“A fool with a plan can beat a genius with no plan”. (T. Boone Pickens).
Our country has no energy plan. In the past and currently we have been buying foreign oil and as our needs increased so too have our imports. 700 billion dollars flow out of this country every year to pay for these foreign imports. Much of this money is going to our enemies who are funding wars against us and buying up assets within the United States. To throw salt in the wound, oil prices have now increased to the point where it is crippling our economy. I cringe every time I hear one of our politicians pleading with foreign countries to increase their production of oil. When will they learn their lesson. It’s like the parent who is screaming at his children to behave as their conduct gets worse and worse. It’s time for another approach.
I recently became aware of an energy plan that makes a world of sense to me and I’d like to share it with you. I’ve done quite a bit of research on this plan because I think it is that important. The creator of the plan is T. Boone Pickens, the legendary oil investor, who I have alluded to in previous articles. He is the CEO of BP Capital.
The goal of his plan is not to increase foreign oil production but to become independent of these foreign countries. Here are the facts on oil importation to the US:
- 1970: we imported 24% of our energy needs.
- 1991: we imported 42% of our energy needs.
- Today: we are importing 70% of our energy needs.
Where are our leaders? As Dr. Phil says: “This story needs a hero”.
Boone Pickens to the rescue. His plan to knock down that 700 billion dollar figure and keep those American dollars right here in the USA starts with wind energy. The building of new wind generation facilities can produce 22% of our nations electricity. He claims that the United States is the Saudi Arabia of wind power. There is a corridor from West Texas to the Canadian border that has fabulous wind conditions. The Department of Energy estimates that it can produce 20% of our energy needs; Boone thinks that figure can be much higher.
Sweetwater, Texas is a model of what can happen in that corridor south to north. This town is now booming because of wind energy demonstrating the effect this plan can have on jobs in this country. 250 miles north of Sweetwater is Pampa, Texas where Pickens is creating the world’s largest wind farm. Billions of dollars will be spent in this corridor creating an untold number of jobs. “Oil fields are eventually depleted, wind never stops” says Pickens.
The Problem by the Numbers: ( there are 700 billion problems-where is our
leadership?).
1- The US consumes 21 million barrels of oil per day.
2- We only produce 7 million barrels (5 million of oil and 2 million of natural gas
liquid). Therefore, we import 14 million barrels of oil each day.
3- Total worldwide production of oil is 85 million barrels per day.
4- Therefore, we import 25% of the world’s oil production, but only have 4% of the world’s population.
5- We are importing close to 70 % of what we use.
These numbers paint a rather bleak economic picture. Put that together with the fact that oil is a declining commodity (it is still unclear whether we will be drilling in the outer continental shelf).
The Solution:
1- Of our energy-related natural resources (coal, biofuels, wind, solar, hydrocarbons and nuclear), only natural gas can impact and reduce the 700 billion dollar figure. This is because it is the only form of energy that we can put into our cars and trucks.
Before I go on, here are some interesting facts I learned about natural gas :
-There are 8 million cars toaday that run on natural gas. Only 142,000 of them are here in the US.
- General Motors makes 19 natural gas cars, all foreign.
- The technology is in place right now to use natural gas vehicles.
- Natural gas is cheap, clean, domestic, and abundant.
2- Natural Gas currently produces 22% of our power generation. This can be replaced by wind energy, thereby freeing up the natural gas for transportation use.
3- The use of wind energy to free up natural gas will reduce the 700 billion dollar figure by 38% (300 billion). This can be accomplished within 10 years.
4- This reduction in oil imports will also reduce the price of oil as supply and demand economics kick in.
5- The use of natural gas will give us a 20-30 year bridge to the next alternative (domestic) fuel.
To me, this is a plan that makes sense. The status quo is NOT an option. Boone Pickens has already purchased the turbines for his wind farm. Pampa, Texas will become the Wind Capital of the world. It will generate 4000 megawatts, Sweetwater is generating 2000 megawatts and Shell Oil is building a wind farm west of Pampa that will generate 3000 megawatts. This pattern can continue north to canada and represent huge recovery for rural America. Our capacity for generating wind energy will double by the year 2010 and we’ll be on our way to energy independence.
Back to Dr. Phil…we need a hero:
That hero could be Boone Pickens. He does need the support of the government. Our political leadership will need to clear land access east and west of the aforementioned corridor to carry the electricity generated to the rest of the country…they will need to set up transmission lines. We are in a crisis so this is something that need be accomplished without the normal governmental red tape. It should be a nonpartisan decision to save our country and economy. You politicians waited way too long. The time to act is today…now!
I believe that there is an excellent chance that this plan will be accomplished. Boone Pickens is extremely well-respected in the energy community, well-connected politically, determined, and filthy rich. Need I say more?
The most significant theme to this article is our economy and freedom from foreign and especially unfriendly nations. But why not make some Blue Collar money while we are supporting an energy plan?
Here are some stocks that have a presence in the natural gas arena:
CHK
SD
XCO
CLR
Here are two stocks that have a connection with wind energy:
WGOV
AMN
BONUS - Tony Covino checks out a Cramer/Blue Collar Stock
(FTI) FMC Technologies
It has been a tough task over the past few weeks to find a Cramer stock pick that passes our system checks and that doesn’t have a chart that’s falling off the edge of a cliff. Some of the reasons are because of current market conditions and that some of Mr. Cramer’s picks are not “optionable”. Also, some stocks are “speculative” and are not ready for our system requirements.
As Blue Collar investors, it is our job to keep doing our homework, looking for sectors that are still in demand. As we know, the entire oil and gas patch are still working fine. So our next pick is FMC Technologies or (FTI) for all of us home gamers, as recommended by Mr. Cramer on June 28th. This company is the leader in subsea trees. These trees’s control the flow of oil and gas, as well as other fluids used to regulate pressure in oil wells. This prevents spillage inducing blowouts (less of a chance of spillage) a very hot topic lately.
Some other key points:
- Subsea business has grown 29% since 2002, and FMC expects to grow 62% in the next five years
- Then there’s a 5 billion dollar backlog
- Potential stock buyback worth 10% of shares outstanding
- Best of all, it passes all of Alan’s system checks as follows Overall A+, Technical Rating A, Fundamentals A+, Attractiveness B+, Group Technical A.
- It’s # 1 out of 28 stocks…best in group!
- Scouter Rating of 8
- And a chart that is not that bad
Good luck to all,
Tony
9 responses so far ↓
1 Mike Rael // Jul 11, 2008 at 3:24 pm
Hi,
The problem here is that you talk about a national energy plan. Which means that the government gets to control private industry. Which means theft of private property rights, either directly or via taxes and regulations. The best plan is to get the government out of the energy business. Let private individuals decide what to do with their own money. Then you’d have drilling all over the place, environmentally respectful yes, but definitely drilling. If enough private investors agreed with you about natural gas, that would be used as well.
2 Barry Bergman // Jul 11, 2008 at 4:46 pm
Let’s not forget Petro Hawk, HK. Although it has been pretty volatile, if we follow the methodology and charts, we will a conservative approach.
HK has been good over the last few weeks…
–06/18/08–
Bought HK at $39.56/sh
STO Jun 40 at $0.70/sh
Call expired…2 day return 1.85%
–6/23/08–
STO Jul 45 at $2.30
–7/03/08–
Exited the position
BTC Jul 45 at $4.30
Sold HK at $46.91/sh
10 day return of 13.5%
–7/09/08–
Re-established the position
Bought HK at $44.90/sh
STO Jul 45 at $2.30/sh
Uncalled return is 5.12% for 10 days
Called return is 5.35% for 10 days
(Expiration 7/19/08)
Each time I entered the position, I paid close attention to the chart patterns, MACD, and Stochastics. Throughout the process, I kept watching the IBD and StockScouter ratings.
Alan’s system makes sense! I have attended training from other sources. The selections from those methodologies are all under water…deep water! The stock picks that I found using BCI methodology have been my best positions to date. I’ve been using the system for two and a half months. The positions have not been too badly hurt from the recent carnage in the market.
The other positions that I found and are in are:
AGU, STLD, and FLIR. Although STLD is down a bit, I’m pleased overall.
To say the least, I’m quite satisfied.
3 Owen Sargent, CPA // Jul 12, 2008 at 5:51 am
I agree with Mike, but I think he ends his response too soon. The government is, by and large, incompetent. Congress couldn’t pour water out of a boot if you wrote the instructions on the heel. There are many reasons for this, but the most prevalent is probably special interests.
The rising price of oil is creating a national energy policy by itself. People are driving less (Side benefit: the radio said this morning that it’s saving lives on the highway). Alternative energy systems are undergoing massive research and development. The economics of alternative energy is becoming more enticing.
The only time the government should get involved is to prevent chaos, and only then, sparingly. They deregulated the airlines and pretty soon that will work out for the last airline left. It will be able to set whatever price it wants for tickets. Look at how well deregulation worked for Enron, for a while. They took plants offline and charged California extraordinary rates for electricity.
Forget a national energy plan. What works in Arizona may not work in Minnesota. The thing that terrifies me most is that the government will want to tax your use of the sun or the wind.
Hey, here’s a great energy idea. We put a giant heat exchanger in the Congressional chambers and the White House. We could heat New York City all winter with that much hot air.
4 admin // Jul 12, 2008 at 2:30 pm
As always, great comments by our readers although I may have detected a touch of sarcasm in Owen’s last paragraph.
I agree with Mike and Owen that any energy plan should be handled by the private sector. The government has earned our mistrust with such failures as national health insurance.
However, I see no reason why the government can’t assist with programs that make sense. After all, we are all on the same team.
I checked back on some of Boone Picken’s presentations to see how he felt the government may help with his plan. Here’s what I came up with:
1- It can serve as a messenger in much the same way that President Bush was the messenger for ethanol. Unfortunately, the only thing accomplished there was higher food prices..but at least something was tried.
2- It can renew the expiring tax incentives for development of renewable energy.
3- It can provide east-west corridors to transport the wind energy to the coasts of the US. Perhaps this can be accomplished in much the same way that President Eisenhower supported the development of our Interstate Highway System, one of his greatest domestic accomplishments.
I found this quite interesting and analogous to the program presented in my article:
Biographer Stephen E. Ambrose stated, “Of all his domestic programs, Eisenhower’s favorite by far was the Interstate System.” Eisenhower’s 1963 memoir, Mandate for Change 1953-1956, explained why:
More than any single action by the government since the end of the war, this one would change the face of America. … Its impact on the American economy - the jobs it would produce in manufacturing and construction, the rural areas it would open up - was beyond calculation.
Could Pickens Plan do the same? I don’t know the answer to that, but I am sure that the status quo is NOT working. I still say that we need a hero.
Finally, let me apologize from veering from my usual “stock talk”. It’s just a topic that I feel needs addressing and I’m fortunate to have you to discuss it with. Next up may be how my NY Yankees are DRIVING ME CRAZY!!!!!!!!!!!!
Alan
5 admin // Jul 13, 2008 at 7:26 am
HEALTH CARE/STOCK SPLIT
I have received several emails the last few days telling me that Cramer has been encouraging investing in health care stocks. The thinking is that despite what is happening in our economy, this is one area people will NOT cut back in. Makes sense to me.
Here are a few health care equities that meet our system criteria. Check them out and see what you think:
ACL
BAX
QDEL
MDT
For those of you who have ATW on your watch list, keep an eye out for a 2-for-1 stock split which should take effect tomorrow or early next week.
Best to all,
Alan
6 Robert Gardella // Jul 13, 2008 at 7:42 am
Hi,
About cars powered with natural gas as fuel, I am a bit leery. There are several car fires every year. I don’t know the stats, but I believe not many if any cause fatalities. Change to natural gas, and the fires will be replaced with explosions - very dangerous. I don’t believe our nearly bankrupt auto companies have the desire or ability to make them extremely safe. NASA can’t even keep insulation from falling off their rockets, and they have billions at their disposal.
About government regulation, I believe we need more. The big money business people have proven they can’t be trusted. They lie and cheat and do anything, legally or illegally, for their own personal benefit.
After the banks were deregulated, plenty went bankrupt. After insurance companies were deregulated, several went bankrupt. After utilities were deregulated, some went bankrupt, including my supplier in NH. All these were supposed to be safe places for your money. Former anti-trust laws are all but ignored. In cases of public need -utilities, energy, financial institutions, etc. the net result has been disastrous.
Wind energy is a great partial answer to the energy problem. Boone Pickens has a lot to offer, but I can’t help thinking that his plan has a conflict of interest. After all, he has a lot to gain if it materializes. He knows how to make money, and this fits right in.
