I've always been very interested in energy issues, and have been studying the current events and where we're headed in terms of energy. Energy is important for economic, political, and environmental issues. With the rise of new powerful economies, specifically China, the demand for sustainable energy is even more important. The U.S. has relied on oil rich countries in the Middle East and South America for oil simply because it was cheap and easy. Now it's neither. These countries have begun using their resources to gain power in the political realm. And who can blame them? The bottom line is that the U.S. has to now become the leader in new forms of energy.
There is a lot of debate to which type of energy is best. The current administration has been adamant about promoting ethanol. Mostly because we have the resources (specifically corn) to produce it. But they made an error in judgment here. Because we've subsidized these programs and have used the corn for ethanol, food prices are going through the roof. Look at the prices of milk, flour, almost any basic food staple. But as investors, we have to find out how to profit from this. This brings me to my first 2008 energy investment, agribusiness. Fertilizer companies are coming out best here. Mosaic (MOS), Potash (POT), Monsanto (MON), and others. Most of these stocks have increased already, but they will continue. I actually like an ETF to play this trend in case any specific company has trouble, I like to be diversified. Market Vector's Global Agribusiness. (MOO).
Now, on to the rest of the world. Most countries, aside from Brazil using sugar cane for ethanol, don't have the resources to look at this trend. They are investing in wind and solar power. I personally like wind the best. Europe and Canada are leading in this trend, but there are plenty of wind farms popping up in the U.S., in Texas, California, and Upper Midwest. It is a clean energy source that is completely renewable. The leaders in this technology are conglomerates. General Electric (GE), German's version Siemens(SI) is also there. I like the Danish company Vestas, but they don't trade via our stock exchange. In my region, Xcel energy (XEL) is a leader in wind implementation, and just came out with a plan to increase the level of activity. I'd invest in any of these, and to invest in Vestas, look at Market Vectors Global Alternative Energy ETF (GEX). It is heavily weighted with Vestas, as well as some solar companies.
Now I can't write about energy without talking about Oil. Its not going away anytime soon. I think that refiners and diversified companies will be under pressure from the government, especially with next fall's regime change. I could see lots of new taxes and requirements facing these companies. But oil is in big demand. So I like offshore drillers and oil service companies. I've talked a lot about drillers. Their earnings are exploding right now. Here's the three to look at. Transocean (RIG) just merged with Global Santa Fe to become leader in the industry. Lots of rigs in the Gulf of Mexico. Diamond Offshore (DO) and Noble (NE) are the other two. I've liked Noble better because they have more rigs in the Middle East and Asia than the others. Its also trading cheaper than the others. The next few years will be very profitable for these companies as their day rates are unbelievable and rising.
Also, the oil service companies that explore for new drilling areas, and provide technology for these drillers. I like Schlumberger (SLB) here. Also, Baker Hughes (BHI).
These are the trends that I see for energy heading into 2008 and beyond. There is a lot of money to be made investing here, and I'll be in on it. I'll make a new energy portfolio with each of these names, and will update the blog with its performance.
Disclosure: Author currently owns Noble (NE).