Update - July 25, 2023
How to Win in a Politicized Energy Sector
One of my favorite sci-fi movies is the 1984 adaptation of Frank Herbert’s Dune.
In the movie – and the book – a psychoactive drug called “the spice” plays a key role in shaping interstellar politics. It gives people superhuman abilities, and a lot of the story’s drama revolves around characters fighting for control over its production.
As one character from the film puts it, “He who controls the spice controls the universe.”
That sounds an awful lot like our global energy market.
From foreign cartels controlling oil supplies to domestic politicians trying to rapidly “decarbonize” our economy, energy production is plagued on all sides by politics. It’s not surprising, considering the importance of energy in our modern world.
Without access to it or control over its production, a country’s economy could quickly go backward. That’s why energy independence is so important… especially today.
We’re in the middle of a big energy transition, though it’s one being pushed by top-down policymaking more than free market forces. And it’s likely to create a huge transfer of wealth in the global economy.
On the one hand, OPEC is planning to continue its production cuts into next year. That’ll cause global demand to rise faster than supply, which will keep oil prices moving upward.
On the other hand, the Biden administration is committing billions of taxpayer dollars toward building new renewable energy infrastructure and decarbonizing existing infrastructure.
According to the U.S. Energy Information Administration, solar power consumption will increase by more than 20% this year and by 30% in 2024. And to meet the demand, the solar industry is expected to grow production capacity by almost 40% this year and over 30% next year.
Geopolitics have forced the market’s hand on this energy transition… whether we’re ready for it or not. Luckily, our portfolio is already set up to take full advantage of it.
Quanta Services (PWR) is playing a vital role in building and modernizing power and telecommunications infrastructure in the U.S. and Canada, and it has growing operations in Australia. It is in a prime position to benefit from the energy transition.
Much of its business serves traditional electric power utilities. Its skilled workforce helps install and maintain power lines, substations and distribution systems for customers that are increasingly outsourcing their needs to companies like Quanta.
But the company is also growing its customer base with renewable energy developers. About 22% of revenue last year came from renewable energy projects, and that’s expected to increase to about 25% by the end of this year.
But here’s the kicker…
Quanta is smartly benefiting from the energy transition by diversifying into several resources. It is involved in various energy sources, from traditional to renewable.
So no matter which energy policies are pushed in Washington or which industry gets the government’s favor, Quanta is positioned to succeed. And so are its shareholders.
In fact, when Andy first recommended Quanta, he said he believed it was “likely to surge by 50% or more in the coming months… no matter what happens to the broader economy.”
He nailed it. Our shares are up 47% since we got in last August. And so far this year, Quanta’s up more than any of our other open positions.
It proves that Quanta truly is a “win-no-matter-what” play, and it will likely continue to do well as the energy transition moves forward.
