Energy: A Market of Opportunity

Amidst instability in the Middle East and conditions of general political uncertainty throughout the world, the price of oil seems to be back on the rise after suffering crushing downfalls in early 2015. According to the Wall Street Journal, Saudi Arabia, Kuwait, and Iraq have issued a joint public statement claiming they are mutually committed to seeing the price of oil rise to $60/barrel over the next few months.

With that said, the oil market has become much more diverse in the past decade, especially with the rise of American oil production, and it is important to consider that a number of other factors will dictate the future of oil prices in the short and medium term. A potential slow down of the Chinese economy is one such factor that would negatively affect oil prices, but this seems unlikely in the short run especially due to the fact that Trump and President Xi seem to be getting along quite well despite Trump’s less-than-flattering campaign rhetoric towards the Chinese.

A rise in oil prices in the short and medium term has several implications on global markets and general consumer trends.

With expensive oil translating to expensive gasoline, people will be motivated once again to take advantage of cheaper, and more environmentally friendly energy sources. According to Time magazine, when the price of oil fell in 2015, it translated to lower global Prius sales as gasoline became cheaper. As the price of oil rises back up, one can only suspect that this trend will reverse and consumers will be motivated to adjust their consumption habits towards more efficient options.

So where are the opportunities to capitalize on such a trend reversal? Who is poised to take advantage of consumers’ restored interest in efficient vehicles and other more environmentally friendly products?

The first obvious choice is Elon Musk’s Tesla Motors. With the Model 3 set to come out this summer, Tesla is taking an aggressive stance in the affordable electric vehicle market and the almost 500,000 pre-orders that the company has received since announcing the vehicle suggests that it’s going to pay off it big ways. Keep your eye out for a more detailed analysis of whether or not Tesla is a good investment opportunity, which will be discussed in the upcoming Dynalect Market Report focused on understanding emerging battery technology.

Another good candidate is Ford Motors. With an impressive line of hybrid and electric vehicles, Ford is one of the leading domestic producers of environmentally friendly cards. And at a stock price of just over $11/share, Ford is considered to be terribly undervalued by many prominent investors. Andrew Barry at the Wall Street Journal cites an extremely low enterprise multiple of 2.8, and one of the lowest P/E ratios in the automobile industry as good indications of Ford’s growth potential over the next few years.

In summary, high oil prices moving through the next decade are certainly going to help encourage global populations to make the shift towards more environmentally friendly practices, such as driving more efficient cars. As this transition takes place, there will be huge growth opportunities for companies that have positioned themselves in environmentally conscious markets. The team here at Dynalect is committed to identifying these growth opportunities as they arise, and will keep you updated every week! Until next time…

Kristian Gaylord

 

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