A wide world of fast-growing energy stocks
As the demand for energy rises across the globe, says a U.S. advisory, take a look at stocks that supply energy infrastructure, like these five.
When the price of a commodity goes up, it hauls a lot of things with it.
Right off the bat, it perks up the prospects of those who make equipment to help find the stuff, extract it, refine it and ship it.
In the case of energy, that covers a lot of territory. Drill rigs, heavy equipment, offshore platforms, pipelines and hydraulic cables, new power plants and we could go on.
One prominent U.S. advisory does go on — to talk about five promising stocks in the field of energy infrastructure.
And it all starts overseas, says Mr. Elliott H. Gue, the editor of Personal Finance.
“Today’s emerging markets are going through a period of parabolic growth in energy demand, much like the U.S. in the early 20th century and Japan in the post-war era.”
He hones in on two stocks that are serving oil and gas projects around the globe and adds three more in power generation.
In deep waters
Twenty years ago, the Organization for Economic Co-operation and Development (OECD) — the developed world, in effect — accounted for 60 per cent of the world’s energy consumption.
Now that figure is closer to 50 per cent. By 2030, it will be 40 per cent.
As demand shoots up in the developing world, oil producers are spending record amounts to build offshore platforms, subsea pipelines and production equipment for deepwater fields.
By 2013, spending on deepwater production alone should reach US$35 billion annually.
In the meantime, power plants are going up like mushrooms. China is building a new coal-fired plant every 7 to 10 days. And since 2007, India has been busy building 80,000 megawatts of new capacity to be completed by 2012. That equals the entire generating capacity of the United Kingdom.
We’ll begin in the oil fields. Most of the largest discoveries in the past three decades, says Mr. Gue, are in the deep waters of the Gulf of Mexico and off the coast of Brazil and West Africa.
SURF’s up
To get the oil out of the sea, you need subsea umbilicals, risers and flowlines, collectively known as SURF. Mr. Gue explains what these are.
“Umbilicals are electrical and hydraulic cables used to remotely control subsea equipment from a surface-based platform. Risers are flexible pipes that carry oil and gas from the seabed to the production platform. Flowlines are subsea pipelines.”
To get these you call Norway and a firm called Acergy (NORWAY-ACY; NASDQ-ACGY). This company makes three quarters of its revenues from the engineering and construction of SURF equipment.
Offshore drilling activity slowed down in 2008 and early 2009 as oil prices fell from a lofty US$147 a barrel to less than $35. With oil back up to $83, the demand for SURF’s up again.
Buy Acergy below US$21, says the editor. It is trading in New York at $19.75 and yields about 1.2 per cent on a $0.23 dividend.
Less volatile
A mainstay of this advisory’s Growth Portfolio is drilling company Weatherford International (NYSE-WFT). It gets 70 per cent of its revenues outside North America.
That’s a big advantage these days. “International spending tends to be less volatile than shorter-cycle projects in North America.”
Weatherford has two intriguing prospects ahead. It purchased the oil services subsidiary of Russian oil firm TNK-BP, which gives it an excellent foothold in that energy-rich nation.
Meanwhile, Iraq is parcelling out new oil contracts, and Weatherford, which has plenty of experience in the region, should be a front-runner as the service work is handed out.
The stock has suffered from “overblown concerns” about a tricky Mexican contract, so it’s the cheapest of all the big energy services stocks, says Mr. Gue. Buy it under US$25. It trades at $16.76 and has no dividend.
Three in power generation
This editor concludes with a brief glance at three power generation stocks. All are in the advisory’s Growth Portfolio.
Shaw Group (NSDQ-SHAW) — not to be confused with Canadian pipelines specialist ShawCor — is a world leader in the nuclear industry. It owns 20 per cent of nuclear construction firm Westinghouse.
It is also a major contractor for projects connected with the AP1000 reactor, the new reactor design in China. In fact, this stock has done well enough that it has surpassed the advisory’s target of $35 and trades at $37.53. It does not pay a dividend.
The main competitor for the AP1000 reactor is the European Pressurized Reactor (EPR) designed by French giant Areva (PARIS-CEI; OTC-ARVCF). Areva does it all — mines uranium, enriches nuclear fuel and recycles and disposes of nuclear waste.
It is listed as a buy up US$675 and trades today on the Over the Counter board at $513. It yields 1.8 per cent on a dividend of 7 euros.
Finally, there is Swiss giant ABB (NYSE-ABB). Its Power Systems division has a big hand in the construction of power plants and power transmission grids in many locations. This stock is a buy up to US$23 and is now at $22.44. There is no dividend.
As demand for energy goes up, this advisory reminds us, so do a lot of drill rigs, platforms, pipelines and plants. They may not be the only ones to profit, but they will be the first.
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