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Plug it in, plug it in / A company that expensive gas actually benefits / Quick hits / A sign of the end of the world

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July 10, 2008 – Comments (6) | RELATED TICKERS: PGR , RIG , COP

Plug it in, plug it in.  No, I'm not talking about a Glade air freshener, I'm talking about your car.  A number of automakers are hard at work on developing the next big thing in cars, plug-in electric vehicles.  We have all seen the articles which state that even with $4.00 per gallon gas, purchasing conventional hybrid vehicles does not make economic sense, but these articles are focusing on current technology and I always try to look to the future when investing.  I personally strongly believe that the price of gas will continue to rise in the coming years. While $5.00/gallon gas was considered impossible in the past, that's less than a 25% increase from here.  At five bucks a gallon current Hybrid technology, like the Toyota Prius becomes very intriguing.  Not only that, but in other areas of the world, like Europe gasoline already costs much, much more than it does here. Hybrids are much more economically viable there.

Anyone who dismisses hybrid vehicles is ignoring the possible (in my opinion likely) advances in technology that eventually cause them to be even more efficient.  Besides, I'm not talking about traditional hybrids here anyhow, I'm talking about plug-in electric vehicles.  It's too early to say what the per-mile cost of driving them will be. It is very possible that it will cost less per mile to drive one than it currently costs to drive hybrids.

Many consumers consider much more than the cost per mile when choosing their new vehicle. Plug-in vehicles will help reduce our country's dependence upon foreign oil and they will be much better for the environment (assuming their power doesn't come from coal plants).  Many consumers will find these attributes attractive enough to justify paying a few cents more per mile...and there's no guarantee that plug-ins won't eventually be more efficient.

As someone who has worked in the auto industry for well over a decade, to me plug-in electric vehicles have the potential to be the the most excising new product introduced in years. I strongly believe that the company that is first to market with an affordable, well executed plug-in will have a home run product.

We've read a lot about General Motors' efforts in this area with the Chevrolet Volt.  I came across a great article yesterday on Nissan's efforts to develop electric vehicles: Nissan charged up on electric vehicles as the company's zero-emissions strategy

So how does one play the potential development of mass market plug-in electric vehicles as an investment?  You could purchase shares of the automakers that are working on bringing this technology to market, they certainly are beaten down right now, but I think that they have farther to fall.  I personally am using plug-ins as a free call option on my growing investments in power companies.  If these things do eventually catch on, they will suck up a ton of electricity and power companies will profit handsomely.  I continue to purchase shares of power companies with limited or no exposure to coal and large unregulated power generation capacity in my real portfolio (see post: Put a charge into your portfolio by playing this trend).

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Not everyone is being hurt by the high price of gas.  I read a fascinating story yesterday about a company that is actually benefiting from it, Progressive Corp. (PGR) (see article: Progressive Gains as Record Gasoline Curbs Driving)  Apparently the fact that the high price of gas and weak economy is causing people to drive less is causing a reduction in car accidents.  The rate of accidents per insured vehicle fell 0.5 percent in the first quarter from a year earlier after increasing in 2007.  Unfortunately, it may be too late to benefit from this trend as PGR is up more than 20% since its March low.

 

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Quick hits on companies that I personally own and am very bullish on:

ConocoPhillips joins $10 billion Abu Dhabi project.  COP, which is already North America's largest producer of natural gas, beats out the other major integrated oil companies and is awarded a $10 BILLION nat gas project in Abu Dhabi.  Cha-ching $$$$

Independent oil cos. seen topping Q2 estimates. Analyst believes that Apache will beat the consensus second quarter earnings estimate.  Cha-ching $$$$

- Transocean gets drilling deal worth up to $1.19B.  Another new contract, another new record dayrate, $652,000.  Cha-ching $$$$

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Quick hits that illustrate what rough shape the economy is currently in:

US foreclosure filings surge 53 percent in June. Yuck

- IMF gloomy on growth, warns on inflation. Yuck

Discover(R) U.S. Spending Monitor(SM) Down Nearly a Point in June.   Yuck

            "High Gas and Food Prices Continue To Hurt Discretionary Spending, Dampen Views About The Economy." 

          "Economic confidence hit a new Monitor low, falling in June to a level that is nearly 30 points lower than a year ago."

           "June is the sixth month in a row that consumer attitudes about the economy have trended downward while spending intentions have risen with living expenses rising beyond their control. The circumstances have created a balancing act for consumers who are spending less for discretionary items to compensate for higher costs for necessities. So far, consumers have been resilient. But there are signs the strain is beginning to show as more consumers are showing less wiggle room in their budgets."

             "Reduced discretionary spending has been the predominant response for consumer looking to cope with the upward pressure on monthly expenses. In fact, 56 percent report that they intend to spend less next month on discretionary personal expenses like dining out, or going to the movies, up seven points from just six months ago."

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Speaking of the end of the world :), If a plague of locusts isn't a bad sign...I don't know what is.   Locust infestation could plague Olympic Games

 

Deej

Long COP, APA, RIG 

Short DFS 

6 Comments – Post Your Own

#1) On July 10, 2008 at 9:48 AM, XMFSinchiruna (27.97) wrote:

Hey Deej,

I hope you know how much your blogs, and the time you put into preparing them, is appreciated.  There is so much important information Fools need to follow right now if they want to stay current with emerging trends and the macroeconomic landscape, and your posts make that challenge less daunting.

Not only is the content excellent, but the production value of how you present it.... with well-selected photos and graphics, relevant links, and compact segments on each topic... it's simply the best blog in CAPS.  I hope you are able to keep this going for the long haul.  Thank you!

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#2) On July 10, 2008 at 9:53 AM, TMFDeej (99.46) wrote:

Wow, thank you so much for the compliment, Sinchiruna. :)

Deej

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#3) On July 10, 2008 at 10:09 AM, columbia1 wrote:

I 100% agree with all Sinchiruna writes, and yours is always the first blog I tune into in the morning!! thumbs up!

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#4) On July 10, 2008 at 10:57 AM, WillSurfForFood (88.01) wrote:

 Hey Deej,

Thanks for another great blog. I've been thinking about how to invest in this subject for a while. One idea is SQM which is the largest supplier of lithium which will be used in batteries for many of these next generation cars. It has done very well this year but I think that has mainly to do with the agricultural chemicals it produces. Other ideas are electric power generation, I am interested in learning about the companies you like. Another idea is electric infrastructure: assuming we start buying plug-in electric vehicles I'm assuming a lot of work will need to be done to our homes and power grid. I've just started doing research in these areas and haven't come up with good ideas yet.

 

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#5) On July 10, 2008 at 11:30 AM, XMFSinchiruna (27.97) wrote:

I just published this on SQM yesterday. I think it's a fantastic play!

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#6) On March 13, 2010 at 3:52 AM, BrandonPaulChevy (< 20) wrote:

The two cars that are over each other looks funny. I think the fuel pump of the other car is smashed.

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