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Keep the Dang Lights On… and Power Your Portfolio

by | Dec 13, 2022 | Market Outlook

When I was a child, my father would stomp around the house at 8 a.m.

And while my family was getting ready for school and work, he’d turn the lights off in every room.

“Turn the dang lights off,” he’d tell my then-teenage brother and sister, who would always leave their bedroom lights on.

They’d leave their bathroom lights on.

And for some reason, the lights in the laundry room and hallway were always on beside my sister’s room.

At night, he’d repeat the process… He’d stomp around, flick the lights off and huff under his breath, “We’re wasting money.”

Now — 30 years later — I’ve become an energy procurement specialist.

So I’ve learned those lights weren’t the reason for the expensive utility bill.

When I was in my 20s, I was brave enough to tell him that the big-screen television he bought… the outdoor jacuzzi… and the new kitchen he gifted my mother… were the real culprits for higher energy bills.

But I’ll never forget his frugality.

And I now find myself convinced that turning my 5-year-old daughter Amelia’s room light off will somehow cut down on the power — when our pool heater is one-third of our electricity cost.

That’s why I want to start with the first significant trend that’s central to my daughter’s investment career.

As I noted in Monday’s issue, the world will never stop requiring electricity to power its future.

The United States has no plan to cut back on oil and natural gas anytime soon.

So I’m taking advantage of that trend…

Invest Like a Rockefeller 

John D. Rockefeller remains one of the wealthiest people to ever live. He built a massive fortune on the back of Standard Oil — a company that broke up into 34 companies back in 1911.

Many of these companies still exist. They include modern energy giants Exxon Mobil Corp. (NYSE: XOM), BP p.l.c. (NYSE: BP) and Chevron Corp. (NYSE: CVX).

Oil helped fuel the immense economic growth of the 20th century. But as we’ve moved into the 21st century, there’s been a more diverse portfolio of energy sources. The portfolio now includes wind, solar, nuclear and water to generate electricity.

Given that the global population has increased eightfold over the past century, we need more energy sources than ever before. Total consumption has also risen roughly eightfold, with oil, natural gas and coal still acting as the primary drivers of electric production. As you can see in the chart below, the renewable sector has a long way to go before we can even think about banning carbon-based energy.

As we move deeper into the 21st century, the narrative suggests that the government can and will force a transition to 100% clean energy in the future.

But this is a fantasy for two reasons…

  1. There’s no such thing as “clean energy.” Solar panels and wind have dramatic environmental impacts. We have to mine for rare earth metals and dispose of unrecyclable turbine blades and nuclear fuel — with just a few decades of shelf life.
  2. The Energy Information Administration (EIA) acknowledges that oil and gas aren’t going away anytime soon. The charts I’ve included below provide a breakdown of energy demand in two critical sectors.

This chart from the EIA shows that gasoline will remain the primary fuel source for light-duty vehicles for the next 28 years. Despite California’s ban on gas-powered engines, the world can and will continue to operate on gasoline.

More importantly, the second EIA chart shows the expected energy source for electricity. We’re not just talking about energy consumption in homes — we’re talking about the electricity required for heavy manufacturing, commercial real estate and other engines of the global economy.

The projections show a steep rise in demand for natural gas, which burns about 50% cleaner than traditional coal, and offers the greatest bang for your buck regarding space, power generation and cost of any source below.

If my daughter wants a profitable future in energy, she’ll ignore the doomsday language and focus on the companies that bring all that oil and natural gas to market. She doesn’t need to speculate about the price of oil and gas. Instead, she needs to understand that there are plenty of places where she can put her money and generate outstanding profits regardless of the economic cycle.

I’m talking about a place called the “midstream.”

Amelia’s Long-Term Portfolio: Stock No. 2 Enterprise Product Partners

There are plenty of upstream oil and gas producers that my daughter could choose if she wants to make money in the Energy sector long term. She could buy XOM or any other descendant of Rockerfeller’s empire. However, her money would be subject to the whims of market volatility and the price actions of OPEC.

She could look downstream to the refineries and companies that bring oil and gas to the consumer market. Refineries like Valero Energy Corp. (NYSE: VLO) remain cheap, but have recently suffered from large, dramatic shifts in competitive landscapes.

So, that brings me to the midstream companies of the energy industry… Midstream companies are the critical transportation and storage names connecting upstream producers to the downstream refineries and product producers.

I’m looking at the master limited partnerships (MLPs), companies that own and operate pipelines across the U.S. These partnerships offer distinct tax benefits that allow unit owners to bypass taxation at the corporate level.

So long as the company passes the profits generated by its pipelines directly to its unit holders, the profits are taxed as ordinary income. That’s why MLPs carry much higher, more attractive dividends for their investors.

And one of my favorite long-term plays is right in the middle of this midstream…

It’s called Enterprise Product Partners L.P. (NYSE: EPD). 

Enterprise Products Partners is one of the largest MLPs in the United States. The company specializes in the transport of oil and gas products across more than 50,000 miles of pipelines. Products shipped include crude oil, natural gas, NGL, petrochemicals and refined product pipelines. It also owns vast amounts of storage capacity, large processing facilities and deep-water docks that enable the global exports of U.S. fuels.

The company is a cash flow machine, charging its consumers for the right to ship and store fuels. EPD presents a unique long-term proposition as energy prices pull back. Shares currently provide about an 8% dividend, which aligns with the average return of the S&P 500 since inception. That’s an incredible value!

I’m eyeing EPD for my daughter’s portfolio. And we’ll talk about three other stocks I’ll add for her this week.

To your wealth,


WRITTEN BY<br>Garrett Baldwin

Garrett Baldwin

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