When The Jetsons first aired, the idea of a robot maid or a flying car seemed too good to be true. In 2023, we have moving walkways, Roombas, and flying car prototypes. With the growth of green energy, could we live in Orbit City by 2062? Get more here.
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Maybe you were there for the original episodes 60 years ago or saw them in syndication in the 80s, but The Jetsons cartoons remain iconic today. The show wasn’t the first to imagine jetpacks, flying cars, or moving sidewalks, but it gave Americans hope for the possibilities ahead.
For those children from the 60s or the 80s, the idea of a robot maid like Rosie might have sounded too good to be true. (How great would that have been for tackling childhood chores?) But now we have our choice of Roombas to mop or vacuum the floors, self-propelled electric lawn mowers, and even self-cleaning litterboxes.
How times have changed! Imagine what the next 60 years will bring.
As we’re watching the developments, it’s clear that the futurists of our day are interested in making the best of the modern world less wasteful, less expensive, and more efficient. And both industry and government have established benchmarks and best practices for improving how “clean” our processes are.
Sectors in renewable energy, efficient energy systems, and more sustainable forms of transportation continue to grow all the time. For example, according to the U.S. Department of Energy, our country’s wind power capacity has increased 60% in the past five years, and solar capacity has grown a whopping 200% in that same span. The share of energy humans harness from these sources is likely to continue growing, especially given the U.S. goal for net-zero carbon emissions by 2050—a goal other nations also share.
It doesn’t take a crystal ball to imagine more solar panels or wind turbines in our future. We believe there are opportunities that merit a place on our Buy List or at least deserve a closer look in the coming years. It makes sense to find positions that will help us invest in materials needed in the near future.
For instance, we keep our eye on various raw materials: we won’t be building any Jetsons-style Skypad Apartments without them, right? We are also closely tracking the potential of electric vehicles. No personal jetpacks yet, but EVs are an innovation worth our attention.
We don’t need our world to be hyper-futuristic to enjoy the benefits of technology, energy, or transportation. And we’d like this lovely planet to still be here for our children and grandchildren and the generations beyond.
So where are the opportunities between where we live now and the Jetson home in Orbit City? We can strive to invest in the world we’d like to see.
Clients, call or email if you would like to chat about this or anything else.
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Investment research is an ongoing process here at 228 Main. Real-world developments are always intersecting with the changing prices of shares; the mosaic looks a little different each day. In our weekly meetings, we review news about companies we own, trade our insights, and talk about emerging bargains or trends.
We think about what we own—and why.
We sometimes find bargains in a particular industry or sector. Other times we study trends and try to sort out who will benefit in the years and decades ahead. Looking over the whole Buy List, patterns emerge.
The single biggest theme often surfaces as a result of our search for quality companies at fair prices. Dominant, sector-leading firms—the blue chips—run the gamut from big green farm machines and home improvement chains to the largest retail health company and the biggest player in a highly fragmented industry (a consolidation play). This is where you’ll find Warren Buffett’s company, too.
Emerging growth companies may benefit from increasing connectivity, innovation, and automation. Paired with the large technology companies who make the devices, systems, software, and chips we depend on every day, we have solid exposure to what seem to be likely growth areas in our economy.
Natural resources have been a focus for years, and we continue to refine our thinking as the energy revolution unfolds. Copper and other industrial metals may have favorable supply-and-demand outlooks for years and decades to come. The fossil fuel industry persists, even as alternative energy becomes an increasing fraction of our total energy needs.
The evolution of the automobile continues to intrigue us. We have exposure to this theme via big tech companies and copper producers, but also via ownership of automakers old and new, plus a supplier of sophisticated components that support the evolution of mobility.
International diversification in Europe and India makes sense to us, and a few plain old bargains (in our opinion) round out our list. Among the shifting landscape in Europe and one of the world’s largest populations in India, we recognize some opportunities for exposure.
Clients, we share a long time horizon; we stay focused on major trends. This approach provides some continuity in our thinking across the years, even while we work hard to understand the day-to-day factors affecting our holdings. It’s a thrilling challenge, and we’re always happy to share our thinking with you!
Please call or email us when you want to discuss how this relates to your plans and planning.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing includes risks, including fluctuating prices and loss of principal.
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In our portfolio management, we try to pick and choose our spots. We’re investing for the long term, after all. We are not indexers; we invest in individual companies for their unique characteristics and the potential behind their story. We avoid knee-jerk reactions to any day-to-day news.
Sometimes, though, the daily news covers an issue that’s big enough to linger. Much of the news cycle lately has been dedicated to the war in Ukraine. The implications for the global economy are profound and have a direct impact on our work.
The war may be accelerating trends that were already there, but now they are more pressing.
OIL, ENERGY, FOOD, & BEYOND
Maybe you’ve noticed at the gas station, but one of the big impacts is the price of oil. In the short term, we foresee great profits for oil companies, but skyrocketing oil prices and energy uncertainty have also renewed interest in the next energy revolution. Solar power and electric vehicles have been on their way for a long time, but the world needs them more urgently than ever before.
These issues are interconnected with trends in agriculture. Ukraine and Russia are not only both food producers: they’re even bigger producers of fertilizers, supplies, and equipment. Agricultural commodities were already on the rise before war broke out, so food producers around the world were already investing heavily in new planting. The journey ahead will be interesting for even “boring” food production and distribution companies, but greater profits may be rapidly approaching.
THE IMPACT OF INTEREST RATES
Those rising prices have energized more interest in durable commodities such as copper and gold, which we’ve been following in our shop for a long time.
But the double whammy of rising interest rates and rising materials costs has a cooling effect on the housing industry, which we have been easing out of by steps. The shortage in the nation’s housing supply persists—and probably will for a spell. For now, homebuilders are a longer-term, lower-priority investment for us.
WHAT THE PANDEMIC MEANS FOR TECH
In times of strife, investors tend to seek comfort and safety, so more volatile sectors such as technology are starting to come back down to earth. We believe this may create buying opportunities in software and internet companies, which are less vulnerable to high interest rates and commodity prices. (They are often light on debt and low on material costs.)
Even as COVID-19 continues across the globe, some areas of life have become more manageable. The air is clearing a little for airlines and travel stocks, although we are more interested in another area of potential: biotech and pharmaceutical companies. While pharmacy stocks may be easing as the pandemic rally subsides, we are looking forward to new breakthroughs in the years ahead. The advances made in the pandemic, we believe, will prove to offer even more applications elsewhere in the future.
TAKING STOCK
The world is a complex place. As always, our thinking evolves on a weekly basis through our research process. Our vision, however, stays trained on these longer-term trends—and what they mean for our longer-term plans and planning.
Clients, want to know what this means for your portfolio? Please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Stock investing includes risks, including fluctuating prices and loss of principal.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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For years we’ve had the theory that the next energy revolution would come from the declining costs of solar energy and battery storage.
According to research by Bloomberg, the most cost-effective way to provide new electricity generation for two-thirds of the Earth’s people right now is either solar or wind. The pattern is clear: green energy is winning.
Green energy costs continue to drop. Battery storage is 50% cheaper than it was two years ago. Wind projects are benefitting from larger scale. Solar photovoltaics continue to improve efficiency as time goes on.
These studies are based on actual costs of utility-scale projects. Compelling economics are the key factor—not a shift in consumer behavior. It remains to be seen whether dispersed generation and storage in user-owned systems reshapes the utility industry in the future.
Battery technology improvement has an impact on the price of electric vehicles, since batteries can represent about 30% of the total vehicle cost. Despite advantages in maintenance and fuel expense, acquisition cost remains a hurdle to wider adoption of electric cars and trucks.
But current trends point to a future in which electric vehicles cost less than those powered by internal combustion engines.
We think about winners and losers as the future unfolds. Companies that produce and transport fossil fuels for electricity generation may face a dimmer future. Those that provide the materials needed for the new equipment may prosper. Less expensive electricity will have effects we cannot predict, just as past energy revolutions reshaped society.
We will continue to research and think about these issues. Clients, if you would like to talk about this or share your views, please email us or call.
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We believe potential investment gains live in the gap between the unfolding reality and consensus expectations. Often, this means finding undervalued companies in unpopular industries. The theory is, if the future turns out better than expected, values may rise. No guarantees, of course.
We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic.
Although we look at individual companies, we often find themes in our list. Our current Buy List has certain points of emphasis.
Natural resources continue to attract us. Producers of copper may do well in the years and decades ahead, as solar and wind power and batteries combine in a new energy revolution. These things require copper for their manufacture. Companies that mine precious metals may do well in an environment of political and economic uncertainty.
Shares in biotech companies do not seem to reflect the potential for continuing dramatic strides in treatment and cure of disease. They sell at a discount to the market multiple; some offer dividend income.
The price of airline stocks have slipped, over fears of recession. We believe the current share prices more than adequately discount that possibility. And recessions are followed by recoveries (at least, they always have been).
Owning the largest company in a highly fragmented industry has sometimes been a good recipe for investors in the past. As industries consolidate, the bigger players often get bigger by acquisition of smaller companies. This may give them a growth rate in excess of the overall economy. We see opportunities in this concept.
We continue to be struck by the performance gap between international equity markets and the US, going back a decade. Overseas diversification makes increasing sense to us.
Our list includes other things as well, but each of these themes is well represented. We believe picking our spots, and paying attention to the fine points, is the right approach.
Clients, if you would like to talk about this or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
Back in 2017, we wrote about two trends that would interact to change the world. Declining costs of solar power generation, combined with declining costs of battery storage, would herald an energy revolution.
In a recent article, Bloomberg News suggests that solar and wind energy is more economical to build than coal or gas plants in two thirds of the world. Five years ago, this wasn’t the case anywhere.
New sources of energy have heralded remarkable periods of growth and prosperity in the past. Water and steam brought us into the modern era more than two centuries ago. Coal and petroleum pushed development beyond what anyone could have predicted, before their use became widespread.
The next energy revolution, solar and wind plus battery storage, will bring massive new opportunities – and threats to older technologies. We are thinking about ramifications for investors.
1. The demand for copper may rise, against a constrained supply.
2. Underdeveloped areas of the world may develop faster, since solar can be deployed on much smaller scales than big central generating plants using fossil fuels.
3. Cheaper electricity may encourage new uses, not yet dreamed of.
4. Incumbent electric utilities may find themselves with stranded assets in the form of obsolete plants and equipment.
No guarantees on any part of the future, of course. But it does seem to be unfolding as we expected a couple years ago.
Clients, if you would like to talk about this or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Our work involves looking at trends and striving to figure out if there is a way to make appropriate investments that may have a good chance to work out well. More than two years ago, we put together a pair of trends and made a forecast. It’s time to check in and see how the forecast is working out.
The cost of electricity from solar sources was said to be declining 10% per year, while the cost of electricity storage by battery was also declining. We felt then that this would lead to a revolution in energy production.
Installed solar generating capacity in the US grew 19% last year. The Solar Energy Industries Association projects that capacity will double in the next five years. In terms of new generating capacity by source, solar has ranked first or second each year for the past six years.1
Groundbreaking projects are going up around the world, too. The World Economic Forum reports that Abu Dhabi switched on the world’s largest virtual battery plant, able to store 648 megawatt hours. That’s enough to keep the city supplied for up to six hours in the event of a generating outage. This is feasible because the price of lithium-ion battery storage has dropped by more than 75% since 2012.2
As this combination of solar power generation plus battery storage commands a bigger share of global energy production, it seems to us that a lot of copper will be used. At the recent Global Copper Conference, a keynote speaker talked of record demand in the years ahead.
With prices on some mining companies that produce copper off by 75% or more from peaks of a few years ago, we see opportunity. This idea has not made large piles of money for anyone over the past few years, but the trend looks favorable. We believe we know how this turns out, so we are sticking with our convictions.
Clients, if you would like to talk about this or anything else, please email us or call.
1. Solar Energy Industries Association, U.S. Solar Market Insight. https://www.seia.org/us-solar-market-insight. Accessed May 7th, 2019.
2. World Economic Forum, “The Cost of Generating Renewable Energy Has Fallen – A Lot.” https://www.weforum.org/agenda/2019/05/this-is-how-much-renewable-energy-prices-have-fallen/. Accessed May 7th, 2019.
The gap between consensus expectations and reality as it unfolds is where we think profit potential lives. This is why we put so much effort into studying trends, and the ramifications for investors.
One year ago, we wrote about four trends. The next energy revolution (solar + batteries), long range prospects for the world’s most populous democracy, the airline industry, and rising interest rates continue to play roles in our thoughts and portfolios.
Other ideas are also in play.
1. Thinking about the next few years, our highest conviction idea is inflation will exceed consensus expectations. Some of the ways we act on this belief may provide some counterweight to other portfolio holdings, since inflation hurts some industries while it helps others.
2. As the economic expansion lengthens toward record territory, the desire to extend our lifespan tends to be insensitive to the business cycle. Biopharmaceutical companies, working on cures for everything from Alzheimers to various forms of cancer, seem attractively priced.
3. The trend toward rising interest rates, noted last year, may have an effect on weaker and more leveraged companies. We are looking to avoid the second-order and third-order effects that higher rates may have on some borrowers.
4. US stocks have become popular relative to international equities, with dramatic outperformance over the past decade. At some point the trend changes, and better value usually wins out.
One of the difficult things about being contrarian–going against the crowd–is that we sometimes look silly. When everybody else is having more success in the short run while we search for bargains, it can be tough. But that is what we do. We’re excited about the continuing evolution of your holdings as the future unfolds.
We can offer no guarantees except that we will continue to put our best effort into the endeavor. Clients, if you have any questions or comments or insights to add, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The economic history of the past 2,000 years begins with little change for many centuries. Then, in the 17th century, things began to change—a lot.
Energy progressed from waterwheels and windmills to steam engines, electrification, and the fossil fuel economy. Each revolution brought lower prices, wider adoption, and increases in human productivity, incomes and wealth.
Energy powered the factory system, in which standardized parts enabled output to skyrocket compared to the age of one-at-a-time production by artisans making custom articles. One may have romantic notions about the age of the artisan, but far more people could afford shoes when they came out of a factory.
And that was just the beginning of the modern world, with its incredible increase in living standards and lifespans.
Country by country, the pattern is rising urbanization and the decline of subsistence agriculture as economies modernize. It happened first in Europe and America. China is well along this path. The effect on incomes and economic growth is nothing short of astonishing, as you can see on the chart.
As investors, we see what may be a compelling opportunity from two current trends coming together. The next energy revolution, built on solar technology and battery storage, will enable vast parts of the developing world to modernize more quickly. Just as some places skipped the copper-wire age of telephones and built cell towers, in the years ahead some areas will skip the age of fossil fuels for electricity as solar power gains the economies of scale.
The most populous democracy in the world, India, is at an early stage of the trend to urbanization and modernity. Two thirds of the people live in rural areas; many are still engaged in subsistence farming. With a culture that values literacy and education, India is poised for growth and progress. Some believe that India is where China was twenty or thirty years ago—before decades of rapid economic growth. Add the next energy revolution to the mix, and you can see that exciting times may lie ahead.
The economy of India already includes some global companies, and many more publicly owned companies producing goods for the local market and nearby neighbors. By our standards, it is investable: money can be effectively invested with a reasonable expectation of gains. The India exposures we are putting in place are traded on the New York Stock Exchange, and priced in US dollars.
Of course, the future is uncertain, and there are no guarantees. As with all long-term investments, prices may be volatile. Clients, if you would like to discuss how a small India allocation might affect your portfolio, please call us or send email.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk, including possible loss of principal.
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