Energy Q&A Part IV: Investing In Energy Stocks and More…
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Q: “Please comment on Suntech Power Holdings. Comparing STP with KHD Humboldt Wedag, which is the better investment at this time?”
Suntech Power Holdings (STP: NYSE) has taken us on a wild ride since we added it in January 2007. Its stock price more than doubled toward the end of 2007. Then the stock dropped steeply with the market meltdown in early 2008. The stock is up about 15% overall in the past 16 months or so.Long term, I think that Suntech is a good investment with great potential. The world is building out its solar infrastructures, especially in Asia, where Suntech focuses its solar business.
It’s no secret that fossil fuels are scarce and expensive. This has been good for the likes of CONSOL Energy (CNX: NYSE) and Foundation Coal Holdings (FCL: NYSE).
But the environmental issues for coal and other hydrocarbons are profound. People are getting worried about carbon dioxide (CO2) buildup in the atmosphere. Just based on current emission trends, the earth’s atmosphere is reverting to a CO2 content not seen in over 35 million years, since late in Eocene time.
So in the space of a couple of generations, mankind is reversing tens of millions of years of atmospheric evolution. Is this a serious problem? Or is it nothing much to worry about? Well, no one knows or understands the consequences one way or the other. And don’t let anyone tell you that they do.
In the U.S., both major presidential candidates are talking favorably about a “cap and trade” system for CO2. So solar, as well as wind and geothermal [Kaydon Corp. (KDN: NYSE) and Ormat (ORA: NYSE)], are all positioned well for future advances.
I just added KHD Humboldt Wedag (KHD: NYSE) to the portfolio. It’s literally a “picks and shovels” play on the worldwide cement industry. KHD supplies the machinery and equipment that go into cement kilns.
There is just no way that the developing world can continue to develop without large amounts of cement. So KHD is another great stock for the future.
As for whether I would invest in Suntech or KHD? Well, I’d invest in both. But I think that your question is along the lines of where to invest if you only have limited funds and don’t want to spread them too thin. Fair enough.
KHD strikes me as a safer, long-term growth story. You probably will not see some big, fast run-up in KHD stock. The company is not all that sexy and has a limited following. Still, KHD should earn great profits over the next few years. People will have to buy into the story as the good news comes out. It’s like the old saying, “Slow and steady wins the race.”
On the other hand, Suntech is in the cross hairs of investors as a solar play. With the right news story in a large publication or an endorsement from a major brokerage house, Suntech could soar on short order. But a rapid rise might also be the precursor to a rapid fall. That’s the history with Suntech. A lot of people are “smash and grab” investors.
Long term, Suntech is certainly a good company. But if you’re skirting volatility, KHD wins. KHD is just a boring cement plant builder that traces its roots to the beginning of the Industrial Revolution in the dark forests of Germany.
Cement and Silver
While I am discussing the needs of developing countries, let me mention one other thing that people want besides cement: silver. We can’t stop using it, whether in the form of consumer electronics or as jewelry or as a store of value over time. In the developing world, silver is still the “poor man’s gold.”
Annually, the world uses about 40% more silver than it mines. The difference of “missing” silver comes from recycling, plus stockpiles. But the stockpiles are near the end. And new mine production is unable to meet demand.
So my screaming buy right now is Hecla Mining Co. (HL: NYSE). This great old silver miner’s stock is down from our entry price. But that’s OK, because you can use the opportunity to pick up more shares. Hecla holds great silver reserve and resource positions from Alaska to Central America. Hecla will be mining silver and minting money for many years to come.
That’s all for now. Until we meet again…
Byron W. King
Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!
Source: Energy Q&A Part IV: Investing In Energy Stocks and More…
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Tags: , Byron King, CNX, energy, FCL, gold, HL, KDN, KHD, ORA, resources, silver, STPAbout the Author
Byron is now a contributing editor to Energy and Oil, Whiskey & Gunpowder and editor of Outstanding Investments. After Harvard, Byron has followed developments in the oil and gas industry for more than three decades.