Usually, the process of coming up with investment ideas for these pages involves hours of research in front of a computer screen, followed by devil’s-advocate types of discussions between writer and editor.
This time, we just looked out the window.
From my home-office in California, I was seeing skies full of haze and ash, thanks to the historic wildfires blazing up and down the coast. At the same time, Adam, from his office in Alabama, was seeing the formation of the storm clouds that would bring record amounts of rain and destruction to his home turf, thanks to Hurricane Sally.
All of which got us to thinking…
— Bob Bogda, Editor
P.S. Like what you see? Don’t like what you see? Let me know.
As I write, the familiar post-hurricane soundtracks of chainsaws and leaf blowers are buzzing and whirring on a continuous loop after a direct hit from Hurricane Sally. I’ve had a front-row seat to hurricanes my entire life and have ridden out more than my fair share. Is there anything to the climate science claim that they are becoming more intense?
There’s a saying that all politics is local. The same can be said for storm intensity. Sally was barely a Category 2 storm on the Saffir-Simpson rating scale. Yet she felled more trees in my neighborhood and brought more rain than I’ve ever seen from a single storm. Sally was one of nine tropical systems that have hit land this year, tying 1916 for the most in one season. She was also one of 23 named storms, already double the average for an entire season.
The historic wildfires on the west coast of the United States began erupting in mid-August, right around the time that temperatures in the southern part of California were hitting 130 degrees Fahrenheit, one of the hottest temperatures ever recorded. Park Williams, a bioclimatologist at Columbia University told the New York Times that the climate-change connection is “straightforward.”
Climate change is, indeed, a real phenomenon. Whether we like it or not, dealing with and adapting to it from both a behavioral and public policy standpoint are inevitable.
So, what are we waiting for?
A recent report published by energy giant BP, Plc (BP) suggests that the demand for oil may NEVER reach its pre-pandemic peak in 2019. The company sees consumption remaining flat over the next decade and falling by over 60% over the following two decades.
Keep in mind, this prediction is coming from a company that pulls oil out of the ground and sells it to us. Needless to say, they’re not bullish on a future run by oil.
During the decline, BP sees the world shifting more and more toward renewable energy sources. The result is a net zero carbon world by 2050.
This 2050 goal is aligned with Democratic presidential nominee Joe Biden’s campaign platform supporting a comprehensive “Green New Deal” that will cover everything from carbon emissions to infrastructure rebuilding to comply with new standards as well as adapting to a changing environment.
Now, if the Democrats achieve a majority in the fall elections, look for the Green New Deal to evolve from a policy point of view. However, if the Republicans maintain control of the Senate and the White House, the private sector will most likely take the lead.
Despite the Trump administration’s unilateral withdrawal from the Paris Climate Agreement, the standards set by the treaty will be global by 2050. Therefore, any company that does business internationally must abide regardless of the United States’ position.
Retail giant Amazon (AMZN) has seeded its climate pledge fund with $2 billion of its own money, set a target date of 100% renewable energy use by 2025 and net carbon zero by 2040. Expect other mega-multinationals to follow suit. You can bet that auto makers took note when California announced this week that it will ban the sale of gas-powered cars and trucks starting in 2035.
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Whether it’s a combined effort with both the public and private sectors or just the private sector taking the lead, millions of jobs and trillions of dollars in revenue and wealth will be created in what will be a gigantic, societal shift, the magnitude of which will be almost unprecedented.
But, hey, this is Invested Better, not Scientific American. So let’s look at a few investment ideas to get ahead of the boom…
BP, Plc (BP) – The oil giant that published the report referenced above is clearly thinking ahead. In 2018, BP began installing solar panels in its filling stations around the globe. An obvious move toward shrinking carbon usage within its own footprint, this can also be seen as the first step in converting its branded stations into electric vehicle (EV) charging stations.
Currently, BP operates nine onshore wind farms in the continental United States and one in Hawaii. Combined, the farms can generate enough power to light up 450,000 homes, putting BP ahead of the curve in U.S. wind energy production. The company is also working with EV and battery superstar Tesla (TSLA) on storage capacity.
BP has clearly seen the writing on the wall and is moving proactively. Shares have recently traded at around $18.00 – a lot closer to the 52-week low of $15.51 than the pre-pandemic high of around $40 — with a 7.01% dividend yield. Caveat: don’t get used to the fat yield. The distribution is based on oil production. As that shrinks, the dividend could, too.
Fluor Corp. (FLR) – This engineering firm typically flies under the radar with investors. But with more than $15 billion in annual revenue in construction project management in the energy/chemical, industrial, infrastructure, power and government services space, the stock is definitely worth a look going forward.
Most recently, the company won the fabrication contract for a North Sea wind farm project off the coast of Scotland. Once completed, the farm will generate enough electricity to power 1 million homes.
With government services comprising 20% of Fluor’s revenue mix, the company will be in the topflight of providers for any Green New Deal-related public infrastructure projects. Trading at just 0.8 times book value and an even cheaper 0.1 times sales, the stock is a give-away at the current $9.00 level. Buy it, stick it in the corner and wait.
Honeywell International (HON) – This blue chip, industrial manufacturing giant’s smallest business segment — building technologies — is its biggest growth opportunity. Honeywell is a leading manufacturer of building climate controls and automation for both the residential and commercial markets. As building codes change as the world approaches carbon neutrality, look for Honeywell to be there as a primary supplier for both new construction and the upgrading of existing systems.
The company’s metrics are blue chip quality with a solid 32.5% return on equity, consistent annual revenue of $34-$35 billion and nearly $3 billion in annual free cash flow. The stock trades at around $160, a 7% discount to its 52-week high, and pays a 2.3% common dividend. This a big grower that makes sense to hold as the temperature rises.
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