Four Stock Picks for an Obama Administration

Last week I wrote about some of the stocks and sectors that were identified as areas of future development in Obama's presidential acceptance speech. Today I am taking a more targeted approach at selecting companies and stocks that might benefit in the coming Obama administration years.

General Electric Co. (GE)

Since early 2005 General Electric CEO Jeffrey Immelt has been quietly shifting the company's strategy in a more eco-friendly direction via GE's "Ecomagination" program.

The program is made up of a number of green products, including wind turbines, energy efficient engines, clean coal technologies, and even an "earth rewards" credit card on the GE Finance side. This is exactly the type of innovation that the Obama administration will be looking for and GE has the scale and resources necessary to take a leadership role in many clean energy programs they will likely propose and support in the coming year.

At market close on Nov 13 GE was trading at 16.86 with a dividend yield of nearly 8%.

Teva Pharmaceutical Industries (TEVA)

Teva develops, manufactures, and markets generic (read: less expensive) pharmaceuticals. Mandating the use of generic pharmaceuticals ("generics") over their more expensive branded counterparts whenever possible is one of the more obvious ways the Obama administration can begin reducing costs during the coming reform of the US healthcare system.

At market close on Nov 14, Teva was trading at 42.91 with a dividend yield of 1.2%.

MEMC Electronic Materials (WFR)

MEMC designs, manufactures, and sells silicon wafers for the semiconductor industry. More importantly, however, these same silicon wafers are the base material for solar cells. The development of clean power is expected to be a major theme in the Obama administration both as a means of solving the growing energy crisis (how many times have we heard the words "energy independence" in the last couple of months?) in the US, and a potential source of new jobs as a means of solving the economic crisis.

At market close on Nov 14, MEMC was trading at 15.34, down over 80% year-to-date. While it is nearly impossible for anyone to pick the bottom in a beaten down stock like this one, it looks relatively cheap at only 4.2 times 2009 estimated earnings.

Chesapeake Energy Corp. (CHK)

Chesapeake is a US based oil and natural gas exploration and production company. As mentioned above, the development of clean power is expected to be a major theme in the Obama administration both as a means of solving the growing energy crisis in the US, and a potential source of new jobs as a means of solving the economic crisis. Additionally, because the Obama administration will likely support a carbon cap-and-trade system to reduce greenhouse gases, many US utilities may begin looking to shift a significant amount of their energy production away from coal. Natural gas is the only alternative energy source that is clean, abundant, and proven, and many US utilities already have natural gas powered plants in use.

At market close on Nov 14, Chesapeake was trading at 21.23 with a dividend yield of 1.2%.

Stock position: Long GE.

Comments

[longoil:]

The problem with the current low prices in NG and oil prices is that alternative energy has temporarily become uneconomical. This is not good news for GE (wind turbines) or WFR (solar panels). I do agree with you on Teva and Chesapeake as good investments.

T. Boone Pickens just shelved his wind farm project till 2010. NG generated electricity is cheaper than wind generated electricity. Therefore, GE just lost $8 billion worth of turbine orders from T. Boone alone. I suspect many other utilities looking at wind turbines from GE have also shelved their wind farm projects as well. Unless Obama is prepared to give tax breaks to utilities with wind farm and solar projects, it isn't going to happen. With the financial, automotive and other unforeseen future bailouts he has to had out, tax breaks for alternative energy are not viable in the current economic climate.

2008 Nov 19 10:15 AM

[Douglass Graem:]

You headline that Administration?
NOT
SO
FAST!
Now that the Donofrio case has reached the Supreme Court -
Associate Justice Thomas -
is it possible that the whole fraudulent house of cards
will come tumbling down?

2008 Nov 19 10:40 AM

[Douglass Graem:]

[Please note corrected spelling of my website]

CHK in my opinion is good investment whoever comes to power next year
but
NOT
SO
FAST
[see my previous email. Thank you]

2008 Nov 19 10:45 AM

[joesavage:]

Just how long do you think NG and oil prices will be low, not to long. So if you can buy GE at 16.00 and 5 years from now the GE (wind turbines) are doing well the stock you bought for 16.00 will be worth much more. Even if your right GE stock will still be way up long term. So Pickens just shelved his wind farm project till 2010, when he does get them along with others that will be buying you will wish you bought GE at 16.00. You think short term and short term very few companies will do well in today’s market.

Never again will you get your chance to buy at the price it is today. So many times we wish we knew today 15 years earlier, well here is that chance to do just that and GE will be on top. Ge is going to lead the way in the new energy market and the stock will go higher than it ever did.
So just sit back and do nothing and for a second time in your life you will be saying, I wish I knew all over again..



On Nov 19 10:15 AM longoil wrote:

> The problem with the current low prices in NG and oil prices is that
> alternative energy has temporarily become uneconomical. This is not
> good news for GE (wind turbines) or WFR (solar panels). I do agree
> with you on Teva and Chesapeake as good investments.
>
> T. Boone Pickens just shelved his wind farm project till 2010. NG
> generated electricity is cheaper than wind generated electricity.
> Therefore, GE just lost $8 billion worth of turbine orders from T.
> Boone alone. I suspect many other utilities looking at wind turbines
> from GE have also shelved their wind farm projects as well. Unless
> Obama is prepared to give tax breaks to utilities with wind farm
> and solar projects, it isn't going to happen. With the financial,
> automotive and other unforeseen future bailouts he has to had out,
> tax breaks for alternative energy are not viable in the current economic
> climate.

