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Living in a $100 Oil World

Recent trends in rising oil prices provide plenty of investment opportunities.

By Chloe Lutts


Today’s Biggest Trend

Living in a $100 Oil World

An Oil Alternative Stock


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As I’ve mentioned here before, one of the things we do at the Dick Davis Digests is identify the major investing trends of the day, and recommend ways to invest in those trends.

For the past few months, one trend has been more resilient than any other: rising oil prices. Every single issue of the Digest since the beginning of the year has included at least one--and usually several--plays on rising oil prices.

As consumers, politicians and economists all know well, oil prices have huge ripple effects in today’s world. Their most evident effects are seen in gas prices, and their ability to alter driving habits.

This morning, for example, I rode a bike to work, along with hundreds of other residents of Amsterdam, where I’m currently staying. The streets of Amsterdam are crowded with bicycles, not just because they’re a traditional and convenient way to get around the relatively flat, compact city, but also because the Netherlands imposes one of the world’s highest taxes on gasoline. The excise tax on unleaded petrol here is almost twice the European Union minimum, at 688.97 euros per 1,000 liters, or about $3.86 per gallon. On top of that, there’s a 19% VAT, or valued added tax.

Some of that tax goes to creating and maintaining an excellent system of bike lanes, bike racks and even bike traffic lights, making biking a very viable transportation alternative for the Dutch. They even transport small kids in specially designed bikes with a big wooden box between the handlebars and front wheel.

Of course, there are some situations in which you just can’t beat the convenience of a car. For those times, Europeans have perfected--and buy huge numbers of--small, fuel-efficient compact cars, minicars and city cars (the smallest class). The Volkswagen Golf, Opel Astra and Renault Clio are consistently best-selling models, all getting at least 30 mpg of gasoline and often much more (depending on specifications and driving conditions).

But I encountered the true epitome of fuel efficiency last night: the all-electric Smart Fortwo ED (for electric-drive).

Smart Car photo

The Smart Fortwo is small to begin with. Even the non-electric models get about 40 mpg. The all-electric, zero-emission model gets the equivalent of 280 mpg. I got to take a look at one (without a passenger door) at an event sponsored by Smart.

I couldn’t tell much just from looking at it, but from what I’ve read, it seems the Smart EV may be the end-all-be-all of fuel efficiency, but not much else. Its top speed is 62 mph and its range is on the short side at 60 miles.

However, there will reportedly be 300 of them on the streets of Amsterdam by the end of this year, as the fleet for car-sharing program, car2go. Three hundred electric charging stations will be installed around the city and another 700 will be added in 2012.

Assuming everything goes according to plan, all of those charging stations could definitely help make electric cars of all makes popular in Amsterdam.

As for the rest of the world, rising oil prices are beginning create the kind of energy-efficiency incentives the Dutch government created with taxes long ago. Obviously, widespread adoption of electric vehicles will be gradual and slow, especially because of the infrastructure component involved. However, luckily, as an investor, you’re able to profit just from increased expectations for the electric car industry. Car companies don’t actually have to be selling more--or even any--cars for investors to bid their stock price up.

I highlighted an interesting Chinese electric car company in last week’s issue of Investment of the Week. If you missed it, you can find the recommendation here.

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Of course, oil prices don’t just affect driving habits. In our petro-dependent world, they affect the price of everything from plastic to food. They can also change the relative costs of commercial transportation alternatives, making trains more attractive than trucks. And of course, they dictate the viability of--and interest in--other energy sources, from shale gas to solar panels.

So trends in oil prices provide plenty of investment opportunities.

To keep things interesting, today’s investment of the week is from the oil alternatives group--these are companies that produce non-oil energy or related equipment. Any time oil prices rise, these alternatives become less costly by comparison. In some cases, demand for the alternative increases, in others interest in the stock simply increases. Either situation can be investable.

From the May Stock Pickers Digest, edited by Patrick McKeough:

Sasol Ltd. (SSL) has developed a technology to convert coal and natural gas into motor fuels. The company is now the world’s largest producer of fuel from coal at its facility at Secunda, South Africa. Sasol also produces synthetic fuels from natural gas at plants in Qatar and Nigeria. In addition, the company has substantial chemical-production interests, and produces oil and gas in Africa. Sasol is also South Africa’s third-largest coal producer.

“In the six months ended December 31, 2010, Sasol’s revenue rose 15.8%, to $9.9 billion from $8.6 billion a year earlier (all figures in U.S. dollars). Earnings per ADR rose 19.9%, to $1.87 from $1.56.

“In the last three months, Sasol has made two major shale-gas acquisitions in the Montney Basin region of western Alberta and northeastern B.C. The company paid $2.2 billion for a 50% interest in two properties held by Talisman Energy (Toronto symbol TLM). Sasol will now team up with Talisman to develop shale-gas production at these properties. The partnership will also investigate the feasibility of developing a gas-to-liquids plant that would use this gas. The company’s expansion in Canada offsets some of the political and currency risks of operating mainly in South Africa. In the past, high costs for development, operations and maintenance have limited the use of synthetic-fuel technology. However, rising oil prices are now making Sasol’s technology more attractive. While natural gas prices are low in relation to oil prices, the company plans to focus on gas-to-liquids technology. Sasol ADRs are a buy for aggressive investors.”

Learn more about SSL and other high-potential stocks featured in Dick Davis Investment Digest!

Wishing you success in your investing and beyond,

Chloe Lutts
Editor of Investment of the Week

Cabot Editor