Cap and Trade Part Two: How We'll Profit
By Matt Badiali
July 08, 2009
We got hundreds of responses to last week's cap and trade essay. Plenty of readers were shocked by how much the new bill will cost you, me, and every American family... Not J.M., who writes, "Ask me if I am surprised. Congress (as well as local governments) treats us as cash cows, which in fact we are."
Some readers didn't like questioning our government's huge new tax policy. R.R. writes, "Matt's article on the energy legislation is a political rant and fear mongering."
And D.B. gripes, "I wish I could cancel and get my money back when I read your Republican and Libertarian views. Why don't you just stick to providing investment advice and leave the environmental commentary to scientists?"
Well, D.B., I'd be sad to see you go. But thanks for cutting to the chase: how to profit. It's time to talk about the best ways to recoup some of those huge new energy costs.
Three sectors are set to prosper from cap and trade legislation...
First, the big trading banks. As reader B.F. put it, "Let me get this straight... the 'trade' part of cap and trade is going to be run by the same financial geniuses who brought us indefinable derivatives?" Yep. This legislation creates a brand new financial instrument: carbon credits. One carbon credit equals the right to emit one ton of carbon dioxide to the atmosphere. These credits are already trading on the Chicago Climate Exchange.
As author Matt Tiabbi pointed out in a must-read Rolling Stone article, Goldman Sachs (GS), the venerable Wall Street financial institution, seems to profit handsomely no matter the boondoggle. Carbon credits will be no exception.
Another broker that's set to win big on carbon trading is Amerex Energy, which began trading commodities like heating oil and gasoline in 1978 and is now trading carbon credits. Amerex' parent is GFI Group (GFIG), a $750 million financial derivatives company. When cap and trade passes, Amerex and its peers will have the inside track on the market.
After the financial companies, you have to consider green energy stocks. As coal companies whither and die, alternative energies will do well. If you're not a stock picker, a conservative way to play this idea is with a basket of clean energy plays like the PowerShares Wilderhill Clean Energy Fund (PBW). But I'd focus more on the one single realistic way we can generate massive amounts of clean electricity: Nuclear.
Nuclear is the only power source large enough to take up the slack from coal. Your speculative ideas here are uranium producers and infrastructure builders. For long-term money, the companies that own and operate existing nuclear power plants are the best choice.
They'll benefit from rising electricity costs – their fuel cost won't climb, so their margins will. Second, they'll benefit from selling carbon credits to the market. These companies generate electricity without making carbon dioxide. Suddenly, they're going to get paid to keep on doing it. (Maybe there is a free lunch after all!)
Here's a list of the top 10 publicly traded nuclear power producers by nuclear megawatts produced:
Company |
Symbol
|
MWs |
Exelon |
EXC |
15,267 |
Entergy |
ETR |
9,948 |
Tennessee Valley |
TVE |
6,695 |
Dominion Resources |
D |
5,478 |
FPL Group |
FPL |
5,112 |
Duke Energy |
DUK |
4,809 |
Constellation Energy |
CEG |
3,620 |
Progress Energy |
PGN |
3,299 |
Southern Co. |
SO |
2,633 |
Public Service Enterprise |
PEG |
2,376 |
|
These companies will be the best place to make long-term gains and protect yourself from the massive tax bill coming your way soon.
Good investing,
Matt Badiali
P.S. Like a lot of you, M.S. asked, "Who do we email in order to express our disgust with the possibility of the bill being passed?" You can sign a petition against cap and trade legislation here.
Thanks again for all your feedback – even the letters calling me an idiot. I read them all. Click here to sent me a note... and let me know if you've got a commodity question you'd like answered next week. |
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| • |
Virtual bank Annaly Capital climbs to new five-month high. |
| • |
Truckmaker Oshkosh screams 430% from March low to 52-week high. |
| • |
Health insurers spike higher... Aetna, UnitedHealth, Cigna jump 5% ahead of the Senate's health care announcement. |
| • |
Earnings today... Alcoa, Family Dollar, Pepsi, WD-40. |
|
Last |
Change |
52-Wk |
| S&P 500 |
881.03 |
-1.97% |
-29.65% |
| Oil (USO) |
33.81 |
-2.59% |
-70.59% |
| Gold (GLD) |
90.71 |
-0.06% |
-0.57% |
| Silver (SLV) |
12.89 |
-1.60% |
-26.76% |
| U.S. Dollar |
80.69 |
-0.02% |
+10.51% |
| Euro |
1.39 |
-0.07% |
-11.21% |
| VIX |
30.85 |
+6.38% |
+19.67% |
| HUI |
327.33 |
-0.53% |
-22.98% |
| 10-Year Yield |
3.46% |
-0.05 |
-0.41 |
|
|
| Company |
Sym |
Industry |
Female Health |
FHCO |
personal products |
MAKO Surgical |
MAKO |
medical devices |
Oshkosh |
OSK |
trucks |
Spectrum Control |
SPEC |
electronics |
Hawkins |
HWKN |
basic materials |
Trian Acquisition |
TUX |
acquisitions |
Trinity Biotech |
TRIB |
diagnostics |
Young Innovations |
YDNT |
medical devices |
3PAR |
PAR |
data storage |
IncrediMail |
MAIL |
business services |
American Physicians |
AMPH |
insurance |
BPW Acquisition |
BPW |
acquisitions |
Sharps Compliance |
SMED |
waste services |
Air Transport |
ATSG |
air freight |
ImmunoGen |
IMGN |
biotech |
Medicinova |
MNOV |
biotech |
Frisch's |
FRS |
restaurants |
Ardea Biosciences |
RDEA |
biotech |
Sciclone Pharma |
SCLN |
pharma |
Merge Healthcare |
MRGE |
health care IT |
Schering Plough |
SGP |
Big Pharma |
|
| Company |
Sym |
Industry |
Myriad Genetics |
MYGN |
diagnostics |
Heckmann |
HEK |
acquisitions |
Clayton Williams |
CWEI |
oil & gas drilling |
Citizens Republic |
CRBC |
bank |
Standard Register |
SR |
office supplies |
Green Bankshares |
GRNB |
bank |
Cephalon |
CEPH |
pharma |
|
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