September is starting out as the month of speculation about a massive three day air strike on Iran.
Is Bush ready to attack Iran while our troops are still trying to stabilize both Afghanistan and Iraq? In February, administration officials were denying it. The preparations now going on could simply be the stick part of a negotiating strategy; the bad cop to Russia’s good cop. But Bush’s chances of successful cooperation with Putin could be better.
What if?
If Bush does launch a massive three day air strike on Iran, what will that mean for alternative energy stocks? I think it would have to be favorable. We can certainly expect the oil price to rise sharply, which tends to be good for alternative energy. Because a war with Iran would almost certainly disrupt world oil supplies, not only from Iran but from neighboring states such as Saudi Arabia.
Of Alternative Energy stocks, the ones likely to see the greatest appreciation from a war induced oil price spike are the ones most aligned with energy security, with a lesser advantage seen by the rest. If the region remains in turmoil for a long time (and the wars in Iraq and Afghanistan certainly point to that as a possibility) then the rest of alternative energy will probably follow.
Here is my list of the alternative energy stocks I think would benefit most from short and long term increases in the price of oil:
Batteries/Hybrids:
Short term: Hybrid car makers such as Toyota (NYSE: TM) and Honda (NYSE: HMC) will benefit as people spooked by high gas prices buy hybrids.
Longer Term: All carmakers will be introducing efficient cars, so component makers with an advantage in efficiency such as Magna International (NYSE: MGA), as well as battery and capacitor manufacturers will benefit. A war with Iran might cause car makers to stop waiting for better Lithium Ion batteries and just go with the tried and true NiMH batteries in a big way.
Biofuels
Short term: Ethanol from corn is lousy on the environment, but almost all the energy that goes into it is domestic. So most corn ethanol producers will benefit. I have mixed feelings about biofuels, but ADM is my favorite, because they have a dominant position, and produce their own feedstock. Biodiesel producers will also get a boost, for the same reason, but try to find ones which don’t rely too much on the commodity oil markets.
Longer Term: Look to cellulosic ethanol companies, such as BlueFire Ethanol Inc. (OTCPK: BFRE), and ethanol from sugar companies such as Brazil’s Cosan (NYSE: CZZ.)
Coal-to-Liquids
Short term: Coal to Liquids (CTL) firms are likely to get a big short term boost because coal is domestic.
Long term: CTL may have trouble due to constraints in the domestic supply of coal.
In general technologies that can be used for transportation fuels will see big benefits, with lesser benefits being felt by electricity generation technologies. I’ve declined to list hydrogen here, because I think it’s not a very good transportation fuel due to its low density, the additional energy costs of compression, as well as the high cost of fuel cells.
DISCLOSURE: Tom Konrad and/or his clients have positions in MGA, ADM.
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