David Fessler (Investment U):

As the old saying goes, “You’re either a contrarian, or a victim.”

It just so happens that one of the savviest contrarians I know is my colleague, Louis Basenese.

And nobody takes that to heart more than Lou does. I’ve scratched my head in bewilderment on many occasions after reading one of Lou’s bold predictions – only to see his intuition prove uncanny time after time.

So today I’m stealing a page from the “Basenese Playbook” and taking a look at the severely battered transportation sector, one that pretty much everybody hates. However, I think, it’s not only about to come off life support, but perhaps become one of the hottest investments in 2010.

The Transportation Sector: The Market’s Most Important Domain

Airlines, railways, package carriers, even oil and gas pipelines are all industries that make up the transportation sector.

But why should you care about it?

Because transportation is actually the most important sector – and for good reason: growth or contraction here serves as a proxy for both U.S. and global economic growth.

It stands to reason that if more “stuff” is being shipped, it means companies are producing more goods to satisfy business and consumer demand. In turn, this is a good indication that the U.S. economy – and that of the rest of the globe – is in decent shape.

Right now, however, there’s a big change underway in U.S. freight transportation. Thing is though, it’s hardly received any attention. So let’s take a closer look…

And the World’s Most Efficient Transportation System Is…

Let me toss a few statistics your way…

Click here to read the rest of Mr. Fessler’s article at Investment U and uncover his three transportation sector picks.

The obvious answer is that they’re four of the most successful technology companies on the planet.

But they’re also heavily involved in the modernization plans for America’s “Smart Grid” – a topic I introduced in a previous column.

Make no mistake, with a decade-long project as monumental as modernizing the country’s “Smart Grid,” the devil is truly in the details. And the Commerce Department released the finer details of the initiative last week.

Until now, one of the big problems with the “Smart Grid” was the lack of set standards. Without them, each power company would be free to do as it pleases, resulting in a hodge-podge of small grids that, in all likelihood, wouldn’t work together.

To put this in perspective, just imagine how well the Internet would work if there weren’t hundreds (or perhaps even thousands) of standards in place so that everything works seamlessly.

So the National Institute of Standards (NIST) prepared the detailed standards that the Commerce Department wants the power industry to use as they build intelligence into the electrical power grid.

Job #1: Setting Up an American “Smart Grid” Standard

The standards released last week are the result of NIST’s review of proposed measures it sent out to companies like Cisco, IBM, AT&T and Intel, plus hundreds of others, seeking industry comments.

This plan basically details the integration and connection of smart meters, plus data sharing on energy usage among utilities and cyber security standards.

With regard to the latter, the big four firms lobbied vigorously for certain data and communications standards. This is because they want to integrate the essential “hooks” into their product lines as soon as possible.

And the NIST standards require internet-protocol (IP) technology in any system connected to the “Smart Grid.” The idea here is that the existing Internet could be used as the information highway for “Smart Grid” data communications and also for control purposes.

That’s good news for Cisco, in particular. It’s already a leader in IP technology, having integrated it into the “Smart Grid” systems that it currently sells.

But this brings up a potentially big problem…

Smart Meters By Name… But Not By Nature

If “Smart Grid” communication is based on IP technology, how vulnerable is it to hacking?

In order to attack the hardware, you first need to gain access to it to determine the kind of programming required to hack it. Smart hackers could simply walk up to a house where no one is home and steal one using a pair of pliers.

Once the hacker has access to the smart meter’s programming and special software codes, he can then begin communicating with all the meters made by that same manufacturer. As utilities continue their rollout of smart meters, those numbers will be in the millions.

As Mike Davis, a senior security consultant at IOActive, says, current smart meters are “probably not mature enough” and can easily be hacked.

Davis has tested a number of currently available meters (he hasn’t publicly revealed which ones) and identified vulnerabilities that could allow an experienced hacker to shut off large numbers of meters all at once from anywhere in the world.

Imagine a hacker issuing a command to several hundred thousand meters, telling them to simultaneously turn off all at once… and then immediately back on. The resulting surge would blow just about every breaker in the utilities’ grid, taking hours if not days to restore. And the next day, they could do it all over again.

Clearly, this is a serious problem for the utilities and meter makers to address. So what’s being done about it?

