Wise investors trade based on emotion. Not their own, but somebody else's. It's hard to find a more emotionally-laden sector than a green one, particularly sub-sectors devoted to alternative modes of transportation and all that they entail.
In one respect, Obama's green because of his apparent commitment to reducing America's dependence on oil. A major Presidential initiative, for example, involves getting 1 million electric vehicles (EVs) on the road by 2015. In another respect, Obama's "green" if he actually believes this will happen. Republican Senator Lindsey Graham of South Carolina said it best:
When gas is at $4 everybody is tripping over themselves, when it gets down to $2.50, nobody cares about it. And you know what, that’s the policy we have. We’re a nation that seems to only be able to deal with crises and not have any long-term vision.
Simply put, Obama and his colleagues in Washington lack the political will to do anything of real significance to change the way Americans transport themselves. Raising the gas tax remains out of the question. Obama has conceded on several environmental issues, particularly oil drilling. And local land use decisions, taken as a whole, continue to support car-dependence.
All of that said, oil and gas prices should tend toward the volatile for the rest of my life at least, lending momentum to backers of hybrids, EVs, and other forms of four-wheeled alternative transportation (I ride a bike). Arthur Porcari wrote a strong Seeking Alpha article highlighting some EV plays, big and small. Porcari focused on Kandi Technologies (KNDI), while also discussing Tesla (TSLA), BYD (OTC:BYDDF), and ZAP (OTC:ZAAP).
In this article, I offer several larger-scale ideas that speculate on future growth, real or imagined, of the hybrid and EV market, in particular in the United States. For all intents and purposes, these ideas offer indirect exposure to a potential alternative transportation boom, based largely on speculation. As always, take them for what they are worth.
A Well-Positioned Automaker
I can't say enough nice things about Ford (F) as of late. Plenty of reasons exist to buy F on its recent (and overdone) pullback. Sales remain strong and continued confidence in its business might prompt the automaker to make an accounting change that could add billions to its bottom line this year. (Read: Higher analyst estimates are on the way.) What I like about Ford, however, vis-a-vis the alternative space, is that it has not jumped too soon. It's the genius of CEO Alan Mulally at work.
Ford continues to invest in everything from hybrids to hydrogen to EVs. And while it has alternative models on or on the way to the market, it has not taken as large of a flyer as competitors such as Toyota (TM), General Motors (GM), and Nissan (OTC:NSANY). I doubt this hesitation on the part of Ford has done much, if anything, to hurt its bottom line. Consider this recent announcement from Toyota: The company recently sold its three-millionth hybrid worldwide. It took Toyota about 14 years to get there.
At a recent "Eco" conference, Ford chairman William Ford spoke of what amounts to a bit of a wait-and-see approach to the EV space, in particular. On one hand, you could argue that Ford loses early adopter status, risks not building itself as a green brand, and might even face troubles if it scrambles to bring whatever type of alternative vehicles consumers embrace to the market after the fact.
On the other, a whole bunch of hyped-up foreshadowing should precede whatever trend emerges. Ford should be able to react nimbly with less exposure to the segments that did not take off than, say, Toyota, which married itself to the Prius, and Nissan and Chevy, which have made decent-sized bets on EVs with the Leaf and Volt, respectively.
Selling New and Used Hybrids and EVs
Over the weekend, I sifted through the latest annual reports for CarMax (KMX) and AutoNation (AN). To my surprise, I did not see one mention in either report of "hybrid" or "electric"; no discussion of past sales figures or future estimates or plans to aggressively enter the space. If indeed my skepticism proves false and the alternative auto market's results end up matching the industry backers' emotion and Obama's lofty goals, it seems that both superstores could miss the boat.
It would seem to make sense for one or both of these companies to devote and promote at least a segment of square footage of its dealerships, even if only in certain strategic "green" markets, to hybrids, EVs, and other alternatives to the status quo. A separate superstore concept featuring "green" vehicles, even if executed on a small scale, seems like a reasonable approach.
Given its foothold in a good chunk of the used car market, CarMax could stand to benefit most. According to its annual report, used car sales accounted for 98 percent of CarMax's retail sales in 2010. The company sold more than 350,000 used cars last year. Some analysts predict an explosion in the number of EVs, hybrids, and plug-in hybrids to hit the market in the next several years.
Logic leads me to believe that we'll see plenty of early hybrid buyers, for example, looking to get into either a new hybrid or the next best and biggest thing. A company like CarMax, with a built-in reputation as a used car dealer (but without the negative stigma of a used car salesman), could stand to benefit by positioning itself, at least partially, in the green direction.
Whether it pans out or not, mainstream automakers will continue to bring alternative vehicles to market. Other providers, including Tesla, BYD, will do the same. If nothing else, emotion will carry the stocks of companies that attempt to capitalize -- and do so at the right time -- higher on the hysteria. If the green euphoria coincides with real results and even minimal mainstream excitement, the sky could be the limit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I may initiate a long position in F over the next 72 hours.