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10/02/2012 7:30 am EST
In the face of fluctuating energy prices and changing regulation, going nuclear may be a good strategy for you. Energy analyst John Manfreda tells MoneyShow about investment opportunities in natural gas and uranium, and gives his view on where oil is headed.
Kate Stalter: Today, I am speaking with John Manfreda of Wall Street for Main Street. John, you have done extensive research and analysis into the energy sector, so I wanted to talk with you about that today.
Maybe we could start with oil. There's not a whole lot of hoopla from Congress when oil prices go down. But when they go up, there tend to be cries for investigations about speculators, and then it dies down when the prices go down again. Talk a little bit about what you're seeing there, and maybe even how political motivations play into whether attention goes to that sector or not. Give us your outlook right now.
John Manfreda: Right now, I would say it's coming right up from its short-term lows of $80 per barrel. There's always hoopla because the voters don't like paying for more at the pump, and so politicians always try to capitalize on whatever political goal it has, regulating the Mercantile or Chicago Exchange, or taking over businesses or whatever.
Right now, what I see is oil will be up slowly but surely. Right now, it's hard to determine where it's going to go in the short-term, because the market is pricing in the depression in Europe, they're pricing in a faltering economy in the US. If you look at the oil stocks, compared to the oil price, they're lower by three standard deviations.
If the current price right now is looked at as the new normal, which I think it is for numerous reasons, then the oil stocks-despite oil prices going flat-the oil stocks, I think, will go straight up soon. It will return to the normal prices. That's what I see right now.
When it was at $80 recently, I would say in the beginning of June...if it goes into the low $70s, 20% of the world's reserves are now deep water, and those come right off the market. So $80 is, I would say, the new era of cheap oil. If it went even to the $60s or $70s, a lot of shale would come off and enhance the oil reserves.
Extraction costs over the past, I'll say ten years, have gone up drastically. That's what I'm seeing. This is a new normal, $80 into $90 a barrel being cheap oil.
Kate Stalter: Let's talk a little bit about natural gas. The media attention on this market kind of tends to ebb and flow, but there is overall some growing optimism about the potential for more usage here. What is your research showing?
John Manfreda: I would say, yeah, definitely. A lot of coal plants are switching over to natural gas with its cleaner burning fuel. Coal has a lot more regulations than natural gas, so that's another reason it's reducing regulatory burdens.
There's a lot of money to be made in natural gas, if you ask me, because of this shale revolution and stuff like Marcellus Shale, the Bakken, Eagle Ford. The US is now, I would say, when it comes to natural gas, is energy independent. It has enough, not only for different types of usage, but it also has enough to export.
Not only that, 90% of our uranium is imported, believe it or not. We import 70% of our oil. I would say natural gas is the one thing that could really help rebuild the US infrastructure.
It is estimated to rebuild pipelines, you need to spend over $2 trillion, so that's a lot of money to be made. Not only that, a lot of, since North American gas prices are very cheap, I would say in the tanker and shipping industry there will be a lot of money to be made.
One stock I like is GasLog (GLOG). It just recently IPO'd. Their shipping costs are well below the average of LNG tankers, liquefied natural gas. In the fourth quarter, it's paying an 11 cents per share dividend, an initial dividend, and their ships are very young and have the latest technology. Their ships are much younger than the average tanker company.
They have a lot of routes to Asia and Europe, where unlike oil, natural gases prices are very localized, like in the Japan and Asia area, because they shut down a lot of their nuclear power plants. Natural gas there is around $17 per [million BTUs], and in parts of Europe it's $8 per mBTU.
As you can see, the natural gas revolution in the US is purely localized, where the natural gas price now is $2 per mBTU. I see a lot of money to be made, because it's one thing the US produces, and it's one of the top producers.
Kate Stalter: Any other names that some of our listeners might want to do some research into?
John Manfreda: I would say Cheniere Energy (LNG). They have the Sabine Pass terminal. That is, I would say, that is going to be a good stock. That is the first export terminal to come out online. It comes out in 2015.
There is LNG and then there is the Cheniere Energy MLP (CQP). I haven't looked at their MLP much, but that is another stock that I think will do well.
