Beat inflation with 3 stocks betting against oil in favor of EVs and the grid for renewable energy

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The likelihood that persistent inflation and other factors will lead to persistently higher oil prices keeps this stock selection focused on alternative energy and electric vehicles.

Ivana Delevska, Founder and Chief Investment Officer at SPEAR, who runs the actively managed SPEAR Alpha ETF SPRX,
already steers the fund towards disruptive industrial technology stocks. The fund is down 3.6% so far in 2022 on a total return basis.

Now it has its sights set on a seemingly inflation-tolerant trio of companies that can counteract the volatility in energy prices.

Crude oil prices rose 17% monthly in January, according to Dow Jones Market Data. Both West Texas Intermediate CL00
and London-traded Brent BRN00
wrapped January to the highest level since early October 2014. The most actively traded gasoline futures RB00
Contract rose 15% in January and over 60% over the past year.

influence of energy

Oil — and related natural gas and gasoline — and inflation are linked because energy is a key input in the economy, used for critical activities like fueling transportation and heating homes. If the input costs increase, the cost of the end products should also increase. Some observers say the link between energy prices and general inflation has weakened in recent decades, but the cost of running their homes and cars can have a significant impact on consumers. Electric vehicles – a Tesla TSLA,
For example – have historically had higher sticker prices but achieve savings over time.

For Delewska. The disruption that is coming with electric vehicles, particularly the batteries that power them, and the companies that are well-positioned for the ongoing shift towards generating electricity from cleaner energy sources have already been positive themes shaping her fund. But the rise in oil reinforces that view, she said.

“We like the entire supply chain around electric vehicles.”


— Ivana Delevska, SPEAR

Delevska believes an uncertain future for traditional energy sources, including a push by big oil drillers going deeper into the alternative energy markets themselves, means oil and gas capacity is not being added fast enough to bring prices down, she said. Only a sharp change in demand is likely to stabilize oil prices, she added. But consumers hesitant about an electric vehicle, or communities and businesses eyeing “cleaner” energy sources, will cite higher energy costs to justify their own shift away from fossil fuels. Not to mention that without constant maintenance and investment, oil wells and gas equipment deteriorate, putting the industry in a difficult position when it comes to maintaining in a changing market.

Related: Democrats liken oil company response to climate change to tobacco cancer denial

All in all, it’s a supply-demand cycle that, according to Delevska, favors the push towards investments in alternative energy and electric vehicles, as well as the infrastructure that enables both.

“The hard part is finding it [stock] Opportunities. Interest rates are rising, creating headwinds for growth stocks in general,” Delevska told MarketWatch. “Our focus is to find companies that have the advantage of a growth stock but also have solid cash flow.”

3 picks and a bonus

She raises the miner Livent Corp. LTHM out,
suggesting that it is “very favorably positioned as a lithium producer, which is expected to remain a key bottleneck component in EV production.” Lithium Ion Batteries are what power the engine of an electric vehicle instead of burning gasoline.

The views of other analysts — for example, a note from Goldman Sachs late last year saying that broad lithium miner stocks have risen too high — support Delevska’s view that she needs to pick the best from the crowd.

And while she acknowledges that ongoing supply chain issues can affect most components in electric vehicle and other manufacturing, the reduced assembly of electric vehicles versus their more complex, gas-powered equivalents makes the former less vulnerable to trade and supply volatility.

LTHM shares are down nearly 8% so far in 2022 after climbing 13% last year.

Read: Standard Lithium’s shares slip 22% after the short says its technology isn’t working

Your outlook doesn’t stop at batteries. “We like the whole supply chain around electric vehicles,” said Delevska.

Which brings you to a charging infrastructure recommendation: ChargePoint Holdings CHPT.

Delevska called it a varied play on the subject because the company offers hardware and software for fleet, residential, and commercial customers.

The stock has been flattened of late, halving its share value in 2021 and down 30% so far in 2022.

Among other things, charging support got a boost from bipartisan infrastructure legislation passed last year, but the most robust government request to fund support for electric vehicles and their charging network has been shelved in a stalled Build Back Better bill.

For other analysts, stock value was a major factor behind their caution on ChargePoint. JP Morgan analyst Bill Peterson wrote late last year: “We continue to have a positive view of ChargePoint’s ‘land and expand’ opportunities in electric vehicle charging and we believe the key for ChargePoint will be continue to offer innovative hardware and software solutions to the market.” But he felt at the time that good news was largely priced in.

Related: ChargePoint Sees Big Insider Stock Buy

Finally, Delevska Eaton Corp. ETN targeted.
The power management company, which, for example, helps wind turbine operators convert power into electricity and transport it to the grid, said on Friday it expects 2022 to be another year of earnings growth.

Shares are down 12% year-to-date for a one-year gain of nearly 25%.

Read: Amazon, Target and other corporate giants are accelerating record-breaking “clean” energy purchases and showing little sign of stopping

Aside from these top picks, the fund manager has a related game, but one that has broader uses: semiconductor chips.

To a large extent, it is semiconductor inverters that ensure that electric vehicles have a longer range. research company IDTechEx says the demand for semiconductor content per electric vehicle is about 2.3 times that of internal combustion engine vehicles.

“These are always pretty volatile stocks, but I feel [chip] Demand is guaranteed even if the economy slows down a bit because supply is tight,” Delevska said.

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