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• 5 alternative-energy stock picks, 5/5/2006
• 3 stocks to ride ethanol's rise, 5/3/2006
• The oil world's new bullies, 5/2/2006
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My 4-point plan to cut U.S. energy use
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The goal is twofold:
- To speed up the replacement of old gas and electricity guzzlers with new energy-efficient versions. Right now, the rate at which cars and light trucks are going to the junkyard is at historic lows: The average age of the U.S. fleet hit nine years in 2005, as only 4.3% of all cars and light trucks were scrapped. That's the lowest level since 1949. The longer a car is on the road, the more gas (on average) it uses due to a decline in engine efficiency that results from normal wear and tear. Among appliances, refrigerators have shown the highest efficiency gain per dollar of price over the last 20 years. A new refrigerator saves $82 in electricity annually when compared to a 20-year-old model.
- By constantly ratcheting up the energy-efficiency standard, the government could encourage the production of more energy-efficient cars and appliances without all the regulatory bother of the current fleet mileage standards. If you didn't want to participate in the lottery, you could continue to buy whatever you wanted. If you wanted a chance to win a free car, you'd have to agree to put up with one that burned less fuel. (If the government wanted to get really ambitious, it could limit the choice of prizes in the lottery to those with a certain percentage of U.S. content. That would save energy and increase U.S. manufacturing jobs.)
Use the remaining gas-tax revenue to shore up Social Security
The idea is to reduce gasoline demand, not to give the federal government a huge new source of tax revenue to spend.
My suggestion: Sequester the tax money -- I mean, really sequester it -- by using the 75% that remains after my energy-efficiency lottery to fund private retirement accounts that would supplement Social Security. Don't put the money into a government trust fund that's just an accounting fiction. Require that the money be put it in designated private accounts controlled by their individual owners with default investing in indexes and no withdrawals until retirement.
Okay, your turn. Let's see those plans for increasing energy supply in the United States. You'll find my e-mail address at the end of this column. Please note that by sending me an e-mail on this topic, you are giving me permission to use it in a future column with your name attached. (I will not include your e-mail addresses with any response in my column, however.)
New developments on past columns
5 alternative-energy stock picks: I added Alstom (AOMFF, news, msgs) to Jubak's Picks on Jan. 24, 2006, as a restructuring play driven by the resurgence of coal as a fuel for electric utilities. Alstom, which required a bailout from the French government in 2004, is a classic old technology company -- with a twist. The company's core old technology business -- steam turbines and utility boilers -- is on the comeback trail today thanks to the increasing use of coal, the cheapest alternative to oil and natural gas, for generating electricity, and to the huge growth in demand for electrical power in India and China. The twist comes from a recent deal with Bouygues (BOUYF, news, msgs), a company that can build power plants, which puts Alstom right in the middle of any worldwide revival of nuclear power produced by $75 a barrel oil. There are currently plans to build anywhere from 60 to 130 nuclear power plants around the world. Turns out that if you can build a boiler that uses burning coal to generate steam to turn a turbine that produces electricity, you can certainly build a boiler that uses the heat from a nuclear reactor to generate steam to turn a turbine that produces electricity. Speculation is that the French government, which sold Bouygues its 21% stake in Alstom, may be brokering a business alliance that would create a French national nuclear power champion. Last year, Bouygues asked the French government about buying a stake in Areva (ARVCF, news, msgs), the government-owned company that owns Framatome, a builder of nuclear reactors. That would be a very interesting combination indeed. I'd say that Alstom is now fully valued on its old technology business but could enjoy a further run as speculation heats up that the company is in play or part of a French nuclear deal. As of May 9, 2006, I'm raising my June 2006 target to $108 a share. (Buying AOMFF will get foreign ordinary shares, exactly the same shares that trade on the Paris exchange. Be careful when you buy -- try a limit rather than a market order -- because the bid/asked spread can be high; it was almost $1 a share when I checked on Jan. 20. You may also have to pay an extra commission charge to buy the ordinary shares. An electronic brokerage firm I use regularly quoted me an extra $50 fee. When I calculate the gain or loss on this position when I sell, I will include that extra fee along with the usual commission charges.)
5 stocks playing catch-up with oil: I think shares of Noble (NE, news, msgs) are still undervalued. The company has one of the highest rates of return on capital among oil and gas drilling companies, but on a cash flow basis the stock still trades at a slight discount to its peers. On April 20, Noble reported earnings of $1.05 a share, 4 cents a share above the Wall Street consensus projection, and 218% above earnings for the first quarter of 2005. Revenue came in 3% over the Wall Street consensus. With day rates still on the rise for Noble's fleet of offshore rigs -- up 143% and 20% from the first quarter of 2005 for U.S. and international operations, respectively, and with Noble's rigs damaged in Hurricane Katrina back in service for 2006, I don't think revenue or earnings won't top until 2008. As of May 9, I'm raising my target price to $94 a share by December 2006. (Full disclosure: I own shares of Noble in my personal account.)
Bad for GM, bad for America: The General Motors (GM, news, msgs) story continues to move toward a denouncement. On May 9, a federal bankruptcy judge in New York heard arguments on Delphi's (DPHIQ, news, msgs) bid to cancel its labor contracts. That would clear the way for the company to break those contracts and unilaterally cut benefits and wages for its union workers to either $16.50 (with a subsidy from GM) or $12.50-an-hour from the current $28-an-hour. Permission from the bankruptcy judge and action by Delphi could well provoke a strike by the company's workers. That in turn could produce a shut down of production at GM, a major Delphi customer. A production shut down at GM might, in turn, scuttle the company's sale of 51% of its General Motors Acceptance Corp. financial arm to outside investors for cash that GM badly needs. The judge's ruling is not expected for at least 30 days. Just how badly General Motors needs that cash was emphasized last week when Moody's, one of three agencies that rate corporate bonds, placed General Motor's credit rating on review for a possible downgrade. Moody's started the review after GM admitted that it might have to put up assets as security to keep its $5.6 billion bank loan line. Any assets pledged to banks wouldn't be available to other creditors. Moody's, however, did say that it would probably limit any downgrade to one grade. That would leave GM with a bond rating two notches above the level that would cancel the GMAC sale.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares of the following equities mentioned in this column: Noble. He does not own short positions in any stock mentioned in this column.
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