2008 Nov 19 12:10 PM

[frflyer:]

longoil

You said:
"Unless Obama is prepared to give tax breaks to utilities with wind farm and solar projects, it isn't going to happen. With the financial, automotive and other unforeseen future bailouts he has to hand out, tax breaks for alternative energy are not viable in the current economic climate."

Investing in renewable energy is what will help to put the economy back on track. This will be Obama's top priority. Oil, gas, coal and nuclear are much more heavily subsidized than renewable energy.
The argument that renewables shouldn't be invested in because they need subsidies is ridiculous. A better argument is that oil shouldn't be subsidized with oil companies being mature companies making obscene profits. Last December, the democrats' proposal was to take $21 billion in tax credits away from oil companies and apply it to renewables. This represented 1% of oil company profits and about 1/4 of the total subsidies and tax credits they enjoy. And of course, Republicans stripped the bill and watered down the CAFE standards asked for. That won't happen now, guaranteed. So don't talk to me about expensive tax breaks for solar and wind. It is absurd and misleading.
We will now subsidise the future instead of the past.

NG energy is not cheaper than wind when you add the externalities of fossil fuels. As soon as we have cap and trade in place, you will see the real cost of fossil fuels.

Oil does not presently compete with either solar or wind, because only 2% of the energy grid is from oil. Eventually cars will run on electricity provided by clean energy, but till then this is a bad comparison. Price is not the only determinant. Energy independence, national security, the economic devestation caused by our addiction to oil and the concern for the environment will trump price comparisons going forward.

You said:
"Natural gas is the only alternative energy source that is clean, abundant, and proven"

That is absolutely not true. Wind and sun are clean, abundant and proven. Solar thermal power plants in the southwest will be a kingpin for a clean energy grid in the future. They will compete directly with gas and coal on cost even without figuring in the externalities of the fossil fuels.

Under an Obama administration I would expect subsidies for renewable to go up, if anything. and I would expect more states to follow the example of California, requiring utilities to get more energy from renewables.

www.salon.com/news/fea...
Great article on solar thermal and why it's a must for a future clean energy grid.

There are better energy plans than T.Boone Pickens' plan.
His plan to build wind farms and HVDC transmission lines is sound and agrees with other energy plans. But his idea to replace gas plants with wind power won't fly. Wind is too intermittant to directly replace gas fired plants. Besides, if we are going to shut down fossil plants as renewables come on line, it will be coal plants that are shut down, not gas. The other weakness of his plan is that gas used in power plants is much more economical than gas used in vehicles. The efficiency difference is large. To divert NG from power generation to running cars is a lose lose scenario.

Cars of the future will be plug in hybrids and electrics. It is much more efficient and cost effective to use the natural gas to power the grid, along with renewable sources, and power cars with electricity and biofuels and or flexfuels.
The renewable energy source that can do what gas and coal plants do is solar thermal with heat storage. It can operate as base load, follow on, or peaker plants. But these will displace coal, not gas.
An added benefit of phasing out coal is that it will free up huge amounts of rail freight capacity. This will save fuel and money shipping other goods and materials over long distances. Trains are much more efficient for long haul than trucks.

2008 Nov 19 02:20 PM

[longoil:]

FrFryer,

>>>>Invest... in renewable energy is what will help to put the economy back on track. This will be Obama's top priority. <<<

I agree with you, it is certainly better to invest locally for energy independence than spending the money on Saudi, Venezuelan and Russia oil. I hope Obama follows through on this.

>>> A better argument is that oil shouldn't be subsidized with oil companies being mature companies making obscene profits.<<<

Exxon made $40 billion profit last year, but spent $400 billion to earn that $40 billion. Since when is 10% an obscene profit, considering the average S&P company has a profit margin of 8%. Microsoft makes a 27% profit margin on mediocre products, how come nobody is complaining about them ? Last time (30 yrs ago) when Carter imposed windfall taxes on oil companies, they stopping investing in E&P and oil prices rose sharply as oil supplies contracted. Oil exploration is a risky business, why shouldn't they get tax breaks to compensate for all the dry wells drilled?

>>>Solar thermal power plants in the southwest will be a kingpin for a clean energy grid in the future.<<<

Solar is part of the solution. Solar energy is also intermittent, its output peaks at noon and is unavailable at night. Conversely, wind peak output during the night. A better solution is to combine solar and wind grids together into one.

T. Boone Pickens's plan is far from perfect, but at least he is investing his own money into the project to help make America energy independent. This is infinitely more productive than Al Gore who gets $100,000 for each climate change presentation he does telling us the obvious but solving nothing.

2008 Nov 19 02:48 PM

[formerhawk:]

Long oil- agreed. The only Plan I have ever seen is T. Boone's.

2008 Nov 20 09:03 AM