Run From Coal
Coal is a fuel that the world increasingly cannot afford. Yes, on a therm of energy per pound of fuel basis coal is very price competitive. But that is a false cost analysis. I have shoveled coal. It is dirty. The cost to clean coal is high and climbing higher.
Coal is also on a collision course with water. Producing electricity from coal takes a tremendous amount of water. In the United States last summer’s drought brought a curtailment of coal-fired power production due to a lack of water or because water supplies were too warm for effective cooling.
China, which now accounts for half of the world’s coal consumption, is confronting a water choke point to its expansion of coal-fired power plants. In a not too distant future China will have to choose between using water to support coal-fired electricity generation or for the production of food and the servicing of urban citizens. This also applies to U.S. states like Georgia, Alabama and Texas that use a higher percentage of coal for electricity production and are increasingly confronting water supply constraints.
Investors beware! The coal companies are aggressively looking to create a west coast shipping system to sell more U.S. coal to Asia. This could in the short term boast their sales. But over the long term bottom-fishing for coal companies, or companies that rely upon cheap coal-fired electricity for their competitive advantage, have risks similar to attempting to catch a falling knife.
Run Toward Natural Gas
Hydraulic fracturing has upended the energy industry. Natural gas’ growing supply and price competiveness is stealing market share from coal. It is blunting the growth of renewable energy. It is poised for global revenue growth. A telling example is the recent milestone shipment of LNG from Norway to Japan through an Arctic shipping-lane emerging due to global warming. The only potential overhype for natural gas is its potential growth in vehicle transportation because a gaseous fuel is typically not competitive against liquid fuels’ energy density. While the evidence is still emerging on how hydraulic fracturing might be a long-term risk to water supplies, the natural gas industry has been effective in adopting technologies, operating practices and lobbying that is limiting its current exposure to the type of constraining regulation now confronting coal. Sempra is an example of a company positioned to realize revenue growth from generating electricity with natural gas and delivering its through pipelines and LNG ports.
Run Toward LED
Lighting is a significant cost because it accounts for approximately 20 percent of U.S. commercial and residential electricity consumption. LED is a technology solution that cuts electricity costs by using one-tenth the electricity of an incandescent lightbulb. LEDs have a much lower heat signature that reduces the cooling load of a building further saving energy and money. The auto industry has fallen in love with LED lights for their looks and most especially because of their limited energy requirements on a car’s battery. LED technologies are benefiting from Moore’s Law that is pushing production costs toward price competitiveness against all other lighting technologies. Winners in this space include the LED lighting manufacturers plus lighting contractors, building owners and cities that benefit from lower operating costs due to LED street and signal lighting.
Run Toward Car Companies
The car industry has embraced sustainability based upon their analysis that the price of gasoline is not going to go down and stay down, no matter how much we drill. Their 2013 strategy is to redefine a “fun” car as being turbo-charged and digitally connected while also introducing fun-to-drive hybrid and hybrid-electric cars that are becoming affordable. Their challenge is the Millennial generation that is increasingly viewing car ownership as a cost to them and their environment that should be minimized. For the Millennial generation, it is Apple’s “Think Different” mentality that drives their car purchase behaviors compared to their parents’ “See The USA In Your Chevrolet.” 2013 should see continued record-breaking car sales assuming gasoline prices continue to remain in the $4+ per gallon range and the Fed’s monetary-easing policy continues to make car-financing almost cost-free.
A consumer sea-change is underway in the United States. Consumers now want products that “cost less AND mean more.” They are moving past feel good TV ads and are really questioning product labels in terms of their accuracy measured by how they create “in me, on me and around me” solutions.
Investor will be smart in assessing a company’s stock based upon its ability to make a profit by solving root cause environmental and social problems. Apple with its superior product designs is now the poster child for how consumers are focusing upon results. Apple products just work. Apple’s shift to the cloud is reducing costs and waste streams. Apple is still a revenue-generating machine because consumers love how their digital apps and software are just darn cheap, have no consumer waste stream and often are free through seamless updates. Apple’s success at delivering results for their customers is setting the performance bar for all businesses. Yes, Apple needs to improve its fair labor practices. Yes, they need to incorporate recycling more aggressively into their product designs. But the great news for Apple, and every other business that seeks to copy Apple’s results-focused strategy, is that consumers are rewarding companies with purchases based upon results. The smartest 2013 U.S. investor play is to buy stocks that are generating revenues by delivering sustainable results rather than jacking up quarterly sales with yet another promotion.
Bill Roth is the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues.