New Power – Ready to Run?
It’s been a while since I did an update on our most speculative stock strategy called New Power, but there are some recent developments that have me excited about this program. I’ll do my best to help you see what I see.
What Is New Power?
For those who are not aware, our New Power strategy is really a “game changers” strategy with a heavy focus on stocks found in the energy and transportation revolutions, emerging technologies, and healthy lifestyle industries. As we say on our New Power Fund website ( www.newpowerfund.com):
New Power is a bright green choice for discriminating investors in a time of great change across many industries. This is an investment strategy that captures great entrepreneurial passion for the future.
Investment Sectors Include:
Solar, Wind, Geothermal, Wave and Tidal Power, Natural Gas, Green Building, Efficient Transportation, Driverless Vehicles, “Shared” Economy, Energy Efficiency, Clean Air/ Water, Batteries and EnergyStorage, Distributed Energy, Smart Grid Technologies, Recycling, Organic Food, Mobile Innovations, E-Wallet and Payment systems, Healthcare and Biotech, On-line Education, Business Services, Cyber Security, Social Media, Internet, 3D printing and more.
In essence, we’re really looking to place investment dollars with progressive forward-looking companies that are changing the game in their own industries in productive, constructive and non-abusive way. The path is not always smooth to this end, as New Power has seen very wild times in terms of return. Since May of 2013, New Power has outperformed the mighty S&P 500, but investors have had to tolerate some high volatility along the way. New Power is not risk managed beyond timely selection and ownership of our various holdings. We do not recommend more than 10-15% of anyone’s total portfolio value to be invested in New Power given it’s speculative nature.
New Power May be Ready to Run Again
Here’s what I see happening across many of the investment options we have within this strategy. I see a lot of base building and potential upside in several of our focus sectors. I’ll start with renewable energy companies (things like wind and Solar as well as their supporting technologies and suppliers). For several years, these companies have been in a near free fall, consistent with trends in traditional natural gas and coal. To be clear, the welfare of renewable energy is not tied to the price of oil as many think. After all, Solar and Wind companies provide electricity and are therefore competitors with coal and natural gas, which also generate electricity right? Oil and gasoline prices are relevant to the electrification of the transportation system (PHEVs and EVs) but not as much as you might think. The cost equivalent of a gallon of gas in term of Kilowatt-hours is about .98 cents/ gallon (and falling). Even now as gas prices are hovering at 1986 prices around $2.00/gallon, electric cars are still a better “deal” in terms of driving costs. 2016 has already seen another record year of purchases of Fully electric and Plug in Hybrid Electric Vehicles despite the historically low gasoline prices. But something is changing on a grander scale now. Now for the first time in almost five years, we are seeing a potential long term bottom in the price of natural gas and this could have magnifying ripple effects for the renewable energy industry looking forward. Here’s a 3-year chart of UNG, the Natural Gas pure commodity ETF.
We have little doubt that March of 2016 will prove to be the long term low for natural gas prices. The question is, are we seeing a new uptrend develop now or does this industry need to base at this level for years before heading higher? From a technical perspective, this is the type of chart pattern that looks incredibly constructive and promising. Now to the ripple effect for renewables. The fall in natural gas prices has forced the solar and wind industries to get very lean and mean in their own production and installation costs in order to survive in the last several years. Many have not. But this could be a situation where the survivors get all the marbles. Higher natural gas prices will drive utilities to consider generating power from renewables with or without the dwindling tax credits. Wind power generation for long term utility scale contracts is now down to .02/watt in select markets, far lower than coal and natural gas. Solar is closer to .05-.07/watt which is still very cost competitive. Solar and Wind generation costs continue to fall with higher productivity as technological improvements do their magic. So higher natural gas prices create a strong market incentive for utilities, commercial, industrial and residential customers to shift to comparatively LOWER cost renewables. I never thought I would say that but here we are! Needless to say, we’ll be keeping our eyes focused on the chart patterns in our universe of renewable energy stocks.
Healthy lifestyle stocks, specifically organic food distributors, are also basing at the same time. This is another focus sector for New Power. We took some very nice profits on White Wave (WWAV) in July after they announced their acquisition by Danone but have not carried any healthy lifestyle stocks since. Other choices like Whole Foods (WFM) and Hain Celestial (HAIN) have seen their stock prices drop dramatically by almost 50% in the last several years. But now they seem to be working to develop a bottom in price as well. Take a look at Whole Foods.
Sellers are starting to look a little exhausted and unable to take the price to a new low since November of last year. This again is the type of technical chart pattern that makes us excited and we’ll keep this one on the front burner for a potential buy. You have to know and believe that companies like Whole Foods are more than just cyclical stocks associated with economic cycles. They are more about lifestyles and choices. People who eat healthy foods are not likely to go back to eating fast food – ever. They will pay more for their food because it is one of those important and positive life choices they make.
The final New Power sector that we find attractive is among LED light manufacturers. Companies like Cree (CREE) shown below have also been basing since last November but have yet to run. Like renewable energy, the costs to manufacture and purchase LED light bulbs has fallen by nearly 70% in the last couple years making profits very difficult for these companies. But now, when we go to the hardware or grocery store to get light bulbs, we reach for the LED because a pack of 6 costs $30, not $125. The cost savings and longevity of LED lighting is undeniable; having them installed is one of the easiest ways to add high-efficiency components to any home or business. Now, making the jump to LED is affordable and it makes sense. Here again, we have a stock like CREE trading at a significant discount while the macro drivers behind their core product are improving daily. We like that.
We bought CREE too early at the end of 2015 and have weathered through some undesirable volatility in recent months. But unless the lows are broken to the downside, we’ll keep our hand in this game.
All in, I see a lot of sectors, industries and specific companies in our New Power universe that are building some long term bases in price and offering some significant return opportunities. It goes without saying that if we don’t have our first woman president in place by November, the landscape for these progressive industries could change dramatically, then all bets are off. It’s going to be an exciting Fall.
Stay tuned.
Sam Jones