These Four Tech Titans Are Poised to Cash In

The good news is that with standards now in place, the Obama administration is ready to start issuing checks – perhaps as early as November. And those checks are worth a total $4.5 billion – money that the government earmarked for the “Smart Grid” project back in January.

And the beneficiaries of this windfall? Cisco, IBM, AT&T, Intel and others.

This just goes to show that it’s not just the obvious candidates that stand to profit from the electrical “Smart Grid” plans (utilities, etc). These great tech giants are ready and waiting to deliver crucial services, too.

Good investing,

David Fessler

Source: Four Companies Set to Profit from a Federal Cash Injection

What may not come to mind, though, when you think of America’s 50th state are its energy resources – and specifically, the fact that it gets 77% of its power from oil-fired power plants. That’s a unique statistic within the United States. Coal-fired plants provide 14% of power, and the remaining 9% comes from renewable sources like wind and solar energy.

Suffice it to say, tourism is Hawaii’s largest industry, with agriculture playing a major role, too. And not unlike the rest of the country, the one thing needed to keep it all running smoothly is a reliable source of electricity.

Problem is, Hawaii is dependent on fossil fuels for more than 90% of its power – an issue that became shockingly clear when oil spiked to $147 a barrel last year. As a result, the Hawaiian Electric Company – the state’s main electric utility – was briefly forced to charge users more than 50 cents per kilowatt-hour – over five times the national average.

So what is the state doing to relieve this situation?

Hawaii Treads Down the Renewable Energy Path

For Hawaii, wildly fluctuating oil prices and potential supply disruptions leave it uniquely vulnerable. The state estimates that every 10% increase in oil prices reduces its GDP by 0.5%.

Clearly something had to be done. And there is some good news.

Because of its unique location and physical makeup, the Department of Energy (DOE) estimates that Hawaii can potentially meet 60-70% of its overall energy requirements through the use of renewable energy sources.

And last year, under an agreement between the DOE and the State of Hawaii, long-term plans were set in motion that will result in Hawaii getting 40% of its power from renewable sources by 2030.

This landmark agreement – and its ultimate implementation – is being viewed as a national experiment. If successful, it could ultimately be replicated in other parts of the country. And island nations could benefit, too.

Here’s how the DOE and Hawaii are doing it…

Hawaii’s Four-Track Renewable Energy Plan

A working group including members from both the DOE and Hawaii are addressing four main areas of renewable energy performance:

• End-Use Efficiency: The goal is to achieve zero net-energy use buildings and communities, along with significant reductions in power usage by military bases.

• Electric Generation: Significant expansion of renewable energy at both the state and local levels, and the facilitating of distributed renewable generation on a statewide basis.

• Energy Delivery: Additional grid development and improvements to the existing grid in the form of smart-grid management, as well as grid energy storage that will optimize renewable energy sources.

• Transportation: The formation of a long-term strategy for the implementation of the production, distribution and use of alternative fuels for transportation to acceleration the adoption of electric vehicles.

The group has produced two, five, and ten-year pans that have marked the initial actions necessary in order to kickoff the activities in each of the above energy performance areas.

Putting the Four-Track Plan Into Fast-Track Mode

With an agreement in place, Hawaii’s governor, Linda Lingle, has fast-tracked the plan.

She’s called on privately held California startup firm, Better Place, to install as many as 100,000 electric car-charging stations by 2012 – a project worth $100 million. The goal is to have car-charging stations pop-up all over the Hawaiian islands, with privately held Better Place supplying the batteries and recharging services.

This plan assumes that the major car manufacturers buy into the arrangement So far, Nissan-Renault has agreed to make vehicles that will work with Better Place’s network of stations. And I expect more car companies to announce plans to participate, too.

Of course, all this additional power to charge the cars has to come from the grid – and major grid improvements are already underway.

Supercharging Hawaii’s Electric Project

All of Hawaii’s six separate grids are in the process of being connected together via undersea electric cables. Once in place, Oahu will get its power through them.

And with all the renewable wind power and solar farms being planned as part of the increase in renewable energy generation, managing the fluctuations in supply and demand becomes a more daunting task than it is now.

As a result, General Electric (NYSE: GE) is right in the thick of the plan, developing ways to store energy via batteries and pumped hydro storage. This will allow the Hawaiian Electric Company to smooth out peaks and valleys in its overall energy supply-demand model.

