INEXPENSIVE EV PLAYS

Electric cars are hardly new, first appearing on roads (if they can be called that) in the early 19th century, but they fizzled out in favor of combustion engines due to the need for greater range and higher speeds. Major manufacturers General Motors

GM
, Ford and Toyota all took some halfhearted cracks at the technology, but it wasn’t until Elon Musk’s Tesla came along with a Lotus-based Tesla Roadster in 2008 that EVs started to gain traction.

The discovery, and subsequent fallout from Volkswagen’s ‘Dieselgate’ scandal, triggered a mad dash to develop electric vehicles, which aren’t exactly zero-emission (the energy must come from somewhere), but they have promise to improve the business of people-moving on many fronts. Of course, we’ve kept our eye on Tesla over the past decade but haven’t found it to be in the fundamental Value camp—or even close to it—at any time.

Despite starting very far behind, the major automakers are racing to catch up and are deploying the capital necessary to make it happen. Fortunately, consumers have noticed and are rewarding the likes of General Motors in such a strong way that it is moving up its ‘electrification’ plans by years, which is telling, considering carmakers are not known for being nimble. Governments are getting a move on, too, funding infrastructure improvements, providing consumer subsidies and offering tax breaks.

Such enthusiasm also presents a nice entry point for Albemarle (ALB), a power play in the EV gold rush. The lithium producer announced plans in 2022 to build a new lithium processing plant in the U.S. that will double the amount of the EV battery metal that it presently produces, while the bottom-line has been surging higher.

PLENTY OF DEMAND FOR FOSSIL FUELS

The EV boom does not mean conventional energy businesses are dead men walking, especially as more than two thirds of U.S. energy is consumed by a sector other than transportation. The opposite, we think, as lower investment in conventional sources and solid demand have resulted in higher energy prices across the board.

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In fact, last month the International Energy Agency (IEA) said, “Global oil demand is set to rise by 1.9 mb/d in 2023, to a record 101.7 mb/d, with nearly half the gain from China following the lifting of its Covid restrictions. World oil supply growth in 2023 is set to slow to 1 mb/d following last year’s OPEC+ led growth of 4.7 mb/d.”

And longer term, the supply-demand equation, we think, continues to support oil and gas producers.

Of course, energy prices have fallen well below their 2022 peaks, with WTI Crude off some 13% over the last 12 months, but the ongoing war in Ukraine, the reopening of the Chinese economy and a long period of industry-wide under-investment in exploration and production point to global energy supply issues that are unlikely to ease soon. These matters ought to support prices above the long-run average, and therefore enhanced profitability for the likes of Civitas Resources (CIVI) and EOG Resources

EOG
, which also boast lucrative variable dividend payouts.

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Stay tuned for additional themes and stocks in the weeks ahead and happy investing!