The likelihood that lingering inflation and other factors lead to persistently higher oil prices leaves this stock picker focused on alternative energy and electric vehicles.
Ivana Delevska, founder and chief investment officer at SPEAR, which runs the actively managed SPEAR Alpha ETF
already guides the fund toward disruptive industrial-technology stocks. The fund is down 3.6% on a total-return basis so far in 2022.
Now, she has her sights on what looks to be an inflation-tolerant trio of companies that can counter energy-price volatility.
Crude-oil prices tallied a 17% monthly rise in January, according to Dow Jones Market Data. Both West Texas Intermediate
and London-traded Brent
wrapped January at their highest levels since early October 2014. The most actively traded gasoline futures
contract surged 15% in January and is up over 60% in the past year.
Oil — and relatedly, natural gas and gasoline — and inflation are linked because energy is a major input in the economy used in critical activities such as fueling transportation and heating homes. If input costs rise, so should the cost of end products. Some observers say the tie between energy prices and broader inflation has been reduced in recent decades, but the cost to run their homes and cars can influence consumers significantly. EVs — a Tesla
for instance — have historically had higher sticker prices but kick in savings over time.
For Delevska. the disruption that comes with EVs, especially the batteries to run them, and the companies well-positioned for the continued shift toward creating electricity via cleaner energy sources, were already positive themes shaping her fund. But oil’s surge reinforces that view, she said.
“‘We like the entire supply chain around EVs.’”
Delevska believes an uncertain future for traditional energy sources, including a push by major oil drillers deeper into alternative-energy markets themselves, means that oil and gas capacity is not being added fast enough to bring prices lower, she said. Only a sharp change in demand will likely stabilize oil prices, she added. But consumers who might be on the fence about an EV, or communities and companies eyeing “cleaner” power sources, will use higher energy costs to justify their own moves away from fossil fuels. Not to mention that oil wells and gas equipment without steady maintenance and investment deteriorate, leaving the industry in a tough spot when it comes to upkeep in a changing market.
All told, it’s a supply-demand cycle that Delevska says favors the push toward investing in alternative energy and EVs, as well as the infrastructure that make both possible.
“The tricky part is finding [stock] opportunities. Interest rates are rising, creating a headwind for growth stocks in general,” Delevska told MarketWatch. “Our focus is finding companies that have the edge of a growth stock but also have solid cash flow.”
3 picks and a bonus
She highlights miner Livent Corp.
suggesting it is “very advantageously positioned as a lithium manufacturer, which is expected to remain a key bottleneck component in the production of EVs.” Lithium-ion batteries are what run an EV’s engine in place of gasoline combustion.
Other analysts’ views — for instance a Goldman Sachs note late last year that said broad lithium-mining stocks had gotten too steep — support Delevska’s view that she has to pick the best of the bunch.
And while she concedes that lingering supply-chain issues may impact most components in EV and other manufacturing, the pared-down assembly of EVs over their more complex, gas-powered equivalents leave the former less exposed to trade and supply volatility.
LTHM shares are down nearly 8% so far in 2022, after a 13% gain in the past year.
Her outlook doesn’t stop with batteries. “We like the entire supply chain around EVs,” Delevska said.
That brings her to a charging-infrastructure pick: ChargePoint Holdings
Delevska called it a diversified play on the theme because the company offers hardware and software to fleet, residential and commercial customers.
The stock has been clobbered lately, with its share value sliced in half in 2021 and down 30% so far in 2022.
Among other factors, charging support got a boost in the bipartisan infrastructure legislation passed last year, but the most robust government request for funding to back EVs and their charging network has been hung up in a stalled Build Back Better bill.
For other analysts, share value was a key driver to their cautiousness on ChargePoint. J.P. Morgan analyst Bill Peterson wrote late last year, “We continue to have a favorable view of ChargePoint’s ‘land and expand’ opportunities in EV charging, and we believe the key for ChargePoint will be to continue bringing innovated hardware-and-software solutions to market.” But he felt then that good news was largely priced in.
Lastly, Delevska has targeted Eaton Corp.
The power-management company, which helps wind-turbine operators, for instance, convert power into electricity and transport it to the grid, said Friday that it expects another year of earnings growth in 2022.
Shares are down 12% in the year to date, cutting into a nearly 25% one-year gain.
Outside of these top picks, the fund manager has a related play, but one that has broader uses: semiconductor chips.
In large part, it’s semiconductor inverters that are driving greater EV traveling range. Research firm IDTechEx says demand for semiconductor content per electric vehicle is roughly 2.3 times that of internal-combustion-engine vehicles.
“These are always pretty volatile stocks, but I feel [chip] demand is guaranteed even if the economy slows down a bit because supply is tight,” Delevska said.