Hawaii’s plan is just now getting underway – 2030 isn’t that far down the road. But as its interim successes become apparent to the rest of the country and the world, companies like GE and Better Place will certainly be in the catbird seat.

Good investing,

Dave Fessler

Source: Hawaii’s Renewable Energy Revolution

• Reliable sources of energy.
• A modern, efficient infrastructure, consisting of a good road and rail system, reliable power grids and high-speed digital communications networks.

And if a country wants to be considered a “global economic powerhouse,” it’s nearly impossible for it to do so without these critical building blocks.

So it’s not too surprising that China is spending unprecedented amounts of money to beef up its infrastructure.

It’s also spending huge amounts of money on long-term oil and gas contracts. And with nearly $2 trillion on hand, it’s the perfect time for China to go on an energy acquisition spree.

Right now, it’s spending like a thirsty sailor on shore leave…

You see, despite the recent pullback in the Chinese stock market, the country is still on an economic roll that will continue for the next 50 years. According to The Economist, China’s capital spending is a whopping 44% of its GDP, and in raw dollars could exceed that of the United States for the first time this year.

And you can bet that its increase in energy use will track right along with its growth.

But China’s energy problems are similar to those of the United States: It doesn’t have enough of its own sources of fossil fuel to meet its needs.

So what is China doing to combat this? And is there a way to tap into this in terms of investing? Answers below…

China’s Energy Asset Acquisition Spree

At the moment, China is importing coal, liquefied natural gas (LNG) and crude oil. And to guarantee that those supplies are uninterrupted, it’s buying some major deposits of oil and gas, along with the refineries to process it.

We’re not just talking small potatoes, either. Since Christmas, China has been on an overseas energy asset acquisition spree. The country has spent a total of $17 billion, easily topping the $13.1 billion it spent in all of 2008. What’s more, the pace of acquisitions doesn’t appear to be slowing – and could even ramp up into 2010.

Many companies are teaming up, putting together joint deals that insure even the largest purchases have funding behind them. And some are very, very big. For example…

• In April, PetroChina (NYSE: PTR) partnered with KazMunaiGaz and plunked down a cool $5 billion to purchase JSC MangistauMunaiGas from Central Asia Petroleum. This was one of the first instances of Chinese firms partnering together to purchase a foreign oil company.
• June saw a highly publicized $20 billion deal, in which China National Petroleum Corporation joined forces with BP (NYSE: BP) to buy a 75% stake in the Rumaila oil field in southern Iraq. The consortium’s bid topped that of the Exxon/Mobil (NYSE: XOM)/Shell (NYSE: RDS) partnership.
• Just one month later, the China National Offshore Oil Company (NYSE: CEO) – often referred to as CNOOC – hooked up with Sinopec. The two of them coughed up $1.3 billion to acquire a 20% stake in a deepwater block off Angola from Marathon Oil.

China’s Knee-Deep In Canadian Oil Sands

Now, the Chinese have landed in Canada. And it’s not because they like hockey. They’ve quietly bought up several parts of different oil sands operations.

Just a few days ago, PetroChina announced a $1.7 billion deal, in which it will acquire a 60% stake in Athabasca Oil Sands Corp’s MacKay River and Dover oil sands fields.

This isn’t the first time that China has invested in Canadian oil sands. Back in 2005, CNOOC purchased a 16.7% stake in MEG Energy Corporation, while China Petrochemical Corporation plunked down $83 million for a stake in Syneco Energy, Inc.

So why is China interested in something like oil sands – oil that is very difficult and expensive to bring to fruition? Simple. All the easy, lucrative projects have already gone. It’s a disturbing indication of China’s quiet determination to increase its oil and gas reserves… at any price.

So what’s next?

How To Invest In China’s Energy Acquisition Express

As evidenced by the variety of different operations that China has acquired recently, the country is taking a shotgun approach to energy.

And while it’s not easy to see what it’s focused on next, the best way to play this trend is by owning shares of the buyer. This includes big Chinese oil companies like…

• PetroChina
• Sinopec (NYSE:SHI)
• CNOOC

All these firms have American Depositary Receipts (ADRs), which means you can trade them on the U.S. exchanges.

