Elliott's Double Play on Energy

03/04/2005 12:00 am EST

Focus:

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

I have always been impressed with Elliott Gue. Through his Wall Street Winners and Advantage Bulletin , he excels with trading ideas. But he is equally adept at looking at secular trends to isolate long-term opportunities. Here, he discusses two energy favorites.

"A few years ago, people were saying that nuclear power was a dead issue. Of course, with oil and gas prices where they were in the 90s, why bother with uranium? Today, I believe uranium is a very interesting market. About 18% of the world’s supply of electricity is generated by nuclear power. Japan, France, the US, and parts of Britain rely on nuclear power and there are plans in many countries to open new plants. One of the big advantages, is that the price of uranium makes up a very small part of the total cost of operating a nuclear plant. So the cost to produce power is not as variable relative to gas-powered plants. One interesting company in this area is USEC (USEC NASDAQ). The company is reprocessing nuclear warheads which are being decommissioned in Russia. The company reprocesses the high grade uranium used in warheads and creates the low grade uranium used for power plants. The company also has a deal with the US government, which they are not able to completely disclose. This stock could really run if nuclear power becomes a more important source of electricity generation.

"Marathon Oil (MRO NYSE) is another interesting situation. The company is one of the best and most promising outfits in the refining area. Obviously, you can’t put crude oil into your car. It has to be refined, and refining global capacity peaked around 1980. No new refineries have been built in the US since 1976. While not one of the largest refineries in the US, Marathon is capable of refining a lot of what is called ‘sour crude’. This is more difficult to refine than sweet crude, and more difficult to bring to EPA emissions standards. Heavy crude also trades at a discount to sweet crude, a benefit to Marathon, as 70% of its throughput is heavy sour crude. Marathon is also part of a partnership in Libya, which due to poor US-Libyan relationships, was unproductive for about 15 years. But with a warming of relations, Marathon is now allowed to begin developing that long-idled production capacity. Overall, I think this is a very interesting company and I don’t think the stock price reflects the huge margins they will get from their refining capacity over the next few years."

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