Kate Stalter: A moment ago, you mentioned in passing uranium, and for US audiences, that's not something we hear a whole lot about. Ever since the Japan earthquake, uranium and nuclear power have really been off the table in the US in any serious way. Tell us what you're seeing in that market.
John Manfreda: Oh, I'm actually a big uranium bull for numerous reasons. Actually, I believe one or two uranium plants have been approved in the state of Georgia. This is the first time this has happened in the US, I think, since either the early 70s or the 60s. Nuclear power is slowly being rebuilt here in the US.
Saudi Arabia is building 16 new power plants, which is unusual because I think they're at peak production levels. But you know, that's the land of oil, and now they're investing in nuclear power. Jordan is investing in nuclear power because they don't want to be dependent upon their neighbors for energy. The United Arab Emirates, they actually signed a free trade deal to import uranium from Australia. So, you see, in the Middle East, in the land of oil, they're invested heavily in nuclear.
China, India, and Russia have all reaffirmed their commitment to nuclear power. I would say once those come online, China-the amount of nuclear power they're building is enormous, and even if there's another Fukushima by 2013 or 2014, China has not shown any willingness to cut their investments. I think that will overrun any area of the West that will threaten nuclear power to shut it down.
Japan has actually restarted one or two of its nuclear power plants. There was big opposition, but one of the things people don't know about, is in the 1970s, during the OPEC embargo, Japan was also heavily damaged through that. They went over a comprehensive energy reform plan, and based on their study, they realized that they would be dependent on liquid fuels, but base load wise, they could be energy independent through nuclear power.
That reform led to the big 80's bull market in stocks, so that they could easily ramp up production. They had a good supply of base load energy. When Fukushima came, in their trade deficits, they went from surpluses to deficits because they didn't have nuclear power and they couldn't ramp up production. Their exports were limited.
Now, recently they've gotten better due to the falling oil prices. But it went up from around $93 and $94, and their natgas prices have gotten huge, so I don't know how much longer they can sustain the last trade numbers with much higher energy costs.
I would say for those reasons, the Middle East, China, India, Russia, and the biggest reason is also the megatons to megawatts, where the US imports 90% of its uranium. A lot of it is from Russia. Russia has reaffirmed that because of all the social programs promised in the last election, they're not going to continue taking down nuclear warheads and then taking their uranium and selling them to the US for below market price.
That deal came in, I would say in the early 90s, after the Cold War, and it ends at the end of this year, and Russia is salivating to make some money off of uranium exports. I would say those are the main reasons on the big uranium bull.
Kate Stalter: John, we've got about another minute left here. Just to wrap up. Any investments, in regard to industries or specific stocks, where people might want to look?
John Manfreda: Yeah, I would say if you don't have any uranium, I would get Cameco (CCJ). Most recently, it had declined in quarterly revenue and cash costs went up, but that's because they decreased production.
Their cash costs right now are $28 per pound, but it accounts for roughly 16% of the world's total uranium production, and it has a massive Cigar Lake project coming online in 2013. And it pays a dividend while you wait.
Another big one is Uranium One (Toronto: UUU). That has properties that are geopolitically diversified in Kazakhstan, Australia, and the US. Their cash costs are around $14 per pound. It has $500 million in cash in increased production each year.
The last one I would say is Uranium Energy Corp. (UEC). This company has a reputation with excellent management. It has $26 million in cash with no debt. Management owns 20% of it, 20% of the shares.
Their flagship properties are in South Texas, so when the megatons to megawatts deal ends, they'll be in full position to take advantage of selling uranium to the US consumer. They'll no longer be subsidized from Russia.
Those are the three stocks I would look at. If one wants to dip into uranium, I would say start with Cameco.
Kate Stalter: So John, there was something else you wanted to say about your company's report?
John Manfreda: Yes. I was going to say if people are interested in investing in energy, they can go to our report at our Web site petroprofitreport.com. We currently have two juniors that have appreciated over 50% and are paying a one-time dividend, and the other one is paying a regular dividend, despite this correction from $110 to $93 per barrel.
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