90%. That’s how much lithium speccy stock Piedmont Lithium Ltd [ASX:PLL] soared yesterday on the news of a Tesla offtake deal. It roared up again in US trading overnight.
Why am I bringing it to your attention? It tees off our discussion from yesterday. There are the old industries that investors and traders are increasingly disavowing.
Oil and coal spring to mind first. Yesterday I flagged banks as possibly heading in that direction too. These are the stocks to be wary on.
But then there are the industries the market is prepared to place a huge growth multiple on. Clearly anything to do with Tesla attracts every speculator and investor within a coohee of what’s happening in the wider world.
I’m kicking myself a little on this one. Just the other week I mentioned Piedmont as one of the few North American lithium projects that could attract strategic investment for that reason alone.
But I gave other ideas precedence over this one and never worked out the full story. I suppose you can’t get them all! I suggest you be wary now. Piedmont is soaring because they have an agreement with Tesla.
But it’s not as if Tesla is going to shower money on them tomorrow. In one sense, the announcement is banal.
Tesla’s money is the same as any other lithium buyer. They’ll pay the market price for lithium, whatever it is, by the time Piedmont is producing — which it currently isn’t.
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Why Invest in the Switch to Clean Energy?
What we can take away from the Piedmont experience right now is that the action to follow in your investment strategy should revolve, at least in part, on the switch to clean energy. This is where the high growth and big multiples are.
Consider the opposite. Yesterday I read in the Financial Times that the share price of British petroleum major BP is sinking as investors abandon the company.
The stock is now trading at a 25-year low. This is despite the fact that the company is planning to cut oil and gas production by 40% by 2030.
This is the problem for the fossil fuel industry. Investors no longer see a future for it. The stocks might sink to as low as one or two times earnings.
There should be no glee from any of us on this outlook. The world is still a big user of oil and there’s not much incentive to go and look for more these days. That might prove to be a problem down the line.
But it’s not a problem today, or even the next quarter. And we’re all looking for investment opportunities.
That means, to me at least, not scrummaging among oil and coal stocks anymore. They can look mighty cheap…but they’ll likely stay that way.
Of course, conversely, you know the usual suspects when it comes to the beneficiaries. Then battery metals of lithium, nickel and graphite will have their part to play. Copper is another big opportunity over the long term.
But there are more. Here in Australia we are blessed with such abundant minerals, there is going to be huge wealth creation based off this shift over the next five years.
The question is: are you going to take the German or Australian approach to making money out of it?
You see…there are quite a few Aussie stocks that ‘dual’ list on the German stock exchanges as well as here on the ASX. They report that the Germans have a completely different mentality when it comes to shareholding.
The Germans invest in a company and stick with it. They don’t trade. They buy and hold. Here in Australia most small-caps are the playthings of day traders and speculators.
There’s no right or wrong about this. But you do need to decide which it is you want to be here.
Because if there’s one thing I’ve learned about big trends, like the switch to clean energy, is that they do not go in a straight line. There are wobbles, set backs and down periods along the way. Mines, for example, don’t get built in six months. They can take years.
Even the mighty company Amazon spent many years tracking sideways as Jeff Bezos ploughed every cent into future growth.
Let’s go back to Piedmont on this issue. The stock will likely go up again today. But at some point shortly the immediate trade will fizzle out. The Aussie trader will cut his position and take his profit.
But the Piedmont mine coming is still strategically placed on the Atlantic coast of the US. The German trader would likely buy the dip for the long haul.
And you?
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: Free report reveals why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.
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