in two places: India and China, whose explosive growth is responsible 45% of the total increase in energy demand.
China’s energy growth simply has no precedent in the world… Consider that just the growth in China’s energy requirements from 2002-2005 (over 105 Gigawatts) was equivalent to the current annual energy demand of Japan.
A Shot in the Arm for the U.S. Economy and for Energy Stocks
Think about this for a moment in terms of a weakening U.S. dollar: As the worldwide EIBO boom gets underway, the trillions of dollars that have been stockpiling overseas for the last decade are suddenly starting to flow back into the U.S. to purchase everything on the above list.
That’s like killing two birds with one stone for China, which has $1.3 trillion in U.S. dollars in its vault. Now it gets to unload a lot of them here, as it tackles its EIBO. It’s a win-win situation for both countries.
With a cheaper dollar, energy-related equipment made in the U.S. is especially a bargain now. U.S. exports are slowly rising, which has started to reduce the trade deficit… and could eventually eliminate it.
This leads to new jobs at U.S.-based companies that produce the supplies and equipment needed, infusing cash into the economy and giving it a much-needed boost.
But you won’t hear any of this on TV anytime soon, as many projects are just beginning to get started. The credit crunch is the “big news” everyone wants to hear about right now.
And let’s face it, infrastructure is generally pretty boring stuff, and tends to be ignored by the media and many analysts…
But it’s a sector where some hefty gains stand to be made over the next 15 to 20 years.
Energy Stocks… A Safe Way to Profit from the EIBO Boom
While hundreds of companies are poised to benefit from the EIBO boom, there’s one big blue chip that stands to gain more than any of them.
In fact, if you were only going to own one stock with broad exposure to the energy infrastructure sector, it ought to be General Electric (NYSE: GE).
Cleaner coal, solar power, wind turbines, nuclear reactors, efficient light bulbs, metering equipment… GE’s not a flashy investment, but it’s difficult to find an area of EIBO that this behemoth isn’t involved in.
The company is a leading supplier to the world’s railroads, with over 15,000 locomotives on the railways. And it’s developing a true hybrid locomotive right now, which will decrease fuel consumption by as much as 15%.
Got a water problem? The company designs and builds desalination facilities, water purification plants and waste-water treatment plants. Last November, GE finished building the largest desalination plant in Africa, which provides fresh water to over 1 million people in the city of Algiers.
In terms of oil and gas, GE’s innovations are numerous, from deep-water exploration and production, tar sands extraction and some of the world’s most powerful gas compressors.
GE is also one of the world’s largest suppliers of both on- and offshore wind turbines, with over 5,000 of its highly efficient 1.5 Megawatt units installed worldwide. Each of these turbines produces enough electricity to power over 400 homes.
And the company’s been in the nuclear power business for over 50 years. In fact, its reactors are some of the safest on the planet. And with over 150 new nuclear power stations either under construction or planned, it’s a safe bet GE will be in the middle of it all.
With 2006 revenues of over $163 billion and a $376 billion market cap, GE isn’t going anywhere (but up) anytime soon. The company estimated that last year’s revenues from its clean-energy businesses totaled $12 billion, and that by 2010, that figure will grow to over $20 billion.
GE also pays a stable dividend of more than 3%.
In short, GE’s a safe, diversified way to tap into the $22 trillion the world’s about to spend on energy infrastructure. The EIBO boom is officially underway.
Good investing,
Dave
Today’s Investment U Crib Sheet
In addition to massive energy demand, worldwide water demand presents unique opportunities, as well…
Right now, over 80 countries are facing critical water shortages. And the problem is getting worse. The International Food Policy Research Institute thinks we’ll add 2 billion people by 2020. Yet freshwater aquifers are shrinking around the world. The opportunity?
Our free report, Profit From The Age Of Water, identifies the four industries with the most significant growth prospects over the next 10 years. You can read it here.
Related Investment U Articles:
- What Japan’s Nuclear Crisis Means for Investors
- Three Ways Nuclear Energy Can Power Your Portfolio
- Uranium Prices Fueled by Emerging Market Demand Hit New Highs
- Is It Time to Jump In or Out of Nuclear Stocks?
- Get a Piece of the Next Nuclear Energy Boom
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David Fessler is the energy and infrastructure expert for Investment U.
