Rays of Hope

In this issue:

Consider the differences between oil extraction and solar energy production. With oil, costly new technologies have been developed to pump it from increasingly remote reservoirs, be they shale levels thousands of feet below the surface of the earth or deepwater wells at the bottom of the oceans.

When we talk about the cost of shale drilling going down it’s never to levels competitive with the legacy vertical wells in the Middle East, for example. Peak oil enthusiasts were right about one thing: no matter how much the technology improves the cheapest and most accessible oil is already gone, lifted and burned long ago.

Meanwhile, sunshine continues to stream down from above, as plentiful as ever. Although some of the sunniest places on earth already host vast utility-scale solar arrays, we’re not in danger of running out of similarly sunny real estate any time soon.

The main limitation of photovoltaic cells is their inefficiency at converting sunshine into usable energy. But that’s a function of thin-film semiconductor manufacturing techniques that are improving all the time, at rates that must leave the developers of new fracking cocktails green with envy.

In this issue we’re recommending two solar energy plays worth accumulating even in a market as mean as this one. They’re benefiting not only from rapidly falling costs but also from generous federal tax incentives and ambitious state mandates to increase renewable energy’s market share.

As for the largest oil producers, they remain on the defensive and continue to slash investment while continuing to borrow in order to pay dividends set in much better times. We don’t think these stocks have hit their lows yet.


Portfolio Update

  • TerraForm Power (NASDAQ: TERP) added to Aggressive Portfolio. Buy below $10.
  • First Solar (NASDAQ: FSLR) upgraded to Buy in Growth Portfolio. Buy below $65.     


Commodity Update

Oil prices continue to be extremely volatile. West Texas Intermediate (WTI) dropped $2.11/bbl to $29.44/bbl — but that marked a gain of more than 12% since our last issue. Brent crude lost $0.96/bbl to $33.36/bbl, but as with WTI posted a double-digit gain over the last two weeks. Now that the front month contract has rolled over to March, natural gas is finally seeing an impact from very high storage levels near the end of winter. Since our previous issue the Henry Hub benchmark has dropped 18 cents to $1.97/MMBtu.  


In Other News

  • The Supreme Court temporarily blocked the Obama Administration’s plan to limit greenhouse gas emissions from power plants while the rule is challenged in court
  • Shares of Chesapeake Energy (NYSE: CHK) fell more than 50% following a report that it hired restructuring attorneys to help manage a $9.8 billion debt; the company denied it plans to file for bankruptcy
  • Shares of Linn Energy (NASDAQ: LINE) have dropped 70% since the partnership announced that it was considering several strategic options, including bankruptcy
  • The International Energy Agency (IEA) increased its estimate of the current oversupply in the oil market after Saudi Arabia, Iran and Iraq all increased output
  • President Obama will propose more than $300 billion of investments in mass transit, high-speed rail, self-driving cars, and other transportation projects to be paid for by a $10 surcharge on every barrel of oil. The budget proposal is widely seen as having no chance to be approved in Congress.


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