Abstract:Devastating flames are being caused by climate change. Greenhouse gas emissions, which were at historic lows during COVID-19 lockdowns, are now rebounding to pre-lockdown levels, and America, unsurprisingly, generates the most greenhouse gases of any country on the planet. However, there is a new sheriff in town, and President-elect Joe Biden faces a mammoth challenge if he is to fulfill his campaign pledge of reducing climate change. Even if Mr. Biden is able to follow through on his pledges (and there are many things he can do even if Congress does not), it will take time. I am quite positive on energy equities for this reason, as well as others described in this post.
There's only one way for demand to rise: up.
Many businesses, including transport and energy, have been destroyed by the present COVID-19 climate. This, however, will not persist indefinitely. People will not only resume travel once the skies (and roads and oceans) reopen, but they will likely swarm the skies (and roads and oceans) in droves. Without a doubt, this will increase demand for fuel, resulting in higher prices. The International Monetary Fund (IMF) does not expect a quick recovery in oil prices, but it does predict a range of $40 to $50 per barrel in 2021, which could be 10 to 20% higher than current levels. And, if Saudi Arabia has its way, oil prices might rise to $60 per barrel or more in the coming years.
It may not happen tomorrow, but as a long-term investor, I can only anticipate oil and energy stock prices to climb at some time. Oil stocks appear to be a low-risk investment with present high dividends, since the return is projected to remain consistent (choose carefully here, some companies are planning to cut dividends).
Energy stocks are currently cheap
Big tech stocks are trading at all-time highs, giving investors with little resources few options to participate meaningfully in the market. If you're a risk taker and/or have a risk appetite that's a little higher than zero, energy stocks might be a good alternative to big tech, which many experts believe is in a bubble. For example, 100 shares of XOM are presently available for $3200, but one share of Amazon is currently available for $3311...and AMZN does not pay dividends. Massive tech stocks like Amazon, Microsoft, and Zoom are all up significantly from their 2020 lows, but I can't help but wonder if they have have more to run, or if the big tech bubble will burst sooner or later. While energy companies are not without risk, I believe that at present low levels, there is excellent growth potential, not to mention dividends.Buyer beware: energy stocks may fall much further in the short term, but this just increases the future potential for growth.
Green energy isn't taking over the world any time soon.
While I wish I could claim that we will start lowering carbon emissions and cleaning up our environment RIGHT NOW, I don't believe that is the case. In most countries, a completely electric or hybrid automobile is much more expensive than a conventional ICEV. Although one could argue that the cost of gasoline equalizes automobile pricing, the sad reality is that in today's recession, people aren't always ready or able to pay more for a car with a higher sticker price. Similarly, bargain-hunting automobile buyers are more likely to locate ICEVs than EVs on the used car market.
When it comes to solar energy, there are still several obstacles that enterprises must overcome before solar panels become more widely used. There's a reason that barely 3% of US households have solar panels today, despite the fact that solar panels were invented over 120 years ago. Wind turbines are the same way; the first one was built in the United States in 1888 (though wind has been used to power boats and water pumps for over 5000 years), but they haven't caught on yet, and it might be decades before they do.
Overall, if you're searching for some solid deals and have some time to wait, energy stocks can be precisely what you're looking for.
Disclaimer:
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Wednesday's major data releases and macroeconomic events are expected to cause volatility to increase after another day of erratic trading in the financial markets. The Spring Budget for the UK will be released, and January Retail Sales figures for January will be made available by Eurostat. ADP Employment Change for February and January JOLTS Job Openings will be discussed later in the session on the US economic docket.
Major currency pairings are still trading in familiar ranges early on Tuesday after the erratic trading on Monday. The US economic docket for the American session will include the factory orders data for January and the ISM Services PMI survey for February. Final updates to the February PMI for the US, Germany, the UK, and the EU will also be released by S&P.
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