As the United States slowly digs itself out of the worst economic downturn since the Great Depression, big changes loom large on the horizon.
Earlier last week, my colleague Marc Lichtenfeld detailed the impact that a healthcare reform bill will have on the various industries and stocks within the healthcare and biotech sectors.
But there are big changes coming in the energy and infrastructure sectors, too. And with much of the infrastructure improvements energy-related, that means there will be plenty of lucrative areas to put your investment dollars to work in the coming months.
Here’s my energy and infrastructure forecast for 2010, along with a few companies that stand to benefit…
Profit From Oil Now… While You Still Can
Transportation is one of the major factors that shape human experience. Where we live… how and where we work… the design of our cities and towns… it’s all based on transportation. And over the past 100 years, one critical commodity has underpinned transportation in the developed world: Oil. But it won’t for the next 100 years.
The United States and the rest of the world are waving a long, slow goodbye to oil. Why? Simple math:
- Developing nations are home to 82% of the world’s population.
- In the coming years, they’ll be responsible for 98% of its growth.
- They are all on the verge of mass-motorization.
And it’s this last point that is the most important. Oil won’t fuel all these new vehicles. It simply can’t. There just won’t be enough of it to go around. We’re already using up existing reservoirs faster than new ones are being found. The sobering reality is this: If automobile sales growth in China continues at the present rate, by 2030, China alone could consume all the oil produced in the world today.
For now, China’s increasing auto sales in 2010 will counteract the effects of economic recession. I expect crude oil prices to trade in a range between $70 and $100 a barrel in 2010. Of course, all bets are off if a geopolitical event threatens any of the major supply sources. If that happens, oil company shares around the world will likely soar.
So what’s in store for oil’s partner-in-crime… natural gas?
Natural Gas: Four Investments to Benefit From This Cheap, “Cap and Trade Proof” Commodity
If ever there was a case when supply and demand dictates a market, you’ve got it with natural gas.
One look at the price performance of the commodity over the past year or so shows it continually languishing close to its lows. That’s because at the moment, the United States is blessed with numerous huge deposits of underground oil and gas shale, which is holding the price down.
Not only that, over the past year, the Potential Gas Committee upped its U.S. reserve estimates to over 2,000 trillion cubic feet. That's more than 100 years' worth of supplies at 2030 usage rates.
So how did the United States find itself sitting atop the second-largest natural gas supply in the world in a very short time?
Simply put, the introduction of horizontal drilling technology and hydraulic “fracking” has turned the situation into a whole new ballgame. And with continued improvements in fracturing technology, supplies will likely be revised upwards even more.
From an environmental perspective, there’s a lot to like about natural gas, since it emits about half the greenhouse gases compared to coal. That has led John Kilduff, an analyst at MF Global Energy, to call it the ideal “cap and trade proof” fuel. Right now, natural gas supplies are plentiful and pipeline storage is nearly full. However, the price should rise this winter (it’s already up 10-20% off its summer lows), as cold weather hits the United States.
- If you want a quick, easy, cost-effective way to play an upswing in price, consider shares of ProShares Ultra Oil and Gas ETF (NYSE: DIG). The fund targets returns that are double the daily performance of the Dow Jones U.S. Oil and Gas Index.
- Or if you want more direct, pure natural gas plays while the price remains low, consider companies like Devon Energy Corporation (NYSE: DVN) and Chesapeake Energy (NYSE: CHK).
In addition, another idea that has gained significant attention over the past year is one where natural gas is used as a transition fuel between oil and renewables.
Speaking of renewable and alternative energy…
A Cleaner, “Plugged-In” Auto World
Any time crude oil prices rise sharply, green energy hits the headlines. But the area is gaining popularity with consumers, businesses and utilities anyway, as the world searches for smarter, cleaner alternatives to traditional fossil fuels. Uncle Sam is greasing the skids too, pumping in billions of dollars for incentives and research into solar, wind and geothermal power, plus smart electrical grid upgrades and grid storage projects.
In addition, nearly all the car manufacturers have announced plug-in electric vehicles (PHEVs) and a few towns and cities are starting to install the electrical infrastructure necessary to support recharging stations.
And lithium ion battery companies are popping up to provide the “fuel” for the Tesla Roadster, the Nissan Leaf and the Chevy Volt, among others.
And although meaningful volumes of electric cars won’t hit dealer showrooms until 2012 at the earliest, this nascent industry is off to a good start.
Three More Alternatives Industries… And Three More Stocks to Play
~ Solar: This is one sector that should continue to see consolidation in 2010. With an excess of silicon wafer capacity and new low-cost thin-film designs just now coming into production, expect the transition from silicon-based panels to thin film to continue in 2010.
~ Wind: Wind installations will continue during 2010, but well off the record pace of 2008. Nearly 300,000 megawatts of wind farms are waiting for grid enhancements and upgrades. Vestas (Nasdaq: VWDRY.PK) is the world’s largest wind turbine manufacturer, with over 39,000 turbines installed around the world.
~ Geothermal: This is an area with plenty of potential, particularly in the western United States. When it comes to profitable, large-scale geothermal and recovered power producers, Ormat Technologies (NYSE: ORA) is pretty much the “Lone Ranger,” but many smaller operations will likely fire up geothermal plants in 2010.
Infrastructure: The Nuts and Bolts of Nation-Building
This brings us to our last sector – and perhaps the one with the most potential over the coming months: Infrastructure.
Energy and infrastructure are inseparable. Much of the energy we use powers America’s infrastructure. But infrastructure gives it right back to the energy sector to run oil and gas pipelines, water lines, sewer lines, ports, the power grid, roads, railroads, airports… the list goes on.
The thing is, though, much of America’s infrastructure is in dire need of replacement, repair, or expansion. And infrastructure projects are often monumental undertakings. Bridges… roads… tunnels… mines… all require huge amounts of manpower, money and monster machinery. In fact, back in January 2009, the American Society of Civil Engineers estimated it would take as much as $2.2 trillion from all levels of government to whip our infrastructure into good shape.
In addition, much of the developing world is just starting to put a reliable infrastructure in place for the first time, spending hundreds of billions in the process.
In 2010, U.S. stimulus spending on infrastructure will reach its highest level, with over $20 billion earmarked for various infrastructure projects around the country.
There are three big firms that all stand to benefit as stimulus dollars lead to a pickup in infrastructure spending:
- Manitowoc Company, Inc. (NYSE: MTW)
- Harsco Corporation (NYSE: HSC)
- Jacobs Engineering Group, Inc. (NYSE: JEC)
It’s going to be a big year for the energy and infrastructure sectors and rest assured, I’ll be reporting on all the latest, most profitable developments as 2010 progresses, showing you how to profit from these critical areas.
Author's disclosure: none.