With energy use increasing at the fastest pace in history with the advent of AI data centers, we are going to need an all-of-the-above energy strategy until renewables are completely built out over the next couple decades.
As things stand, oil demand is still growing at about 1% per year. Natural gas demand is growing a bit over 2% per year according to the IEA. Coal is also growing at about 1% per year, but that is down significantly as it most places are trying to swap to gas and alternatives. Coal demand should turn over this decade.
Alternatives are growing at breakneck rates near 50% year-over-year. It is anticipated that renewables have growth rates over 30% throughout the decade as they absorb most new energy demand. Solar is the fastest growing energy source by far.
Utilities recently had a small run up and remain unexciting unless they correct again. High capex and regulated rates rarely lead to great opportunities. Yield Cos screamed higher recently and seem poised for a decline. I am not a big fan of that business model.
Energy pipelines are all fairly to slightly overvalued in my opinion as yield chasers push prices up. Yes, you can own them if you don’t care much about growth and just want the dividend, but, there are safer ways to go about generating middle single digit returns.
In energy I want to find the biggest cash flows and growth. Oil and gas are poised to do very well through the next couple cycles. Yes, at some point everything declines on a recession, but I don’t see energy demand going anywhere buy up for the next decade. Remember, that is unusual, we had been flat on energy use for a decade before data centers started to explode.
The transition to EVs is a at least a year behind and probably four or five. What I thought would happen in 2026-7, now appears more likely around 2030. I still think we see oil demand flatten and tip, but the cash flow rich period for oil and gas will last a bit longer than I thought, hence, my interest at least until the next recession.
Because of the delay in EVs and the negative narratives, lithium stocks got destroyed. This might be a very rare opportunity to buy the future for literally dirt cheap.
Top Oil Growth Stock
Permian Resources (PR) is positioned to be sold or grow. I think the Coterra acreage is a potential buy for them. Or, they could both sell to Diamondback. Eventually, I think the Delaware play in the Permian is consolidated with 2 or 3 companies disappearing into others. The recent shelf filing is in case they decided to issue shares to acquire another company. They have only done accretive deals.
Permian Resources is worth about $20 right now based on free cash flow. I suspect they will be on the block eventually after what I heard at the Hart Energy SuperDug Oil & Gas conference in Fort Worth. If they buy Coterra or other assets first, they could be worth $25-30 based on cash flows. This is my largest O&G position at a full size position.
- I am going to sell PR $15 October puts if I can get $2 on volatility.
- You can certainly take a starter if you own none of this stock now. It pays out 50% of its cash flows in dividends and buybacks.
Safest Oil Stock
Occidental Petroleum (OXY) simply the safest O&G play due to Berkshire’s eventual 50% ownership. Their latest acquisition further fortifies their Permian position and gives them assets to sell off. Their cash flow will continue to pound down debt and preferred. Their big deals are likely done, though there might be one more left is the Justice Department allows it. Either way, they are set up to be a major player in all things Texas energy.
- In retiree accounts I am entering GTC orders to sell OXY $60 August puts at $3. If the volatility gives it to me, that’s great. If not, that’s fine.
Top Natural Gas Stock
Coterra (CTRA) has two major assets: the Permian for oil and gas, the Marcellus for gas. I think they will sell their Permian assets and become a pure play on natural gas. There is huge demand for that Permian Delaware property by at least 3 other producers with adjacent acreage. If they do that, which I think is extremely likely, they become an incredibly strong financial company. There is nothing to dislike about this company.
- I am taking a starter position on CTRA this week.
- I will sell CTRA $25 October puts for $2 if it gets there.
Top LNG Stock
New Fortress (NFE) is in a unique position to load LNG at sea. Their FAST LNG floating terminal business is going to continue to grow. It is underappreciated by the market as most folks look at their finances and assets as static which is completely false. The company is in motion as it builds out and swaps assets. To be in New Fortress you have to believe in the management, in particular Wes Edens, who is a finance guy. I think he mints money. That said, this is a higher risk investment due to the international markets they operate in.
Theresa and I sold in the middle $30s. Here is her buy zone chart.
