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Elliott Gue knows energy. Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.

Elliott Gue’s knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him “the world’s leading energy strategist.”

He has also appeared on CNBC and Bloomberg TV and has been quoted in a number of major publications, including Barron’s, Forbes and the Washington Post. Elliott Gue’s expertise and track record of success have also made him a sought-after speaker at MoneyShows and events hosted by the Association of Individual Investors.

Elliott Gue also contributed chapters on developments in global energy markets to two books published by the FT Press, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity and Rise of the State: Profitable Investing and Geopolitics in the 21st Century.

Prior to founding the Capitalist Times, Elliott Gue shared his expertise and stock-picking abilities with individual investors in two highly regarded research publications, MLP Profits and The Energy Strategist, as well as long-running financial advisory Personal Finance.

In October 2012, Elliott Gue launched the Energy & Income Advisor, a semimonthly online newsletter that’s dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

The masthead may have changed, but subscribers can expect Elliott Gue to deliver the same high-quality analysis and rational assessment of investment opportunities in the energy patch.

Articles

Electric Vehicles: Semiconductors Offer the Best Near-Term Opportunity

Although the global push to break away from the internal combustion engine continues to gain traction, this process won’t take place overnight. Widespread adoption of fully electric vehicles will require improvements in driving range, battery cost and charging times. There’s also the need to build out sufficient charging infrastructure.

A large-scale shift toward electric vehicles would also necessitate significant investment in the grid. Simulations conducted by Matteo Muratori, a transportation and energy systems engineer at the National Renewable Energy Laboratory, found that uncoordinated charging of plug-in electric vehicles could present challenges for the grid. Potential solutions to this quandary reside in the application of big data and machine to machine communications to balance the load.

In addition to electric vehicles, the auto industry and leading technology players continue to pursue autonomous driving, an innovation that leverages advances in processing power as well as data storage and transmission. Early efforts in this direction have produced some tragic results, with Tesla possibly overstating—or drivers misinterpreting—the capabilities of its autopilot function.

These developments, coupled with the rise of ride-sharing services such as Uber and Lyft, have contributed to visions of a future where a fleet of autonomously driven vehicles starts to erode individual ownership of automobiles, especially in urban areas.

Speculating and arguing about these potentialities can be a stimulating experience; however, investing based on a concretized view of an uncertain future often results in more pain than profits. We would remind readers that a good story doesn’t always make for a good investment.

The transportation segment appears ripe for disruption, but this evolutionary process will take place over a longer time frame than some overexuberant investors expect.

In picking stocks with exposure to this theme, we aim to identify names that also offer leverage to near-term upside catalysts; the slice of pie on your plate offers more sustenance than the pie in the sky.

 

Peak Oil Myths and Realities

Over the past two years, a new concept of peak oil has become popular. This time, the idea isn’t peak supply, it’s peak demand: The view that electric (EV) and autonomous vehicles (self-driving cars) will soon erode demand for crude oil.

Whereas peak supply translated into a sharp rise in oil prices, peak demand implies a terminal decline in crude prices, a rapid erosion in the value of energy reserves worldwide and disastrous economic consequences for both energy companies and oil-dependent nations like Saudi Arabia.

Two decades ago, the idea of peak oil supply was flawed but contained a kernel of truth. Much the same can be said of the new fad of peak oil demand.

Over time, electric vehicles will gain in popularity, and the world will become less dependent on oil. However, the idea that fossil fuels are dying or that oil demand will enter a phase of terminal decline in the next 10 to 20 years is fantasy: Fossil fuels have decades of life ahead, and the transition is unlikely to result in a sudden erosion in the value of oil and gas reserves and energy-related stocks.

Our outlook for a gradual energy transition implies two major profit opportunities are at hand:

  • We expect at least one more major up-cycle in energy and commodity prices over the next few years, driven by supply costs and growing global demand for crude and refined products; and
  • Although we regard calls for EVs to take significant market share in the near term as overblown, investment opportunities exist to profit in the near term from the growing electrification of automobile subsystems—a trend that’s already underway and doesn’t depend on hopes and dreams for the global energy mix in 2040.

In this issue, we explore the macro implications of the intersection between peak oil demand and electric vehicles. Part two of these series, which will come out next week, will explore investment opportunities (and potential pitfalls) related to electric and autonomous vehicles, as well as government efforts to improve automobiles’ fuel efficiency.

Focus and Discipline

The names on our Focus List have held up reasonably well in a difficult tape. We take advantage of the selloff in master limited partnerships to add a high-quality name that trades at a sharp discount to its peers and offers exposure to an appealing organic-growth story.

Whither the Inflection?

Despite recent volatility in the broader market, the S&P 500 Energy Index managed to eke out a slight gain in March—an encouraging sign of relative strength. Nevertheless, the sector is down 6.8 percent on the year after traders took advantage of the sharp rally from mid-December to the end of January to sell the rip.

With energy stocks generally trading at undemanding multiples, the big question centers on what catalysts might prompt generalists and value-focused investors to allocate more capital to the sector on a sustainable basis. The answer requires a consideration of the factors keeping investors on the sideline.

Energy stocks appear to be suffering from a case of déjà vu, having burned generalist portfolio managers too many times during the down-cycle. Stable oil prices and mounting evidence of a balanced global oil market will be critical to shifting investors’ perception of the group, though this process will take time.

Commodity prices have remained supportive this year, with West Texas Intermediate (WTI) crude oil averaging more than $62 per barrel, compared with $51 per barrel in 2017.

Against this backdrop, the Bloomberg consensus revenue estimate for energy stocks in the S&P 500 has increased by a median of 4.1 percent over the past three months, one of the largest positive revisions and above the 0.9 percent bump for the overall index.

But higher prices and higher sales estimates haven’t been enough to lure investors back to the energy sector, reflecting all the false dawns that have occurred in the oil market since 2014.

When will the market come around to our view on the oil market and grow comfortable with the sustainability of current oil prices? Therein lies the question. Sticking with the names on our Focus List should ensure that you’re well-positioned for when sentiment turns.

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  • Live Chat with

    Elliott and Roger on Apr. 26, 2018

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor