We’re talking about investment themes for building consistent wealth this week.
We covered Bitcoin and gold last Thursday. And we discussed world-class insurance stocks yesterday. Today we have to talk about the master economic resource – energy.
Simply put, nothing happens without energy. Everything we see in our modern world today – and everything we use on a daily basis – is only possible because of energy.
It’s a simple thing. But if we truly ponder it, it changes our perspective.
My investment philosophy is this: I want to own energy in the most advantageous way I can. If we start there, all we need to do is figure out what form that energy should take.
Top-Tier Energy Stocks
The Environmental, Social, and Governance (ESG) movement would have us believe that we should own energy in the form of solar and windmills.
They told us that we’re rapidly moving towards a “carbon-neutral”, “net-zero emission” world. And in that world, we would reduce our dependance on fossil fuels—namely oil, natural gas, and coal.
Countless “clean energy” exchange traded funds (ETFs) popped up support this theme. ESG investing became a hot trend. And Larry Fink, CEO of investment management giant BlackRock, paraded around in media appearances proclaiming the gospel of ESG.
But then reality set in.
When it comes to energy production, energy density is everything. Energy density measures the amount of energy stored in a given fuel source per unit volume or mass.
Uranium (for nuclear power), oil, natural gas, and coal are incredibly dense fuel sources. I listed them in order of most dense to least dense.
When it comes to solar and wind power – we can’t measure their energy density. Because they aren’t fuels. Their power output depends on whether the sun is shining and the wind is blowing.
That means their power production is intermittent. It’s not constant. And even at peak production solar and wind produce far less power than our traditional fuel sources.
So it’s no surprise what happened when countries transitioned a portion of their power production to solar and wind. Energy production plummeted… which caused electricity prices to skyrocket.
In Germany, electricity costs hit an all-time high in August 2022. At the peak, power costs had risen by a factor of 10.
And it wasn’t just Germany. Denmark, Spain, Australia, California, and the United Kingdom (UK) each saw their power costs rise as a result of the ESG push.
The evidence is in.
We just can’t run our economy on solar and wind power. And people don’t like it when their power bill blows through the roof. That’s why we’re finally seeing a backlash against ESG.
The Energy Renaissance Has Begun
Last summer Larry Fink had to go on television and walk back his position. He said he was ashamed of being part of the ESG conversation. And that he didn’t want to use the term anymore.
At the same time, JP Morgan CEO Jamie Dimon began calling for greater investment in oil & gas. And we started to see a renewed focus on nuclear power as well.
If we’re serious about owning energy in the most advantageous way possible, that was our signal.
The end of ESG marked the beginning of an energy renaissance in the western world. And it’s going to be big.
We shifted an incredible amount of investment towards solar and wind in recent years. That curtailed the production and thus supply of traditional energy sources.
And that’s not an exaggeration.
According to Bloomberg, nearly $2.2 trillion poured into the development of intermittent energy from 2016 to 2023. Solar and wind power received the bulk of that investment.
A large portion of those investment dollars will flood back into traditional energy development in the years ahead. That’s the renaissance.
We can participate in it by building exposure to both the oil & gas industry as well as uranium for nuclear power production. And eventually we’ll have the opportunity to invest in companies developing nuclear fusion technology as well. But that’s still a few years into the future.
And then there’s the X-factor…
Sadly, it appears that we are on the brink of another world war. Certain factions have been trying to expand the regional proxy war in Ukraine for years. And now Israel is stirring up a larger war in the Levant.
Next-generation warfare isn’t limited to bullets and bombs. It’s probably more economic than anything else.
If we do see an escalation of war, I think we could also expect to see a rash of cyber-attacks on critical infrastructure paired with various trade embargoes. These events would disrupt the energy markets and almost certainly drive prices higher.
So there are several reasons why top-tier energy stocks stand to do quite well in years ahead.
For a deeper dive into which segments and companies within the energy sector will perform best, see our investment membership The Phoenician League. We’ve made professional research reports available with specific recommendations.
You can find the membership portal at: https://membership.phoenicianleague.com/
-Joe Withrow
P.S. Tomorrow we’ll look at how gold royalty stocks fit within an all-weather investment portfolio.