A revolving of generations opens the door for new investment themes

I emailed the council on the weekend.

I really never thought I would be that guy.

But here’s what happened…

The road outside my living room (now office) is being dug up for the sixth time this year, and when the drilling started up again last week I just had to drop them a line.

It’s like that old Flanders and Swann song, The Gas Man Cometh.

Each team comes, fixes their bit and ruins another, creating some work for a different team to come and deal with. And on it goes…

First, they re-laid the pavement, but shoddily.

Then they came back and did the pavement properly, inexplicably widening it too.

Then they re-laid the road.

Then, because one of the former teams had jolted some cables, we had a 36-hour loss of power to the local area, with heaps of drilling involved in sorting it out.

Apparently, the new pavement made their work incredibly tough, because they’d used the thickest stone blocks.

With that all sorted, naturally, the pavement team had to come back in re-do the pavement.

And now, team number six is camped right outside my living room window, doubling the pavement extension.

Here I am, trying to write interesting and valuable articles just for you, and the bloody council is filling my living room with screeching and scratching!

So I will admit, I cracked, and dropped them a line. It was all ‘terribly sorry but’ and ‘don’t you just think’ and ‘please stop I beg of you stop, lord of all mercy stop the drilling’.

Anyway, I was really struggling today. Drill drill drill, swear shout laugh, drill drill drill…

I was struggling for ideas, for inspiration.

Then, I had my morning call with James Allen, whom you all know by now, I hope.

He runs our energy transition investing service, and Friday was quite an exciting day for us.

One stock in our portfolio, already leading the way in terms of returns, released some very promising news before markets opened.

It jumped, and such is the way of compounding of returns that what was a 700% return for subscribers became a 991.89% gain – in a single day. It needs to climb just three cents more today to break the four-figure barrier.

(I think that’s a ten bagger, although some say that a ten-bagger is when a stock rises 10 times, or 10x, which is actually a 900% gain. 1×10=10, which is 900% higher, because the 1 is the original 100%).

Anyway, irrelevant.

The interesting thing we discussed was the shifting structure of the markets after the vaccine announcements.

I have covered it in these pages, and he has dealt with it in regard to his own portfolio specifically.

Rotation, contagion, or continuation?

The premises and questions are these:

There is a heavy over-extension of valuations in US tech stocks, which is skewing the index returns of the Nasdaq and the S&P 500.

Value has underperformed growth for a long time, a trend which must change soon and, in my eyes at least, is in the process of doing so.

Questions: If/When the FAANG+ stocks crash, will contagion envelop all stocks, assets, and countries? I.e. does a tech bust like we saw in 2000 bring all markets down with it, or does a rotation occur, where value surges and growth crashes simultaneously?

And secondly, how does the energy transition fit into this?

James and I have both said for a long time that the energy transition is a once in a lifetime, multi-decade opportunity, and that a bunch of them going up rapidly right now by no means stops the first point from being true.

Bitcoin was much more volatile in its earlier days, but the use and size of the network has grown consistently each year, regardless of what was happening with the price.

They key question – in the short term – is whether it can survive a rotation in the value-growth trade, and we spoke this morning about how our portfolio has performed since the first vaccine news.

In that period, value stocks like Lloyds or Shell have jumped by 40% or so, while your Zooms and Facebooks have dipped slightly.

However, while many are keen to lump the energy transition in with the overstretched growth trade, the last few weeks have suggested something different.

Remember, there’s a long way to go to net zero (a commitment to which about two thirds of the global economy will be committed, once Joe Biden takes the oath), and fully three decades to 2050, by which time many of the legally binding targets we are currently setting will have to have been met.

And the coronavirus has injected a surge of enthusiasm and policy making the likes of which haven’t been seen before in the energy sector.

While clean tech has had an extraordinary couple of years of returns, let’s be very clear that for all of the companies we are looking at, they are at the very earliest part of a multi-decade journey.

Some are more developed and are generating healthy earnings and steady growth, others are coming on leaps and bounds as they announce their first ever contracts and partnerships.

But with electric cars at only around 2% of cars on the road, renewables only generating 10% of all global electricity and hydrogen in its merest infancy, there is so much left to run.

The thing is, having always maintained that these were long term plays, when the vaccine came and value stocks all surged while tech stumbled, I did find myself fretting a bit.

It was a bit of a moment of truth, if you will.

But while US tech, social media and the like have suffered in recent weeks as the value trade has overtaken them, our energy stocks have actually rebounded from what had previously been a gentle lull.

Along with the aforementioned ten-bagger, all across our portfolio we have seen an exceptional resurgence in recent weeks.

To use an example no longer in our portfolio, take a look at ITM Power…

James sold ITM for just under an 800% gain earlier this year, right at the peak of its run.

After consolidating and falling all the way back to 225p, it looked like it was breaking down.

But then the vaccine was announced, and ITM has broken out once more, surging to all-time highs today, for the first time since June.

Source: Yahoo Finance 

ITM is just one example of a clean tech stock which seems to have relished the vaccine news, and the thought of a return to normality.

Now these are very short-term trends, all within the realms of standard oscillations, and could be totally meaningless, or caused by other things. But it’s all we have to go on so far, and the early indications are certainly suggesting that energy transition investors may be right to believe that their growth stocks are among the more resilient.

Certainly on November’s evidence, at least.

Value has surged, but so have all things ‘green’, which points to our long-held belief being correct, that the rush into clean tech stocks is the beginning, not the end, of a major transition of wealth into the sector.

All the best,

Kit Winder
Editor, UK Uncensored.

In UKU, we don’t usually focus on trading strategies. Frankly, trading isn’t in my wheelhouse. I’m all about sensible investing and long-term plays. However, for those of my readers who are looking for a competitive advantage in the world of trading, we’re hosting a brand new event at Southbank Investment Research later this week. It’s called the “Power Hour”, and you can find out more about it here.

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