Utilities and regulators in many states have reached a consensus that coal is yesterday’s fuel. Operators will keep these power plants running as long as they remain economic, but NextEra Energy’s decision to close the St. John’s River facility suggests that their time may be short.
Global growth trades will prove to be the winners in this last phase of the bull market. But success with them will require accuracy and agility. Outperformance will favor strong stock pickers, as investment correlations that favored passive investment strategies break down while the bull market nears its end. Emerging markets should continue to outperform for the rest of the year.
An in-depth rundown of our outlook for oil prices appears in Value Play Earns Higher Buy Target from the most recent issue of Capitalist Times Premium. For those who don't subscribe, here is a breakdown from the summer that appeared in our sister publication Energy & Income Advisor.
The Trump administration has clearly gone all-in on turning the supposed war on coal into a war for coal, but the outcome will depend on electric utilities and power companies. We'll focus on the risks and opportunities associated with government intervention when we attend the Edison Electric Institute's financial conference in November.
Narrowing market leadership since April made us wonder whether the market could be due for a pullback. While a relatively small number of stocks powered the index to new highs, many small- and mid-capitalization names lagged over this period. As recently as mid-August, for example, fewer than 50 percent of the names listed on the NYSE traded above their 200-day moving average. Today, almost two-thirds of NYSE-listed stocks are in an uptrend, the highest proportion since April.
Nevertheless, our outlook has called for natural gas to remain volatile but range-bound, as spikes toward $3 per million British thermal units (mmBtu) will sow the seeds of their destruction by incentivizing production growth and prompt electric utilities to switch from gas to coal. Conversely, moves below $2 per mmBtu will encourage demand and prompt exploration and production companies to slow their drilling and completion activity.
Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover.
With the market bull running since 2009, investors should start adding gold to their portfolios. Keep in mind that gold gains in value during times of geopolitical uncertainty, when investors worry about monetary issues or when the stock market experiences a sharp selloff.
Third-quarter earnings season is in full swing. One of our favorite utility stocks earns a higher buy target, while our two master limited partnerships (MLP) continue to generate excess cash flow, enabling them to reduce their reliance on the equity market for fresh capital.
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