In today’s Money Morning…the horse that will likely win the race in 2021…the time to back the right stocks is now…target stocks with clean energy ‘spin-off’ potential…and more…
Merry Christmas, reader.
What a fantastic year it’s been!
For clean energy-related investments.
All that other stuff?
Pfft. Forget about it. Water under the bridge.
I’m not even going to mention the C-word.
It’s time to look ahead, to greener pastures.
In fact, before we wrap up for Christmas, I want to focus on some key areas I believe could substantially beat the wider market in 2021.
They are all related to the unstoppable global move towards a lower-emissions future that the world has embraced post-COVID. (Sorry, mentioned the C-word.)
They are extensions of the remarkable developments — and stock gains — that have taken place in 2020.
Second-order effects, if you will.
Investors have been pouring money into green stocks and green funds since the Joe Biden win.
Shares in solar and wind energy businesses, EV and battery companies, and other clean energy pioneers have had an unbelievable year.
Investors and governments worldwide are positioning themselves for the next great energy phase change. The last one happened over a hundred years ago, so these don’t come along often!
I sincerely can’t believe how quick this is moving.
‘The UK, for instance,’ reports Hellenic Shipping News, ‘announced this week that it would ban the sale of new petrol and diesel cars and vans from 2030 to cut carbon emissions.’
‘Data from research firm Morningstar shows that investors ploughed 1.9 billion euros ($2.3 billion) into European renewable energy investment funds in the July-September period, 11 times the amount for the same months last year.
‘In contrast, European conventional energy funds tracked by Morningstar achieved third-quarter inflows of less than 115 million euros.’
If you’re looking to back the right horses, I’m convinced you should be building a speculative portfolio of stocks in these key areas.
You should be thinking about WHAT HAPPENS NEXT.
And you should be thinking about this now…over the Christmas break. I stress again: I’ve never seen a trend move at this velocity. You don’t want to be playing catch up three months from now.
Tonight, members of the fossil fuel industry are gathering glumly around their Christmas trees…wondering how they’ll explain to the kids in the morning why all Santa got them was a piece of coal.
The glummest of the lot will be the folks at BP. Earlier this year the company flabbergasted the world, admitting that its one and only product could account for less than 20% market share by 2050.
It was the most stunning admission of defeat by a mega-corporation in the history of mega-corporations.
Key participants in the renewables industry, however…tonight they’ll be popping champagne. Teslas under the tree for all!
2021 will not be like 2020, though.
When a megatrend is in the exponential growth phase, things move fast.
Many forward-thinking (and lucky, who could have predicted COVID-19?) investors now have Christmas stockings full of clean energy gains.
But those gains won’t necessarily come from the same places next year.
So, what areas should you be focusing on right now?
The horse that will likely win the race in 2021…
Green hydrogen should be a prime focus.
Yes, it’s getting a lot of mainstream media attention this month. And usually we try and think one or two steps ahead of the mob.
But in this case, it’s definitely going to be the star horse in this race.
You just have to figure out the best ways to play it.
Smart money is going to continue to move into this clean energy source that could play a massive part in the move to net-zero emissions in the decades to come.
The concept has been around for a while now.
As ABC News writes:
‘It was initially touted in the U.S. during President George W. Bush’s first term, when it was nicknamed the “freedom fuel.”
‘Now, President-elect Joe Biden is promising that the U.S. will be able to access green hydrogen at the same cost as conventional hydrogen within a decade as part of his clean energy plan. Several countries around the world already invest heavily into it, including Chile, Japan, Saudi Arabia, Germany and Australia.’
Queensland just established a new ‘Ministry of Hydrogen’.
Germany just diverted massive stimulus funds to it.
The European Commission just called it ‘the missing part of the puzzle to a fully decarbonized economy’.
Utilities, oil majors, and chemical manufacturers are all scrambling in the green hydrogen race, with global production of the zero-carbon fuel set to double between now and 2030.
This is a prime example of my second-order effect thesis.
Wind and solar can power homes and businesses. And batteries can power cars. These are the first-order effects you’re seeing materialise in stock prices right now.
Heavy-duty, harder-to-electrify sectors like manufacturing, shipping, and aviation are tougher nuts to crack. Green hydrogen is being touted as a solution here.