One note of caution before you do, however: If you read my colleague Louis Basenese’s piece on the China sell off earlier this week, he highlighted 10 reasons why the Chinese market is set to fall from here.

I agree with Lou – and I believe waiting until we see evidence that the Chinese markets have bottomed will represent an excellent time to take a position in some of these companies.

Good investing,

David Fessler

Source: China’s Energy Acquisition: Three Ways to Invest in China

The 1990s were an ideal period to have timber as an investment:

• Housing was doing well, and growth was beginning to take off in major cities.
• The world was still pre-digital, and business still relied heavily on shuffling paper.
• Electronic news was still a novelty; magazines and newspapers were still going strong.

What a difference a decade makes…

• Housing is in the dumper, with no clear sign of a resurgence on the horizon.
• Business has embraced the smartphone and has gone digital, shunning paper.
• The world is increasingly getting its news in electronic form, as evidenced by the number of newspapers that are no more.

This shift away from stuff that comes from trees has resulted in an almost complete lack of demand for wood or wood pulp. As a result, prices for paper and lumber have hit multi-year lows. Lacking any catalyst for change, it’s the perfect setup for an extremely overvalued scenario in the timber industry.

Timber REITs… Look Out Below

Whereas timberland prices hovered in the $1,500 to $2,000 per acre range in the mid 1990s, a more realistic valuation today is less than half that. And therein lies the problem: Many of the timber REITs haven’t devalued their land.

If it sounds a little like the looming overvalued commercial real estate mess we’re in right now (a story we broke long before anyone else did), it’s no accident. The biggest problem? REITs are managed by human beings.

Just like they’ve been doing in the commercial real estate market, timber REIT managers have adopted a “wait it out” strategy, in the hope that timber values – and by extension the land it’s growing on – will suddenly reverse. Don’t bet on it.

Unfortunately for the REITs and their shareholders, hoping and praying for a resurgence in the housing market isn’t going to work.

It’s going to get even worse: Timber prices could drop another 50% in the next few years, as an anemic housing market – the only possible timber demand catalyst – isn’t looking at a recovery for as long as five years.

Most timber REITS, however, haven’t taken a big hit to their balance sheets. Not yet anyway. But that’s all about to change.

As a result of the aforementioned head-in-the-sand mentality, Plum Creek Timber (NYSE: PCL), Potlatch (NYSE: PCH) and Weyerhaeuser (NYSE: WY) are all on the verge of imploding. Weyerhaeuser isn’t a REIT, but it suffers from the same issues.

At a minimum, all are going to have to significantly cut their dividends, which aren’t based on anything remotely resembling ongoing operations. Nearly all of their 2009 income – and I use that term loosely – will come from land sales.

That’s a problem, too, and not just because of depressed prices for timber. Much of the hopes of the REIT management are that they will be able to sell land to real estate developers to generate cash. Huh?

You’ve got to be kidding: With the current depressed state of the housing market, developers aren’t exactly chomping at the bit to buy more land. After all, many of them are still writing down the value of land they already own.

Timber REITs Taking A Big Hit Before The Dust Settles

While it’s clear that timber REITs are going to take a big hit to their balance sheets before all the dust settles, there are others that will likely be the biggest losers of all.

You see, over the past few decades, university endowments, pension funds and Timber Investment Management Organizations (TIMOs as they’re referred to) plowed an estimated $40 billion into timberland.

TIMOs are privately run organizations that hold and manage timber on behalf of institutional investors. Here’s the big problem: The funds that the TIMOs manage have predetermined liquidation dates, and many are coming due in the next several years.

When that happens, timber industry land prices could fall even further.

One notable exception to the REITs woes is Rayonier (NYSE: RYN). It has a much more diversified stable of holdings; namely its performance fibers division, which are used by customers around the world to make certain kinds of plastics, LCD screens, pharmaceuticals, food products and more.

The bottom line is that investors who own any of the timber REITs – with the exception of Rayonier – may want to consider lightening their position or eliminating it all together. Investors could also consider establishing a short position in Plum Creek, Potlatch, or Weyerhaeuser, the three stocks most likely to fall the hardest over the next 12 to 18 months.

