The Gas Station of the Future?
April 26, 2010
– Comments (22) |
RELATED TICKERS: FPL
, EXC
As someone who works in the auto industry, I get the privilege of attending the press aka media days for various auto shows throughout the year. I recently attended the NYIAS, which is cool industry lingo for the New York International Auto Show. One can tell that the product plans that the automakers are talking about today were developed a year and a half ago as the price of oil spiked to over $100/barrel. The overriding theme of this year's show was fuel economy.
Every single press conference and presentation that I sat through talked about the issue. Manufacturers are making their vehicles more aerodynamic, smaller, introducing new hybrid models, and last but not least either introducing plug-in electric vehicles in the near future or talking about doing so some time down the road.
Regardless of what your opinion is on them, plug-in vehicles are coming...and sooner than many people think. General Motors is scheduled to introduce its first plug-in vehicle, the Volt, and Nissan is scheduled to introduce its, the Leaf, either later this year or early next. Now that the arrival of plug-in vehicles is imminent, the questions is whether they will be successful (is the technology ready? and will consumers want them?).
Uncle Sam certainly wants them to be. The government is providing a $7,500 tax credit on the purchase of one right off the bat. Furthermore, it is raising its CAFE fuel economy standard for automakers so that vehicles (cars and trucks) sold in the U.S. must average over 34 MPG by the year 2016.
One can debate whether plug-in vehicles are actually "greener" than regular vehicles, much like they can debate the merits of using corn-based ethanol for fuel (which I personally think is a joke), but the government has propped up the use of ethanol by throwing its muscle behind it. If the government wants electric vehicles to succeed it will do everything in its power to assure that they will.
In a joint presentation at the NYIAS by Ford and Microsoft, Alan Mulally and several other executives from both companies mentioned one statistic that I found absolutely astonishing. They claimed that the introduction of one electric vehicle to a household would essentially double its electricity consumption. Thank about that. If electric vehicles do catch on, the power companies would see a dramatic increase in the demand for their product.
The economic slowdown has taken its toll on power use and companies in this sector have not escaped the pain. For the most part, power companies have been completely left behind in the recent massive rally in the markets. That makes them an interesting contrarian place to consider investing. Many amazing, well-run companies are trading at incredibly attractive multiples. Take a look at these charts for two of my favorite companies in the sector, FPL Group (FPL) and Exelon Corp. (EXC).
These companies are trading at the lowest prices relative to their book values in a decade. They're cheap. So that passes test one in my stock evaluation process.
The second quality that I look for in stocks is whether they pay sustainable dividends. Both FPL and Exelon pay very solid dividends of near 4%, 3.8% and 4.6%, respectively.
The downside of these companies is fairly limited because they are so cheap and we are being paid to wait for a number of potential events that could cause their share prices to soar in the future. I already mentioned the possible introduction of plug-in electric vehicles as one catalyst.
The specific power companies that I mentioned have an additional potential growth kicker, they are two of the "greenest" power companies in the United States. The vast majority of Exelon's power is generated by nuclear plants. FPL uses all sorts of "green" sources for its power as well, including natural gas, wind, nuclear, hydro, and solar. Why does this matter? Because the very real possibility exists that the government will eventually introduce some sort of Carbon Tax.
The Obama Administration has already made it clear that they want Carbon Tax legislation passed. They even went as far as to rule that the EPA has the authority to regulate carbon emissions. It's difficult to say whether they will be able to pass such a bill, after fighting extremely tough battles on healthcare and financial regulation and facing stiff opposition from a number of industries but this issue could be up next on the agenda. I'm not saying whether I am for or against a carbon tax (though I do think that the potential exists for it to be devastating for the economy if it is done incorrectly), just that the passage of one would likely benefit FPL and EXC.
Add to that a possible increase in power usage if the economy continues to recover and there's lots of free call options that could yield significant gains in these stocks down the road.
Deej
Long FPL & EXC
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