Investing in the post-guzzler era

From Times Staff Writer Edward Silver:

You know there’s an energy crisis when Ferrari pledges to redesign its supercars to get 40% more distance out of a tank of gas. Celebrated for bombastic 12-cylinder engines that assure its place in the annual fuel-hog rankings, the Italian icon is making lighter models that also are molded to reduce aerodynamic drag. It has even built a concept car that swigs 85% ethanol.

In the absence of viable substitutes for gasoline, the reality is that we have to use less of it. Environmental ethics aside, price is the great enforcer of efficiency, and we know what has happened to the price. If the oil squeeze becomes the "new normal," to borrow a phrase from Silicon Valley, companies that ease the passage from the car culture to the culture of conservation will be in a position to prosper.

What follows is a smattering of ideas investors may want to explore:

As the world leader in gas-electric hybrid vehicles, Toyota has garnered plenty of accolades along with market share in the last year. Its stock is down half as much as the S&P 500 this year, and far less than its peers. The market clearly sees Toyota as a survivor in the new era.

The biggest seller of car batteries, Johnson Controls, is providing lithium-ion power sources for a plug-in demonstration fleet in partnership with Ford, SoCal Edison and others. Johnson already is on many green investing lists, in part for technology that conserves energy in the home.

BorgWarner, another major auto-parts supplier, is ramping up its output of turbochargers and dual-clutch transmissions, which suppress conventional engines’ thirst for gasoline. Robust foreign sales propelled the company’s results past Wall Street estimates last quarter, despite a listless car market.

The flight from oil is the best thing that could happen to Fuel Systems Solutions. The Santa Ana firm outfits engines to run on natural gas and propane, clearly tapping a vibrant new market. In the most recent quarter, sales expanded 73% and earnings soared off a small base. The company, which struggled with accounting issues in recent years, already has become something of a market darling: The stock, at $32.86 on Wednesday, has rocketed from $14.29 at the end of last year.

As Ferrari knows, one way to conserve fuel is to take some of the heft out of your machine. That’s an opportunity for Canada’s Magna International, which is applying its expertise in hybrid materials to fashioning lightweight chassis and drivetrain parts.

Let’s not miss the move to do less driving or even throw away the car keys. Is that a trend Harley-Davidson can ride? This year, at least, it has been slowed by the downshifting economy, and has cut its internal forecasts for earnings and bike shipments.

If the fuel debacle sets off a surge in telecommuting, look for growth in tech service firms such as IBM and Cognizant Technology Solutions, which may be called on to help link home and office. Polycom is a leading player in videoconferencing, the next-best thing to getting on an airplane. And if the masses stay home rather than hit the road, they may spend more screen time with advertisers. That could show up in the bottom lines at Walt Disney, CBS and Google.

Finally, some consumers are voting with their feet for a mode of alternative transportation that burns no crude at all: Nike’s net jumped 32% last quarter to $464 million. The stock’s been on quite a run for about two years, and is up 5% this year in a struggling market.

Comments

[JJ]

Oil will stabilize and eventually drop as the dollar strengthens (and demand slips a little). Interest rates will rise gradually, increasing by another 3% by early 2009. Housing will continue to decline as loan costs rise from interest rate increases, bottoming in 2010 after another 25% average drop.
Inflation will then be curtailed by interest rate increases, fuel cost drop, and import price drops. Interest will then drop a little in 2010 as the markets become stable and the war in Iraq finally wains to an end. Print and save this.

[Ron Robins]

Until the problem of climate change abates, investing in ways to both combat and accommodate it will flourish. However, discerning what will be successful among them is another matter!

I've been following socially responsible investing (SRI) for around forty years and have seen enormous growth in this area recently. Green investing has always been a part of SRI. Unfortunately though, there has not been an independent website for individual investors that covers the global news and research on the subject. I decided to remedy that and so created a website for that purpose. It's at http://investingforthesoul.com/

Best wishes, Ron Robins
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