Transcript:
Easan Arulanantham:
With Sinema agreeing, in principle [to sign the Inflation Reduction Bill in Congress], should I be buying Clean Energy and electric cars?
Tom Vaughan:
Yeah, WE did. So, last week, you know, clean energies jumped on the news, that there was some possible agreement on this inflation reduction bill. But it was for a variety of reasons. I wasn’t positive that this thing was going to pass. And still we’re not right? I mean, it is nice that the two senators on the Democratic side that normally are the hardest ones to get through both seems to agreed that this is going to happen. So that helps and maybe get some more confidence towards that area. But the main reason that we bought our Clean Energy ETF was because it has been -on a relative basis- making more than the overall stock market since the invasion of Ukraine on the 24th of February, which makes sense, and that trend isn’t going to change.
Europe is trying to get off of Russian oil, natural gas and coal, one of the solutions will be Clean Energy, wind, solar, and whatnot. And so these companies are in front of the possibility of some money, because it’s not just gonna be the US, that’s looking to put money like they are here with this, this bill into Clean Energy, it is Europe, China’s already working on it, everybody’s looking at this, in my opinion, I’m going to start to think Man, we need to get to a spot where we have our own energy that we control, and that we’re not getting from some other country who could all of a sudden become, you know, a country we don’t want to deal with. So yeah, I think Clean Energy is a good bet here. The problem is that they’re still fairly overpriced. When you dig into these ETFs. Or you dig into these individual holdings. A lot of times, they’re still pretty expensive versus earnings. So in this market environment, it’s a little bit of an aggressive move to be in those, you know, high P E ratio stocks. But I do like the relative strength that they’ve been showing recently.
What about electric cars and those companies, because electric cars are a little bit harder to invest in? Because there’s not a lot of pure plays? I’d say you can think about Ford, Ford also has their gas, and electric, or most of those major kind of car manufacturers have mixed.
Tom Vaughan:
Yeah, yeah, General Motors has a fairly big presence in electric, but obviously has an awful lot in non electric cars. And so you know, how do you play those, generally speaking, when you see a electric vehicle ETF, they’ll have a lot more exposure to the universe of different pieces, the battery makers and the companies that are making the little inverters that make solar cells, you know, better is a big one that fits in those regular Clean Energy ones. And so the plug power things, you know, we got to plug these cars in somewhere that target and Max and you know, New Mexico or whatever it is where you know, where we’re traveling, so that that type of thing is the more pure play, it’s tough, and then those will be included in those electric vehicle ETFs. And that’s how they do it, because otherwise, you’d have what Tesla basically, there aren’t, you know, there are a couple of other pure plays, you know, internationally and whatnot, too. But they’re rivian, I suppose, is another one, right. And so it’s a really limited list, you’d have a very small ETF. And the way that they do that is just spread it into the ecosystem of that whole whole arena, all of the different pieces. And I actually like spreading it even farther, we’ll call it Clean Energy, put the car stuff in there, and the wind stuff and the solar stuff, I like that more diversified Clean Energy PS, once you start really narrowing it down, if you watch those, they can get a lot more volatile. Like, you know, the pure solar, you know, ETFs have been, you know, they’re fantastic sometimes, and then they’re really, really can be aggressively to the downside when things aren’t going right. So, again, a lot of these things are overpriced. on a relative basis, Tesla’s be in that category, it’s selling at a pretty high multiple times its cash flow, etc.
Easan Arulanantham:
So, yeah, talking about those solar ETFs earlier this week, I forgot the name. It was Solar Edge. Basically, we had a pretty abysmal earnings report and the market didn’t take kindly, and they dropped like 15 to 16%. And then all the solar ETFs got hammered.
Tom Vaughan:
Yeah. And that Solar Edge actually was selling at 78 times earnings. The average market right now is around 18, I think. So that’s very expensive. And if you miss your earnings people are paying that extra premium for a company like that, because they’re growing so fast. All of a sudden you realize they’re not, you’re gonna take a big hit to the stock price. So that’s where the risk stands at certain markets. Nobody cares about the P 2020. is a good example. It didn’t matter. I mean, companies didn’t even need earnings, they were selling at 300 times their revenue, and just crazy stuff. Same thing we had in 2000. But this market is much more reasonable, much more focused on cash flows, which is not an unusual scenario when the market is down. People are being less risky, taking less risk as far as that goes. So that’d be my only real big caution about over investing in this category. It’s just they are still fairly expensive.