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The No. 1 Energy Stock to Buy Now
I was asleep on the mid-morning flight to Copenhagen when the jolt came.
Moments before arrival, the little British Airways A320 ripped through high-velocity winds blowing across the Oresund, the strait separating Denmark from Sweden. As the plane bounced and swayed like a drunk on a bender, I glanced out the window to see … a foamy, gunmetal ocean and a line of symmetrical, white windmills spinning in the breeze and helping to power the city to which I was headed. (To get a bird’s-eye view of the windmills, click here.)
Denmark is caught between the North Sea and Baltic Sea, in what is effectively a giant canyon between continental Europe and the Scandinavian Peninsula.
With so much wind buffeting the land and sea, the country has become a technological leader in wind energy. Some 5,000 windmills across Denmark generate 3,500 megawatts of power, enough to supply about 3.5 million homes.
And it’s here that I found what I believe will be one of the best energy investments of the decade. I’ll tell you all about it, but first let me explain why the energy game is changing.
The Real Message is in Oil Prices
Energy in all its forms is a key theme. The game is changing now – oil at $75 a barrel when the world’s G-7 economies are flailing, is sending us a message.
Imagine what oil might fetch when the world’s biggest economies once again find firm purchase … and must compete for increasing resource needs with explosive developing economies that have deep pockets.
The last time I sensed such an energy opportunity was in the 1990s, when barrels of crude were a $10 commodity and investors joked that bottled water was a more-valuable liquid. At the time, I was opening brokerage accounts in Asia and researching Asian companies, and I could see the energy-consumption wave coming.
Peak Oil? Maybe. But Cheap Oil is the Real Problem.
I don’t come at alternative energy from the same perspective as those shouting that the world will run out of oil and, thus, energy if it doesn’t race to harness the wind, the sun and the waves
I don’t believe either assertion is true.
The Earth still stores billions of proved or suspected barrels of oil in reservoirs around the globe, enough to sustain life as we know it for a long while. Those reservoirs, however, are locked in sandy bitumen in Canada; in shale formations across Texas, Louisiana and elsewhere; and deep – deep – under the world’s ocean bottoms. Access, in other words, will be very – very – costly.
Hand-wringers foretell of Peak Oil. They foreshadow a day, soon to arrive, when the last reservoir yields its final barrel of oil.
Alas, they miss the point. For Peak Oil, whether imagined or not, overlooks the real issue.
And the real issue … the issue that will make you money … is Cheap Oil.
Cheap Oil has fueled the world’s industrial revolution to this point. But Cheap Oil is gone. And its absence means the cost of extracting the oil that remains will necessarily rise, pushing up prices across every facet of life that relies on petroleum in some fashion.
And in that – the cost of producing newfound reserves, not the emptying of existing reservoirs – lies the genesis of coming profits in alternative energy.
And one of the best investments in alternative power is Vestas Wind Systems, the global wind-energy leader based in Denmark.
Own the Leader in a Fast-Growing Industry
In Copenhagen, I specifically set out to investigate Vestas. The company’s wind turbines dot the horizon from China to the Caribbean to that string of windmills in the Oresund.
Until recently, trend-following growth investors loved Vestas. But the company in August shocked investors by lowering sales and profit forecasts for 2010. The key problem, as Vestas executives explained, is orders from key markets – including the U.S., Spain and Germany – won’t finalize until so late in the current year that the income won’t show up in year-end results.
Because of that, investors fled the stock, driving down the shares 22.5% in one day. Most of that, my trading sources in Europe tell me, came from institutional investors in large financial capitals (i.e. London and New York).
But if I’ve learned anything in 15 years of investing directly on foreign stock exchanges, it’s that the locals almost always have the most-sober view. They see the good and the bad in a different context, and generally earlier than foreigners who parachute in and out.
I’ll sum up the local view with one comment from Sean, a portfolio manager with Denmark’s Jyske Bank, who I was chatting with at a private cocktail party: “This is the stock you buy, now that it’s beaten down, and you put it away and don’t think about it. You’ll be happy later.”
While institutional investors fled because of the timing of orders from key markets, the locals report that Vestas’ overall order inflow has actually perked up nicely. Don’t be surprised if order-intake grows substantially through the remainder of 2010 and into next year.
Its new wind-turbine technology, known as V112, is what Danish brokerage firm Danske Markets calls “a game changer.” Industry observers expect it will capture market share.
That market share, meanwhile, is growing as the overall wind-power market grows. Think about that as owning a larger piece of a pie that itself is growing bigger.
The European Union has mandated that at least 20% of Europe’s energy production come from renewable resources by 2020. China and the U.S. (not withstanding America’s current fiscal disrepair and Congress potentially allowing the renewable-energy incentives to fade) are pushing in a similar direction.
In all, Vestas expects the market for its turbines to grow by between 20% and 25% a year for at least the next decade.
Buy Now While Shares are Cheap
Now is the time to add Vestas to your portfolio while share prices are temporarily weak. You can grab the global leader in wind energy for roughly 10 times expected 2011 earnings. In recent years, shares have traded at P/E multiples in the high-teen and 20s.
The best profit opportunities in stocks always arise in the darkest moments, and now is a fairly dark moment for Vestas because of the way investors have fled the shares.
As such, I’d be a buyer at current levels. The shares trade for about 220 Danish kroner, or $12.30 in the U.S. You’ll find the stock traded on the Pink Sheets under the symbol VWDRY. Though I’m not the world’s biggest Pink Sheets fan but anywhere from 40,000 to several hundred thousand shares trade a day, so there is fairly decent volume.
Buy this one and, as Sean said, and just “put it away.” While oil isn’t going away, neither is the wind. And Vestas is the stock you want to own to capture the profits that are, literally, blowing in the wind.
Until next time, keep a global view…
Jeff D. Opdyke
Editor, Emerging Market Strategist
P.S. I’ve been writing to a select group of investors since July about the best foreign investment opportunities in my Emerging Market Strategist. Today we’re opening a few spots. If you might be interested here’s a link.
Other Posts from the Author
- Off-the-Grid Luxury Living in Cafayate - January 31st, 2012
- Why Gold is the Best Hedge Against an Out of Control Federal Reserve - January 26th, 2012
- Earn Big Dividends in Little Companies - January 19th, 2012
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How does one go about purchasing a stock, like Vestas, from a “pink sheet”?