Good investing,

David Fessler

Source: Overvalued Timber REITs: Why Timber Investing Isn’t What It Used To Be

Take Fred’s, Inc. (NASDAQ:FRED), for instance, a deep-discount retailer with 600 stores in 15 southeastern states. Investors have punished the stock, sending it to levels that value it less than half of its competitors.

It’s differentiator is serving low-income customers in rural and inner-city neighborhoods, far from Target and Walmart stores. Many customers prefer the ease of access to Fred’s stores, as opposed to having to drive to the nearest big box retailer.

With annual sales of $1.8 billion, its merchandise and business model is similar to that of its two biggest competitors: Dollar Tree (NASDAQ:DLTR) and Family Dollar Stores, Inc.(NYSE:FDO).

But that’s where the similarities end. In the past year, Fred’s shares have fallen nearly 15% while its competitors have each risen over 20%. The reason? The company was just plodding along, languishing under an anemic, lethargic management.

Back in February, Fred’s Board of Directors decided to make a change, and it brought in a new CEO, who’s been generating quite a lot of buzz since his arrival.

Bruce Efrid – an industry veteran – hasn’t wasted any time: he’s closed stores that were underperforming, gave the remaining ones a new look and feel, and remade company inventory procedures.

Efrid was just what the doctor ordered: Fred’s has strongly outperformed its peers since his appointment. Even so, the stock still looks like a relative bargain. Shares trade at 1.4 times book value, while Dollar Tree and Family Dollar Stores are both twice that, suggesting Fred’s shares are undervalued by 50% compared to its peers.

Fred’s has very little debt and a nice cash pile of $46 million. Efrid’s confident his changes can increase top line sales by 10%. He also is gunning for a corresponding increase in margins from their current 1.8% to 3%.

If he’s successful, Fred’s shares could easily pop by 50-75% in the coming months, handing investors who take a position now a nice Christmas present.

Source: Fred’s, Inc. (Nasdaq: FRED): Stock of the Day

But here’s the stark reality: The money Uncle Sam gets from personal taxes, payroll deductions, corporate taxes and various other duties is a little more than half of the money it’s spending. The difference (deficit) has to be made up either by reducing spending, increasing taxes, or both.

It’s an unpleasant reality, but that doesn’t mean we’re helpless against these changes.

Many don’t know why or how much our Gross Domestic Product (GDP) relates to the taxes we all pay. So let’s take a look at how it’s determined and why it’s important. And best of all, how we can even profit from these charges – I mean changes – and make money in the process.

GDP: What is it and Why Should I Care?

Gross Domestic Product – or GDP as it’s most often referred to – is the basic measure of a country’s economic performance.

It’s calculated in a number of ways. One of the most common is the total money spent to purchase the final goods, end products and services produced in one year.

It’s a very big number: In 2008, the International Monetary Fund estimated that the GDP for the entire world was $68.9 trillion. Not too surprisingly, the United States’ share is by far the largest: $14.2 trillion, or about 20.6% of the total.

• It stands to reason that if GDP is rising, economic growth is increasing, unemployment is falling and tax revenue is increasing.
• In the United States, the consumer has historically been responsible for 70% of the nation’s GDP, and that’s what’s sustained our long run of economic growth.
• But now, the consumer’s ATM is tapped out… kaput. He’s now too busy saving and paying down debt (a good thing) to be able to spend money at historical levels.

As a result, GDP – and by extension economic growth – is falling, and unemployment is rising. As a result, federal and state tax revenues are dropping.

So who or what is going to make up the GDP difference? Of course, there’s always the hue and cry of cutting government spending. When was the last time – under any administration – that you actually saw government shrink?

It’s been awhile, but I can assure you that at least at the state and local levels, government is laying off workers and tightening its purse strings. But that won’t be enough: taxes will have to rise to make up the difference.

Our Rising Tax Predicament Was Foreseen in the 19th Century

It’s interesting to note that this scenario was foreseen hundreds of years ago. You see, way back in the 19th century, German economist Adolf Wagner predicted that as societies grew more affluent, taxes would inevitably have to rise. This became known in economic circles as Wagner’s Law.

The reason is simple: A nation’s citizenry ultimately wants more of the things that only its government can easily provide. All those good schools, public order and safety, a strong military, and various public welfare services and Social Security benefits all cost money.

