Monday, February 10, 2020
Dawn of the #Solar Age – Part 2, by J. Peter Lynch
Dawn of the #Solar Age – Part 2, by J. Peter Lynch
Read this in full at https://www.investorideas.com/news/2020/renewable-energy/02101PeterLynch-SolarAge.asp
To briefly recap, in Part 1, I stated that the world is currently in the midst of an historic paradigm shift in the area of energy. The world is moving from an antiquated, inefficient centralized energy system to a renewable powered, de-centralized, flexible and resilient system.
This 21st century energy system will be far less costly, more efficient and far more resilient than the old centralized system. Other benefits from this new system will be numerous - it will enhance, rather than diminish nation security, it will boost economies worldwide and increase employment dramatically.
In addition I outlined all the rationale for the shift and all the reasons (better, faster and cheaper) as to why this transition has already started and is accelerating throughout the world.
In this part I will focus on potential investments in sectors that will benefit from this worldwide shift. While it is still just the beginning of the shift, I am quite certain that the transition will occur much faster than all the pundits are projecting.
This accelerated transition will be driven by:
1. The need to move quickly to address the dangers of climate change
2. Dramatically less financial risk of a renewable based energy system
3. Superior financial returns and the far greater resiliency of a distributed grid
As a result of this dynamic growth numerous stocks in a number of sectors will have their growth dramatically accelerated.
As I said in Part 1 I feel that this paradigm shift will lead to the greatest investment opportunity in history and many fortunes will be made, in addition to making the planet a cleaner and healthier place for our children and grandchildren.
The Bottom Line: the benefits of addressing climate change are overwhelmingly positive while the costs of not addressing climate change are magnitudes larger. From a purely financial point of view there simply is no comparison between investment paths – the commonly referred to “business as usual” path is without question a path that is financially and economically catastrophic for the U.S. economy and the world’s economy.
“Alternative energy’s shift to the mainstream is largely complete is now irreversible”. Deloitte Center for Energy Studies
The following pages will list a number of different renewable energy sectors and their ETF’s which hold a large number of stocks in those respective sectors and some of the larger companies I expect there will be many companies in these ETF’s that will benefit from the current energy system paradigm. In the next part I will list the strongest stocks in each of those ETF’s based upon various systems, in this case:
1. Relative Strength - comparing each stock to all the others in that ETF’s and selecting the strongest ones and
2 Volatility – looking at the average volatility of each of the stocks over a three year period. The stocks with the lowest volatility are the “safest” and the ones with the higher volatility which because of the increased volatility will be more risky stocks.
Over the past 5-7 years the solar sector has been “up and down” and has dramatically out performed and also under-performed the S&P 500, so this current performance is not unusual. The bottom line is that there will be plenty of potentially interesting companies in an industry that has been and is expected to keep doubling in size.
An industry that keeps doubling in size
Renewables’ share of power generation, scale is shown in doublings.
Source: Bloomberg New Energy Finance
As you can see above, both the solar and wind sectors are growing by leaps and bounds. Solar has had 7 doubles in 15 years and now stands at 2% of electricity supply in the world.
This does not sound terribly impressive, but it really depends on “how you look at it” – for example if you look at it the way the world famous futurist and genius Ray Kurzweil (below) does, it is not only impressive, it is truly staggering!
Kurzweil made a thought-provoking presentation at a recent trade show for medical device companies, MD&M, in Anaheim, California. At one point during his 45-minute talk he shifted his attention to solar.
“In 2012, solar panels were producing 0.5% of the world’s energy supply. Some people dismissed it, saying, ‘It’s a nice thing to do, but at a half percent, it’s a fringe player. That’s not going to solve the problem”. Kurzweil said. “They were ignoring the exponential growth just as they ignored the exponential growth of the Internet and Human genome project.
A Half a percent is only eight doublings away from 100%!
Currently solar has doubled twice again - now solar produce 2% of the world’s energy, right on schedule! People will dismiss it, as they dismissed 0.5% and say once again, 2% is a tiny number. That ignores the exponential growth, which means it is only six doublings or  years from getting to 100%”.
2% - 4% - 8% - 16% - 32% - 64% - 128%
Two years ago Kurzweil presented this to the Prime Minister of Israel who had attended his class at the MIT Sloan School in the 1970s. Kurzweil said the prime minster asked him a question.
“Ray, do we have enough sunlight to do this with a doubling seven more times?’” Kurzweil recalled. He said he replied, “’Yes. After we double seven more times, and meeting 100% of the world’s energy needs, we’ll still be using only one part in 10,000 of the sunlight that we have.’”
Still sounds crazy, but I for one would never bet against a brilliant individual like Kurzweil nor would I ignore his extremely impressive prediction track record over the past 20 -30 years. Most of these past projections, which came true, were equally “crazy” and hard to fathom.
The areas we will be looking at are:
3. Yield Companies
4. Fuel Cells
5. Electric Cars (EV’s)
6. Note: Other technologies are related and are part of many of the above areas ETF’s. For example there quite a few semiconductor companies related to EV’s.
I have reviewed most of the ETF’s that would cover these areas. I have removed the ones with very small volume and ones that are not constructed so that one or two holding controls what the EFT does. Below is a link to a summary of the 4 ETF’s that fit my criteria:
They are: FAN (wind), ICLN (solar), KARS (electric cars) and YLCO (yield companies)
Note: A yield co. is a company that owns solar and wind projects and pays a dividend. Sort of like a REIT for Renewables – they own renewable projects instead of apartments etc.
LINK to the 4 ETF’s I have selected:
Just a few comments I wanted to bring to your attention on the linked chart above. These are points every investor will want to look at before buying a security or an ETF.
1. When you look at a stock you want to make sure that the current price is greater than the 50 day moving average and that the 200 day moving average is less than the 50 week average and the current price.
2. The 50 day moving average is your short term indicator of a stocks health and the 200 day moving average is the longer term measure of health. Generally, if your stock drops below its 200 day moving average it is likely time to sell it. This has also be a very good indicator for the S&P 500 index – if it drops below the 200 day it is usually a bad sign.
3. It has a high technical score – the score runs from 1 to 5 so you can see that all of these ETF’s are very strong and all in the very high 4’s.
4. They are also ALL in a positive trend as indicated by the P in the trend column.
In this case all 4 of the major Renewable Energy ETF’s are in very good shape.
One last point – we are discussing what ETF’s to buy and will cover later what individual stocks are technically among the best stocks in the sector. But there is another side, in this case, we should look at and that is areas we DO NOT want to buy and we should stay away from.
When one industry starts to shine (like solar related stocks) there is usually another or two that are not doing well and should be avoided. In this case it is the Oil & Gas industry. I think they have had their heyday and are now on the downside.
I checked the 3 major ETF’s for the Oil & Gas industry (IEO, PXE and XOP) and here is where they stand now compared to the renewable industry. This would also include the coal area, whose readings are even worse than the oil and gas industry.
1. The current prices of all three Oil & Gas are below BOTH the 50 day moving average and the 200 day moving average. Very negative reading.
2. Their technical technical scores are the following respectively: .30, .20 and .18 out of 5.0. This is a very negative reading; actually it could not be much worse.
3. All three are in a negative trend. Another negative reading.
As a result I want to stress that this is an area to stay away from in the short term (for sure) and I think it will be a long term problem too.
I worked on Wall Street for over 35 years and one of my mentors always said – sure it will turn around and get better, it always does. Until it does not. Remember we are in a historic paradigm change currently and this is exactly this time when stuff that “always” happens will not. I would advise everyone to heed those words of wisdom. I did not “get it” at first and unfortunately I learned the hard way – you do not have to do that.
The Age of Solar is upon us and it is accelerating and has past the point of no return. Not everyone sees this yet, but I am personally certain that this is true and it is irreversible.
Mr. Lynch has worked, for over 35 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, an early publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor, founder and financial/technology consultant to a number of companies.
He can be reached via e-mail at: SOLARJPL@aol.com.
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