Make a killing from rising electricity prices
Trading Tips | 22 June, 2011
IN THIS WEEK'S ISSUE:
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- Profit off this power trade
- The trading secret for any conditions
- The lazy way to wealth
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Dear FSP Invest Reader,
I went to Builders Warehouse the other day to top up all the gas cylinders I use in my gas heaters. When I got there they said all their gas was sold out. After trying another two stores that were also sold out, I realised how higher electricity prices and our overburdened electricity infrastructure is causing everyone to seek cheaper alternative sources of energy. And natural gas is a very affordable alternative.
What can we do without energy? Nothing…
So how can you profit from this trend?
The fact that gas was sold out just demonstrates how strong the demand for this alternative source of energy is. This is great news for energy companies that supply these alternative sources. Gas can be used as an indicator for the overall shift towards alternative energy.
Especially for a massive blue-chip company, that is currently poised for growth and cheaply priced…
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More electricity price hikes
Eskom requested a nominal electricity price increase of 60%. This just shows you how high Eskom is aiming! But this hike was denied by National Energy Regulator of South Africa (NERSA). Instead Eskom has been allowed to increase electricity prices by 13.3% in addition to the 14.2% increase granted in December. As a result the year-on-year nominal price increase amounts to 27.5%. And there are still more price hikes to come, NERSA projects electricity prices to rise each year by 20% to 25% for the next three years.
If you are one of those people who bought into the luxury of under floor heating, you are going to get hit by these price hikes!
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Who's the blue chip that always stays ahead of country wide energy requirements
The company I’m looking to buy is Sasol (JSE:SOL). Sasol is a solid blue-chip oil and gas producer that offers a good dividend yield of 3.13% and P/E of 11.95. This is good in comparison to the major oil and gas industry with a P/E of 12.5. The company has also recently bought a large (50%) share of Canadian based Talisman Energy’s Farrell Creek shale gas assets. This will advance Sasol’s already strong Gas-to-Liquid (GTL) value proposition by using Talismans proprietary technology.
With the recent soft patch experienced in the global economy due to Greek default worries and America’s ballooning debt, Sasol shares can now be bought at a bargain price. The electricity price hikes effect on the demand for alternative energy sources such as gas or oil should benefit Sasol.
Using the market pullbacks to buy good shares, like Sasol, at great prices is a fantastic way to give your portfolio a boost with short, profitable trades.
That's it for today. If you have any questions or suggestions please email us at tradingtips@fsp.co.za
Until next time
Happy trading,
Malcolm Riley
FSPInvest Chief Commodities and Offshore Investment Strategist