While I’m not a fan of big government, most of these are things the average citizen would have difficulty providing on their own.

Arguments are made all the time that as more social services are provided, there is less incentive for people to work. The reality though, is quite different.

Even when taxes rose sharply – as they did in the early part of the 20th century – from only a couple of percentage points of GDP to the current level (18%), the country still prospered.

Now they will have to rise again, to make up the gap in social service spending. Although there is much ballyhooing about it, the country will still prosper, as most people are quite comfortable from a material standpoint.

So what’s the best way to “play” the inevitable tax increase?

Three Ways To Play The Coming Tax Increase

My answer might surprise you, but I believe there are three sectors that will fill the consumer spending “deficit” and fund an economic recovery: energy, infrastructure and health care.

Both energy and infrastructure will benefit for the next several years from the billions being thrown at the sectors via the stimulus package as well as coming tax increases. We’re just starting to see the first of what will be many large highway, bridge and other infrastructure projects, as well as energy infrastructure undertakings associated with the smart grid.

Regular readers know I follow the first two very closely. Marc Lichtenfeld – an Investment U contributor you’ll be hearing a lot more from in the coming weeks – is an expert on the third. Read about Marc’s ideas on partial profit taking.

• Right now, analysts and most investors are shunning the energy ETFs, many of which are off 25% or more from their highs of last November. Of course, that’s the very reason you should consider taking a position in one.
• Specifically, take iShares Dow Jones U.S. Energy (NYSE: IYE), a fund that seeks to replicate the performance of the Dow Jones Oil and Gas Index. It includes companies in all facets of oil and gas: producers, equipment and distribution.

No one likes higher taxes, but in the coming weeks and months, these three sectors stand to benefit from the coming increase in government spending. We’ll be bringing you more on all three over next few weeks and months.

And remember, there’s always a way to make a profit.

Good investing,

David Fessler

Source: Here’s Three Ways to Play the Coming Tax Increase

The thought that jumps to mind is that solar power isn’t going to be “alternative energy” for much longer.

In spite of the current economic malaise and market downturn we’re navigating through, solar energy is one of the few bright spots (pun intended) in the alternative energy space.

The reason?

• Continued advances in solar panel technology are resulting in cheaper, more efficient panels.
• Government subsidies at both the state and federal levels are making the installation of residential solar more compelling than ever.

Here’s why solar is looking brighter by the day, and a major retailer that could change everything.

The Solar Energy Industry’s Solar Cell Production

For the past few years, the solar power industry has been capacity constrained by the lack of polysilicon, the basic foundation on which chemicals are deposited to produce the solar cells used in panels.

But as in other areas of the semiconductor industry, technology marches on. The newest panels are based on thin-film technology, and don’t require polysilicon. No fewer than 143 companies are involved in some aspect of thin-film panel technology.

Thin-film is fast becoming the new standard in panel technology, and in a few years will render polysilicon panels obsolete. Right now, thin-film panels are averaging about $1.40 per watt, but that number will be halved in a year or two.

That alone will make thin-film panels competitive with their polysilicon predecessors, but panel efficiencies – currently around 9% – are rising, and will likely reach 18-20% in the next few years.

Combined, decreasing costs and increasing efficiencies will soon make solar panels the cheapest power source on the planet.

Like everything else, economics will ultimately drive the solar panel industry, just like it has in the computer industry. And one of the greatest modern companies to exploit economics of scale is getting into the act.

Wal-Mart’s Solar Energy Experiment

Wal-Mart Stores (NYSE: WMT) is already evaluating the feasibility of installing solar energy panels on the roofs of its stores. Consider it “dipping a toe” in the water to check its temperature.

• If an experiment involving a few stores pans out, Walmart could decide to roll out panels to all of its stores. That’s about 35 square miles of surface area.
• Using a very conservative figure of around 3 watts per square foot, Walmart could realistically expect to produce in the neighborhood of 3 Gigawatts of power.
• That would make the low-cost retailer one of the largest power producers in the country.

Now replicate that scenario on every warehouse, and big box store in the country, and you begin to get the idea that solar energy could reasonably provide a significant percentage of the power we use, especially during peak usage times.

Storage when the sun isn’t shining is certainly an issue, but scientists and engineers are already designing load-shifting storage systems that will provide power during times of darkness or on cloudy days.

