Elon Musk and Warren Buffett don’t agree on everything – they certainly don’t see eye-to-eye on crypto. But the two iconic billionaire investors do agree on this: with much of the world facing high inflation and low energy supplies, it’s a good time to invest in commodities and alternative energy. Here are three investment areas where these two seem to agree…
Oil and gas.
At an energy conference this week in Norway, Musk, the Tesla CEO, said the world needs “more oil and gas, not less,” while pushing the transition to renewable supplies. One way to get there is by investing in cheap oil and gas companies. And Buffett, the Berkshire Hathaway CEO, has been doing exactly that, holding shares of Chevron (CVX) and buying up as many shares of Occidental Petroleum (ticker: OXY) as he can get his hands on.
What’s the opportunity here?
As Theodora wrote last week, you can emulate Buffett’s oil and gas investments or diversify your sector exposure through the iShares U.S. Oil & Gas Exploration & Production ETF (IEO, expense ratio: 0.39%), or gain more global exposure through the iShares Global Energy ETF (IXC, expense ratio: 0.40%).
Alternative energy sources.
Both have had their eyes on alternative energy sources. But while Musk has been pushing hard for greener energy, encouraging the expansion of electrical vehicles, and solar and wind technologies, Buffett has been making big investments in other, carbon-emitting alternative energy sources.
What’s the opportunity here?
Buffett’s Berkshire Hathaway invested $6 billion in August 2020 in the five major commodity trading companies in Japan. Mitsubishi Corp. (8058 JP) is the largest of the five, with the highest exposure and sensitivity to profits to oil and coking coal. Coking coal is an alternative source of energy and sharply rising coking coal prices were a key contributor to the company’s $3.87 billion in net profits last quarter. Mitsubishi Corp. trades at a 6x price-to-earnings ratio and has an annual payout ratio – in other words, dividends plus share buybacks – of 30% to 40% of net profits, so you can expect a dividend increase or further share buyback announcements (or both) with its next results in November.
Nuclear.
On Friday, Musk tweeted that limiting the use of this energy source is “insane from a national security standpoint and bad for the environment to shut them down.” Buffett’s Berkshire Hathaway, meanwhile, has long invested in nuclear: its power company PacifiCorp is partnering with Bill Gates’ TerraPower nuclear technology startup to build next-gen nuclear reactors, the first of which is planned for Wyoming. And Buffett and Musk aren’t alone in thinking about nuclear energy: the US, Belgium, France, and other countries have recently said they’d extend the lifespans of their existing nuclear plants. Germany is debating whether to continue running three nuclear plants that had been scheduled to close at the end of the year. Even Japan, which idled nuclear plants after the 2011 Fukushima nuclear disaster, has said it would consider building new nuclear plants and restarting existing ones.
What’s the opportunity here?
To ride the wave of interest in nuclear technology, you could consider investing in the Global X Uranium ETF (URA, expense ratio: 0.69%), which tracks the Solactive Global Uranium and Nuclear Components Index. Cameco (CCJ) is the ETF’s biggest holding: the company mines and extracts uranium. Its second-largest holding is the Sprott Physical Uranium Trust (SRUUF, expense ratio 0.96%), an ETF that buys and holds physical uranium. You could also consider buying the nuclear plant operators in Japan directly. Kansai Electric Power (9503 JP) is one of the largest electricity-generating companies in Japan and would benefit directly from the nuclear reopening.
While the US economy might narrowly avoid falling into a full recession in the next 12 months, Europe and the UK probably won’t be so lucky as they face a worsening energy crisis. And they won’t be alone: in this era of high inflation and short energy supplies, things are likely to be tough on plenty of economies. And that makes these investments well timed indeed and poised for growth.
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