It comes as a surprise to many that 65%-75% of the electricity produced is wasted getting to the consumer. When I first learned this, I thought it was a misprint. No, we only get to use 25% of the electricity produced from power plants. I think this is absurd. Why hasn’t anyone tried to improve on this ?
About three years ago, I wrote to the US Dept of Energy. They never replied. I suggested that instead of Wind Farms, have the utility companies install the wind propellers on the existing power lines that travel all over the country (not the small poles outside your house). There are several advantages, as follows:
1. The power will provide a boost to the electricity from the power plant.
2. The towers and lines already exist negating the cost of building new ones.
3. The land is already being used by the power companies negating acquiring more land by “public domain”. (A law I absolutely hate.)
4. The labor required will be spread allover the country with local people benefiting, rather than a concentration at the farm and “new corridors”
5. All costs will stay in this country, rather than to the oil cartel.
I have noticed that a “trial propeller” has recently been put on a pole by Hampton Beach by my utility provider, Unitil of NH (Maybe someone read my letter.)
I know this won’t be popular with the big money people, because they haven’t figured how to skim money from it, yet.
I didn’t mean to be long winded, and I would appreciate comments.
7 admin // Jul 16, 2008 at 3:58 pm
Email Question:
Alan,
I have a hypotheical question. Purchase XYZ stock at 50 and get a premium of 2.40. Assuming all the buy parameters are met, and it is a good stock, it drops to 44. We are near expiration and next months premium is only 1.00 ( at strike price of 50. Do you sell the premium or sit on the stock for awhile to get a better premium, or sell a premium two months out, and maybe break even, (assuming it doesn’t drop further. The market is oversold now, and we should get a bounce in the near future. Hopefully I presented the problem correctly.
Bob
Bob,
Great question. This comes up frequently. Even when you screen a stock as carefully as we do, a stock can still go down, especially in this environment.
Your hypothetical tells me that you still like the stock. Here’s what I do in these situations:
1- Make sure the ER does not interfer.
2- If I feel that there could be a bounce back, I may wait a week into the next contract period before selling the option. Remember, time decay is minimnal during this first week.
3- Let’s assume that the stock does not appreciate much that 1st week. You take your $100 per contract. That’s a 2% , 1-month return or 24% annualized. Still not bad for a stock that you like and about 6 times what your bank CD will return!
Alan
8 admin // Jul 16, 2008 at 4:18 pm
Another Email Question:
Alan, hello, my question is when should I just take the profit and let the stock (HK) get called away, or buy back the option to hold another month for another profit. I guess I think of it like I have my money(profit)”Bird in Hand” why pay back the profit to re-option again? to get straight in my head.
As of now almost 11% next option period is a nice return, I know! and I should not combine last month’s (buy back) to this month’s(profits).
PS: I know (HK) is going to have it’s ER out next option period, I should get out or hold long w/o an option maybe, but if it wasn’t what would you do?
The proceeds for 1 HK AUG 45.00 is: $ 460.00 $ 460.00
The cost to buy back 1 HK JUL 40.00 is: $ (510.00) $ (510.00)
Your net loss on this option position is: $ (50.00) $ (50.00)
The “bought up” value in the closing option is: $ 471.00 $ 471.00
Your upside potential return is: $ 29.00
Your net return will be: $ 450.00 $ 421.00
Your comparative basis in the stock is: $ 4,180.00 $ 4,180.00
Your comparative returns are: 10.77% 10.07%
You downside protection is: $0.00
Thanks,
Tony
Tony,
Assuming there was no ER, here’s what I would do bearing in mind that this is a negative market:
1- Buy back the 7/40 for $5.10 (today’s price)
2- Sell the 8/40 for $7.30
3- generate a $220 net profit per contract. This is a 5.5% 1-month return (66% annualized)
with better than a 10% downside protection!
4- If this were an uptrending market, I would consider the 8/45 call or if I had more than 1 contract, I oftentimes sell some @40 and some @ 45.
Alan
ps: Tony’s calculations were from the ESOC - Ellman System Options Calculator, a great tool.
9 Robert Dunn // Jul 18, 2008 at 4:06 am
Great work, Iwill follow all your emails and see what stock to buy. Thank you
Leave a Comment