ELSR buyers
IVANGOROD, Russia (MarketWatch) -- October is the time of year when we traditionally begin to see fuels like natural gas and heating oil begin to rise and rise steadily.
Actually, they're already doing just that.
And with the subprime nightmare still unraveling and consumers being stretched to the gills, higher gas and oil prices may be the straw that breaks the Dow's back, again.
Already, we are seeing reports that fewer people are eating out and buying big ticket items. If energy prices rise even more, that situation is not likely to improve.
Here in Estonia, where I make my second home, heating bills for natural gas are expected to triple this year. That's right, three times as much as last year. Most people here simply don't have that kind of money, no way. The situation in the Ukraine is even worse.
The people of Estonia, like the Ukraine and the other Baltic nations are basically 100% dependent on oil imports, especially heating fuels like natural gas and heating oil from Russia.
What does all this have to do with your equities portfolio? Plenty.
Because with oil prices at $80 plus per barrel, Americans are being forced to begin to look at alternatives, as they have to here. And these will not be just the fanciful quick fix of ethanol either. Other more serious long-term solutions will be needed -- everything from solar and nuclear power to biofuel and geothermal energy.
Global demand for oil is increasing exponentially and supplies are dwindling, and whether you subscribe to the "Peak Oil" theory or not, the bottom line is that the cheap and easy-to-get-to energy is gone or going fast.
So, if our analysis is right and skyrocketing oil prices are foreshadowing even more pain for consumers, then a real search for alternatives will be at hand.
The novelty of corn based ethanol is already wearing off and the reality is that existing alternatives like nuclear, solar, wind, geothermal and others are likely to make more sense for consumers and investors.
If investors are willing to stomach some risk, investing in February Heating Oil (HOG8) and January Natural Gas (NGF8) Futures and options are the most direct way to play this shift in the near term.
In the nuclear sector the best way to play it is with uranium stocks. This has been a very volatile market in 2007 and at the moment it has conveniently pulled back from its highs. There are several smaller names in this sector, but I think it's better to stick with the bigger ones. For example: Cameco CCJ and Frontier Development FRG. (Full disclosure: I own shares of Frontier.)
In the solar sector, Evergreen Solar ESLR as well as some names in China look very interesting. But be prepared for a bumpy ride.
In my opinion, forget about corn-based ethanol. That train has left the station.
The focus is now likely to shift to biofuel and bioheat. Some of the interesting names in this sector are biggies like Archer Daniels Midland ADM and ConAgra CAG. There are more obscure ones on the pink sheets, where there are no guarantees.
One thing is fairly certain, soy-based biofuels are far more efficient and cost effective than their corn counterparts, so November 2008 soybeans (SX8) and/or Soybean Oil futures and options may also be a good vehicle to consider adding to your portfolio.