I think the buy zone the stock is in now will hold, but it could certainly dump on bad news or traders being traders. It’s tough to see Edens not doing something to blow up shorts if they push the stock too far down. He has a mountain of cash and connections if the stock gets too cheap.
I am going to sell the following puts to bring it to a half position if assigned:
- NFE $20 Sept puts at $2.
Note that there is a huge $20 August put position outstanding a couple weeks after that quarterly earnings will be released. Those were very likely bought since the price would have been lower before and they are speculating on more business delays and time added to developments which is bearish. That means as NFE gets to around $20 or into the teens they will take profits by the 3rd Friday. That will put support under the stock. So, I’m selling the $20s a month further out on the thought that the stock stabilizes around $20.
I will buy stock outright if it falls into the teens with the goal of getting to a full position with a middle teens cost basis.
Top Alternative Fuels Stock
Aemetis (AMTX) has a wall of catalysts into next year and then big revenues after. RNG is online and expanding. Higher LCFS tax credits are coming next year. Production tax credits are coming this year. SAF is breaking ground this year, possibly with a joint venture partner. Biden SAF rules that can’t be simply tossed make it a big winner. I don’t think Trump would want to piss off farmers anyway. An India IPO will happen sooner or later, I think in H2 of this year while Aemetis tax rate is low.
Right now there is a concentrated short position, but it has not been profitable lately. The Russell 2000 inclusion would mean 4-5 million shares of forced buying by funds. That’s on top of SEC and court pressure on naked shorting and other shorting schemes. That pressure is starting to have an impact. I think the Russell 2000 inclusions see a lot of short squeezes.
AMTX is my largest small cap position by far at over a double position. If you have a long-term growth sleeve, AMTX should be in it.
- Buy AMTX if it fits your asset allocation.
I also have been building a long January $7.50 call position. It’s still cheap and I think you can add some while the price is under $1.
Top Energy Management Companies
Enphase (ENPH) and SolarEdge (SEDG) used to form a duopoly in energy management for the solar industry. While Enphase remains profitable during this solar shakeout, SolerEdge is losing a lot of money. And now, there are up and coming entrants to the space, most notably Tesla (TSLA) and Generac (GNRC) which each have unique market propositions.
At the moment, the only one doing well enough and priced to buy is Enphase. SolarEdge needs to do some financing and pick its business back up to interest me. I would buy Generac on a nice 20-30% correction as I love how they are leveraging existing business to generate new business.
Top Lithium Stocks
Lithium has bottomed and has almost no room to go but up. The clean energy secular trend is well intact even if it is lumpy. Use that volatility to your advantage like the Karate kid uses his opponents leverage.
The Global X Lithium & Battery Tech ETF (LIT) might be the best way to play this space as you can mitigate you risk by playing the space instead of specific companies. I opened a LIT position last week in ETF accounts for 2-4% with a likelihood of adding as it turns up.
Albemarle (ALB) is the motherload bluechip of Lithium and it is beat up badly. It is hard not to see ALB doubling in the next 3-5 years, but it could get Memelicious and quadruple. ALB Chart by Kirk. ALB shares are right at a fair value gap line and at an Elliott Wave inflection point.
- I am taking a starter position this week.
- I will add more on a dip below $100 or if the stock starts to rally.
Lithium Americas (LAC) is a domestic lithium play in Nevada. It is the largest known measured and indicated lithium play in North America (until the Canadians find something) and has about $4 billion worth of lithium. The company received a DOE loan of $2.26 billion to develop the Thacker Pass mine. They also have a firm commit from GM to invest $650 million and a 15 year deal to buy 100% of phase one lithium. This is no speculation, it is a firm development. The stock should be trading for at least a billion dollars now in my opinion and I think reaches $3-5 billion by late decade.
- I just took a starter position and will have some shares put to me on puts I sold a month ago. There are no good puts to sell now until volume rises.
- Take a starter.
I like owning all three for the diversification and upside: LIT, ALB and LAC.
Author
Kirk Spano
CEO/CIO — Fundamental Trends
Kirk is an Accredited Investment Advisor and founder of Fundamental Trends and Bluemound Asset Management LLC. Kirk has been highly successful in helping DIY investors make sense of the investment world, and profit in stocks, ETFs and crypto.