The entire sector recently got a boost when SunPower Corporation (Nasdaq: SPRWA) announced earnings and blew away analysts estimates.

If Wal-Mart does forcefully enter the solar space, we’re going to see it use its tremendous pricing power to lower the cost of solar energy and gain mass production. The kinds of things only a company of that size and negotiating power can do.

And when that happens, consumers everywhere will be jumping aboard.

Investors who want exposure to the sector should view market pullbacks as opportunities to establish small positions in their favorite solar stocks.

Good investing,

Dave Fessler

Source: A Bright Spot in the Alternative Energy Sector

But a year ago, the 81-year old chairman of BP Capital spent his own money to buy prime time on major networks and mobilized an “army” of believers in order to get the word out about the dangers of continued dependence on foreign oil.

Earlier this month, Pickens appeared on CNBC’s “Squawk Box” to discuss the progress of the “Pickens Plan,”which essentially seeks to reduce the nation’s dependence on foreign oil through a combination of wind-generated power and natural gas powered vehicles. The goal: Drastically reducing or eliminating the need for foreign oil in as little as 10 years.

His timing was perfect, as oil prices shot to all-time highs around $150 a year ago. The plan garnered a lot of attention. And to his credit, over the past 12 months, nobody else has articulated a plan as clearly and succinctly as Pickens’ has.

Today, however, oil prices are down some 54% and the U.S. is sliding deeper into recession. Is shutting off foreign oil still a concern? Have we made any progress in doing so? Are we any closer to a national energy plan?

The short answers are:

1. Definitely yes
2. Yes
3. Almost

Let me explain…

Get Rid Of The Rogues… And Pocket $400 Billion

While the price of oil has declined dramatically over the past year, our dependency on foreign oil is as great as ever. We still get over 70% of our oil from other countries, and it’s a huge security issue.

While the transfer of wealth – dollars out for oil in – is less, it’s still a huge net outflow of nearly $400 billion annually.

There’s no question that keeping that money here will not only have a positive effect on our trade balance, it’ll make a huge difference in the U.S. economy – a “free” $400 billion annual stimulus package, if you will.

Alternatively, according to Pickens, “If we go 10 more years with no plan, we’ll be importing 75% of our oil and it will cost us $300 a barrel.”

Even if he’s wrong by 50% – which is unlikely given increasing world demand – it’s still a big problem. So how do we get rid of the rogues?

The “Anti-Oil”: U.S. Natural Gas Reserves Soaring

In terms of our progress in displacing foreign oil, there’s only one quick way to do it: Replace it with natural gas.

The Potential Gas Committee – the nation’s authority on natural gas supplies – recently issued a report that showed a substantial increase in U.S. natural gas reserves.

The report indicated that the nation’s gas reserves have increased by 25% to 2,074 trillion cubic feet (tcf) from 1,532 tcf in 2006 – the last time the report was issued. It was the largest increase in the 44-year history of the committee and its language reflected that: “[The report] shows an exceptionally strong and optimistic gas supply picture for the nation.”

That’s an understatement. By 2030, it projects a supply of nearly one hundred years – the most in the world.

John B. Curtis, a geology professor at the Colorado School of Mines and the report’s principal author, said,“New and advanced exploration, well drilling and completion technologies are allowing us increasingly better access to domestic gas resources – especially unconventional gas – which, not that long ago, were considered impractical or uneconomical to pursue.”

The findings have shifted the focus onto natural gas as a possible transition fuel as we move from coal and oil to solar, wind, geothermal and other non-carbon sources of power. It couldn’t have come at a more opportune time.

A National Energy Plan: Slow And Steady, But Are We Winning The Race?

The best thing the government can do to move us away from fossil fuels is to provide funding and tax incentives to develop and use something else (and then get the hell out of the way). And it appears as though Congress is trying to do just that with natural gas.

H.R. 1835, known as the “New Alternative Transportation to Give Americans Solutions Act of 2009,” amends the Internal Revenue Code of 1986 to create jobs and encourage alternative energy investments.

Here’s what this act provides:

• An excise tax credit through 2027 for alternative fuels and motor vehicles involving compressed or liquefied natural gas (LNG).

• An income tax credit through 2027 for vehicles powered by compressed or LNG.

