The energy sector has made some unprecedented moves this year, from unseen heights to quick collapses. How might our newly elected president affect this turbulent sector of our economy and the stocks associated with it?
The truth is no administration is likely to have a large influence on the overall motion in crude oil and energy stocks. It's been proven to me conclusively, in the last year particularly, that large global economic and capital forces have the most profound effect on the energy space.
In comparison to these global influences, actions from outgoing former-President Clinton and outgoing-President Bush as well as the few acts initiated by Congress have had little lasting effect on the sector. Emerging-market growth, still over 10% in China and India, remains the overwhelming fundamental influence to keep an eye on, even if the growth is slackening rapidly in this global recession.
On the other side, capital investment and contraction in the energy space, as evidenced in energy-specific hedge funds, exchange-traded funds and speculative concentrations are the overwhelming "non-fundamental" factor needed to track prices.
The year 2007 saw highs in crude oil approaching $150 a barrel and near-term lows closer to $60 a barrel, with energy-related stocks showing the same kind of volatility. These huge moves cannot be attributed to any governmental initiatives or ideas, whether Republican, Democratic or bipartisan.
With many more years of oil volatility on the horizon, we will be concentrating on global overarching themes and little on who's occupying the White House in order to stay ahead of this market and make some money.
That said, there are some fine-print observations on an
administration that could marginally help some energy-related stocks. Let's get to them.
Obama Energy Stocks
Certainly the quickest observation we can make is the relative "greenness" a Barack Obama presidency brings as opposed to what a John McCain presidency would have brought.
In his energy policy plan statement posted on his campaign Web site, Obama promises a 10-year, $150 billion initiative for "commercial-scale renewable energy, clean coal technology, advance the next generation of biofuels, advance plug-in hybrid technology and begin transition to a national digital electricity grid." Whew. All this, says Obama, will result in the creation of 5 million new "green jobs."
On the basis of this statement, some places we might look for benefit in the related stocks are pretty obvious: solar stocks.
, while always too rich for my blood, will be a darling of this fresh green movement. After collapsing from close to $300 a share late this summer to find a near-term bottom nearer to $100, First Solar shares rallied smartly as an Obama presidency got more and more probable in the last few weeks. It now trades around $129.
First Solar is the most spotlighted solar stock, but others have followed similar paths. While these stocks may benefit from an Obama presidency, they still trade at huge multiples and are extremely speculative and risky. Not my cup of tea.
The next place to look would be battery and fuel-cell technology companies. There's been a lot of technological advancements in this area in the last several months, and the target is constantly changing; but with Obama's commitment to hybrids and specifically to plug-ins, the next great advance needs to come from battery technology. The old-fashioned lead-cell design has gone about as far as it can to move this kind of vehicle along. Look for the latest in batteries from those companies working with lithium-ion designs.
If you want two ideas here, and they're certainly not exclusive, try
for a more conservative and established approach. It may turn out to be the exclusive provider of high-powered Li-ion batteries for domestic cars. If you want a flier, take a look at
, which is working hard to get a foothold in this fast-moving market space.
The Driller Effect
Other efforts an Obama presidency promised during the campaign will be affected in the next year or two by the incredibly fluid per-barrel price of crude oil. On his campaign Web site, Obama promised a direct emergency rebate of $500 per individual and $1,000 per couple to ease the pain of high gasoline prices at the pump. One imagines this initiative will be quickly forgotten now that per-gallon prices have moderated to under $2 a gallon from the $4.50 a gallon this country saw when that position paper was written.
It's tough to have a consistent policy based on numbers that change so quickly. But you never know when this one will be revived if the pump prices start to resume their climb and people start screaming again.
On the topic of a fluid crude barrel price, let's take a look at some stocks that
fare as well. The McCain/Palin campaign walked up and down the campaign trail with a consistent Kudlow-esque "drill, drill, drill" motto -- a foolish and practically useless idea to begin with. Worse, the drilling initiatives became a real anchor around the neck of that campaign as prices began to plummet from recessionary fears and speculative capital withdrawal.
Buy 'Dick Cheney Stocks'
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Frantic deep-sea drilling, at best capable of increasing marginal supply 10 years down the road, becomes far less of a priority as oil trades closer to $60 a barrel than to $160. And the associated stocks have shown that change of heart from their investors.
, the deepwater drilling flagship, has seen its share value drop 50% since September alone, and the rally back from its near-term lows has been weak, compared to others. Other oil services stocks, while less exposed to primary drilling contracts, are faring relatively poorly as well.
, while posting a great third quarter, still faces slowdown prospects and is trading sluggishly, as are
I have already seen each of the stocks I've mentioned react to the prospect of an Obama presidency; therefore, I do not recommend either buying the battery-makers or selling the oil-service companies. In fact, from a trading perspective alone, if forced to, I would recommend
entirely the opposite
-- "hot" green stocks have been entirely overplayed in my view on the basis of an incoming Obama administration, while tried-and-true energy service companies, sure to succeed and find profitability even in a dominantly Democratic and liberal Washington have been grossly oversold. But that's a trader talking.
No, there's no doubt where the buzz in the energy sector is right now. In an Obama White House, "green" stocks will be all the rage. But I'm not banking that's where you'll find the best opportunities in the patch to make the money.
At the time of publication, Dicker was long Halliburton and Schlumberger, but positions can change at any time.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks. Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years. Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals. Dan obtained a bachelor of arts degrees from the State University of New York at Stony Brook in 1982.