Ten Green Energy Gambles for 2010: Update 2
Tom Konrad, CFA
The stock market is up, and my bets
against it are down, except in energy. It’s time to double down.
Earlier this week, a client asked me if I’d found any buying
opportunities while doing research for my
href="http://www.altenergystocks.com/search.html?domains=AltEnergyStocks.com&q=%22The+Best+Peak+Oil+Investments%22&sitesearch=altenergystocks.com&sa=Google+Search&client=pub-3722371063257710&forid=1&channel=2542403809&ie=ISO-8859-1&oe=ISO-8859-1&safe=active&cof=GALT%3A%23008000%3BGL%3A1%3BDIV%3A%23336699%3BVLC%3A663399%3BAH%3Acenter%3BBGC%3AFFFFFF%3BLBGC%3Affffff%3BALC%3A0000FF%3BLC%3A0000FF%3BT%3A000000%3BGFNT%3A0000FF%3BGIMP%3A0000FF%3BLH%3A50%3BLW%3A255%3BL%3Ahttp%3A%2F%2Fwww.altenergystocks.com%2F%2Fassets%2FAES_logo_teal.gif%3BS%3Ahttp%3A%2F%2F%3BFORID%3A11&hl=en">“Best
Peak
Oil Investments” series. The answer is, “no,” although
I’ve found a few companies I’m hoping to buy at lower prices,
later.
As regular readers know, I’ve been bearish since June 2009, after I
cashed in on the quick rally in March, April, and May of that
year. My last ten months of sitting on the sidelines as the
general market has risen 30% has been far from fun, but it has not made
me question my decision to get out. At the time, I judged that
the potential gains did not justify the downside risks, and I believe
the rise since then has only reduced any potential gains and increased
the risks of staying in.
When I published my
Green
Energy
Gambles
for
2010 in January, I had just these risks in mind, and suggested
that readers use them to hedge any long stock positions, or use them to
speculate on a decline.
Readers who took this advice have lost about a third (34%) of their
money, which is about what we’ve seen from my benchmark, composed of
puts on the broader market and a clean energy ETF (down 38%). If
they had used this portfolio of puts as a hedge against the S&P 500
by investing $1 in this portfolio for every ten in the S&P 500,
they would have acheived a net 2.5% gain, compared to a 4% unhedged
gain on the S&P.
The following table shows how the individual picks have performed so
far this year:
| Security | Weight | Underlying | sector | 1/9/10* | 4/27/10* | Gain |
$30 Put |
20% | iShares Mexico ( |
Misc | $0.825 | $0.40 | -52% |
$17.5 Put |
7% | Chesapeake Energy ( |
Energy | $0.865 | $0.955 | +10% |
$7.5 Put |
7% | Delta Airlines ( |
Travel | $0.975 | $0.60 | -39% |
Put |
7% | AMR Corp ( |
Travel | $0.85 | $0.655 | -23% |
$7.5 Put |
7% | Southwest ( |
Travel | $0.50 | $0.10 | -80% |
$35 Put |
7% | Consol Energy ( |
Energy | $2.325 | $3.30 | +42% |
$30 Put |
6% | Peabody Energy ( |
Energy | $1.45 | $1.13 | -22% |
$25 Put |
10% | Starwood Hotels ( |
Travel | $1.725 | $0.30 | -83% |
$20 Put |
10% | JB Hunt ( |
Travel | $0.65 | $0.20 | -69% |
Efficiency Corp |
20% | Misc | $0.275 | $0.26 | -7% | |
| Portfolio | 100% | -34% | ||||
|
|
80% | DIAMONDs (DIA) | $1.49 | 0.84 | -44% | |
Wilderhill Clean Energy (PBW) |
20% | $11.74 | $10.08 | -14% | ||
| Benchmark | 100% | -38% | ||||
| * Prices given are the midpoint between the bid and ask at the close on the given date. |
||||||
I’ve also categorized these picks as “Travel” (including
trucking,
and hotel stocks), “Energy” (including
and
gas
stocks), and “Misc” including my bet against
Mexico’s peak oil economy and the
efficiency company Power Efficiency Corp. (
The
following chart shows how the portfolio as a whole and these
sectors have performed against the benchmark.
src="http://www.altenergystocks.com/archives/Gambles%202010-2.png">
As you can see, the portfolio (blue) as a whole is tracking the
benchmark (orange) closely, but the energy companies have fallen (and
the puts have risen) despite the market trend, while the travel
companies have outperformed the market (and the puts on travel
companies have fallen.)
The star performer was the put on Consol Energy (CNX) a firm with
interests in both shale gas and Appalachian coal. The main reason
for its share price decline has been a
dilutive issue of common stock, priced at $42.50 a share that has
depressed the share price. The stock was trading at $56 when I
first priced the option.
Outlook
The occaisional stock on the list may fall due to specific news, but if
these gambles are going to pay off, it will require either a spike in
oil prices that causes a steep decline in the price of the travel
stocks, or a significant broad market decline, or both. I think
either or both is likely this year, and the recent market rise makes a
decline from these levels more likely.
If you’ve been
your portfolio with some or all of these puts, you should realize
that as stock prices rise, the value of these puts as a hedge
against relatively small declines in stock prices falls. Hence,
if you want to maintain your hedge, it makes sense to add to it now
with some more puts on some of the higher-flying travel and transport
stocks, such as Starwood Hotels (HOT), Southwest Airlines (LUV) and JB
Hunt (JBHT) at strike prices closer to the current stock price.
DISCLOSURE: Short
EWW,DAL,AMR,LUV,CNX,BTU,HOT,JBHT,DIA. Long PEFF.
DISCLAIMER: The information and trades provided here and in the
comments are for
informational purposes only and are not a solicitation to buy or sell
any of
these securities. Investing involves substantial risk and you should
evaluate
your own risk levels before you make any investment. Past results are
not an
indication of future performance. Please take the time to read the full
disclaimer here.
-- AltEnergyStocks.com