• A new tax credit for the production of vehicles fueled by natural gas or LNG.

• A tax credit for alternative fuel vehicle refueling property expenditures for refueling property relating to compressed or LNG and allow an increased credit for such property.

• Requires 50% of all new vehicles purchased or placed in service by the U.S. government by December 31, 2014, to be capable of operating on compressed or LNG.

• Authorizes the Secretary of Energy to make grants to manufacturers of light and heavy-duty natural gas vehicles for the development of engines that reduce emissions, improve performance and efficiency, and lower cost.

Now before I get a dozen e-mails pointing out that natural gas is just a different fossil fuel, let me head them off. There’s no argument there. But here’s where it’s very beneficial…

The Benefits Of Natural Gas – And How To Play It

Natural gas is a much cleaner burning fuel, produces less carbon emissions and, most importantly, it’s found here in abundance. It’s a walk in the park to produce new cars and trucks that run on it, and convert older ones as well.

And if it helps free of the grip of rogue nations around the world in 10 years or less, then I’m all for it. We’ll all be better off economically, and we’ll all have greater piece of mind.

How do you play it? Take a look at Clean Energy Fuels Corporation (Nasdaq: CLNE), a provider of natural gas as a vehicle fuel, primarily for fleet use in the United States and Canada. It designs, builds and operates natural gas fueling stations, and provides financing for natural gas vehicles. It and others in the sector will undoubtedly benefit from this legislation when it’s passed.

Source:  Energy Independence: The Progress, The Problems… And A Way To Profit

{Editor’s Note: One year ago, oil prices were atrecord highs… the U.S. political scene was gridlocked amid the presidential election… and a fellow named T. Boone Pickens was promoting a bold new plan to wean the U.S. off its oil dependency and towards wind power and natural gas instead (and Pickens is an oilman). Today, oil prices are trading around $68, so where does the “Pickens Plan” stand now? Investment U columnist and infrastructure specialist David Fessler reports on whether cheaper oil prices have dampened the drive towards greater energy independence, plus a way to play a natural gas-powered future.  Martin Denholm, Managing Editor, Smart Profits Report}

For the past week, many of the Investment U and Oxford Club editors (yours truly included) have been writing from Deep Cove, a little seaside community on the outskirts of Vancouver.

The stunning mountain and water views here are inspirations unto themselves. Much to my culinary delight, fresh wild salmon is readily available here, and costs about one-fifth of what it does back home in Pennsylvania.

One found its way onto the grill one evening, and as luck would have it, in the middle of cooking, the grill’s propane tank ran dry. I quickly switched to a spare and saved the meal.

On our next trip out, I returned the empty cylinder and picked up a fresh one at the cylinder-swap station out front of the local mini-mart.

Chances are good it’s one of over 700,000 propane or liquified petroleum gas (LPG) customers of Inergy, L.P. (Nasdaq: NRGY).

Lots of Gas, Lots of Profits

Inergy – one of the fastest growing limited partnerships in the country – distributes, markets and supplies propane at both the retail and wholesale levels. It also owns and operates two natural gas storage facilities, an LPG storage facility and a natural gas liquids business.

In addition, it manages a salt-solution mining company as well as a salt production company (U.S. Salt).

In spite of natural gas and liquid petroleum gas prices that are at seasonal lows, things couldn’t be better for Inergy.

In April, it raised its dividend for the thirtieth consecutive time and by 7% over the distribution for the same quarter of a year ago.

In May, it reported record earnings of $140.1 million for the quarter ended March 31, 2009 – an increase of 17% from the same quarter of 2008.

John Sherman, President and CEO of Inergy had this to say: “Our businesses produced outstanding results for the quarter.

“Our propane operations completed a very successful winter season, delivering solid earnings. Our natural gas business performed well and continues to execute its growth plans.

“We raised nearly $300 million of long-term growth capital. From this strong and flexible financial position, we intend to continue to execute quality growth on behalf of our investors.”

Investors who want some exposure to natural gas while at the same time mitigating some of the fluctuation in gas prices would do well to consider adding a few shares of Inergy to their portfolio. The partnership pays an effective 7.14% yield, and dividends will likely continue their increase from here.

Source: Inergy, L.P. (Nasdaq: NRGY): Stock of the Day