And, at the time of writing, money is mobilising.
This is a recipe for exponential change.
The time to back the right stocks is now
Because it’s still such early days.
There are drawbacks, hurdles, and big problems that still need to be solved if this source lives up to its billing.
ABC news continues:
‘The disadvantages of green hydrogen may be equal to its advantages, Bloomberg New Energy Finance analyst Michael Liebreich wrote in an essay published in October.
‘Bloomberg NEF estimates that an $11 trillion investment in production and storage worldwide through 2050 and more electricity than the world generates now to have green hydrogen meet a quarter of the world’s energy needs. In addition, it carries one quarter the amount of energy per unit compared to natural gas, can embrittle metal and is highly combustible, Liebreich wrote.
‘In addition, the current investment and production are not forecast to keep up with demand. Current projects are only expected to generate 3 million tons a year, compared to a global target of 8.7 million tons per year, a report published in August by the Institute for Energy Economics and Financial Analysis found.’
The small companies that help solve these problems are the ones that will make you the most potential gains.
If I were you, I’d devote some spare time on the beach these holidays to doing some digging on who these companies might be.
It’s the Wild West of this new trend.
That’s where true fortunes can be made, but also lost.
As Bloomberg put it recently:
‘Some of today’s investments in hydrogen will flop, others will pay off spectacularly…’
Our bet is that our two plays will fall into the ‘spectacular’ category.
Target stocks with clean energy ‘spin-off’ potential
On 24 November we recommended Exponential Stock Investor subscribers take an early Christmas present: banking half profits on two clean energy second-order effect plays.
This was NOT a reflection on the prospects of either of these stocks in 2021. Far from it. We think both have amazing things in store in the year ahead.
We still love them.
It was more of a matter of slotting away some of the spoils. And making it easier to hold onto them next year if things do get volatile in the short term.
The first was a company called Talga Resources.
A graphene play.
The chart had gone parabolic in recent months and their prospects had never looked brighter.
There’s no doubt that the new energy industries have put a renewed spotlight on graphene as a crucial piece of future technology.
But we noted that Talga had recently appointed big-name financier Morgan Stanley as advisors, which means there could be a capital raising coming soon. And that could put pressure on the share price in the short term.
Our advice was to bank an approximate 187% gain on half your holdings today.
We still think this is a ripper of a stock to hold for the years ahead, so if you have a good tolerance for risk, then you might want to check them out. (That’s not an official recommendation, up to you. Keep in mind these stocks are ultra-risky. And this stock has already had a killer year.)
The second was a stock called Strategic Elements.
Wow. That’s been an absolute stormer.
A pure second-order effect play if ever there was one.
This is an area we’re keenly looking at right now and looking to add to with new stock picks.
What’s more, Strategic Elements has its tech-savvy fingers in several different pies, from robotics to AI. There’s no doubt it’s chock-full of potential.
But the cold reality is that receipts from customers in the previous quarter was just $100,000. And while this is not the kind of company you buy into on such fundamental figures (yet!), it is the kind of thing that becomes more apparent if and when the speculative frenzy stops.
Our advice to subscribers was you lock in a juicy 125% profit on half your holdings here, if you hadn’t already.
Both of these were examples of the second-order effect phenomenon.
A phenomenon we expect to go EXPONENTIAL in 2021
A reminder of what that is:
Every action has a consequence. And every consequence has another consequence.
Those latter consequences are called second-order effects.
Every change you make to a system has second-order effects.
The internet, for instance, was designed as a back-up network for the US military in the event of an attack.
Its second-order effect was to open up a free information superhighway that changed the world.
Cars, too, were a great system change. The first-order effect was getting people from A to B faster.
One second-order effect was the emergence of suburbs and city sprawl. Another was a proliferation in carbon. (One of the main drivers of the green boom we’re seeing all around us right now.)
As a result, you are witnessing another monumental system change — away from fossil fuels.
An $11 trillion tsunami is about to pour into clean energy.
Pick the second-order effects of this — and the stocks poised to exploit them — and the potential profits are huge.
So, what second-order effects do we think you should be targeting?
After Christmas we’re going to focus on three.
Have a great Christmas.
For Money Morning
Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.