With tax bill done, energy bets turn toward acquisitions
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Despite extremely heavy rainfall and flash flooding this past week, long-term drought dating back multiple years remains across south-central Texas. Drought conditions expanded and intensified across the Pacific Northwest and Northern Intermountain West, according to the U.S. Drought Monitor. Yellow = abnormally dry, red = extreme drought. Data as of July 10.
It started with BP (BP) earlier this year. Shareholder confusion over what kind of energy company it had become over the past decade had depressed the stock to the point where an activist began buying shares and demanding it either return to its oil roots or sell itself. Merger speculation began soon after.
This week, shares of another energy giant, AES Corp. (AES), leaped on a report that two large private equity firms were eyeing the power generation and utility services company as a way to pick up a relatively inexpensive bet on the expected surge in demand for energy in coming years from AI data centers.
Both companies are now in play, despite denials by management and potential acquirers. With stock markets at record levels and market speculation about the White House’s big tax bill now out of the way, attention is turning back to the AI arms race, and the ripple effect it will leave throughout the energy industry.
A third example shook the markets just this morning, when the U.S. Department of Defense said it would take a $400 million preferred stake in rare earths company MP Materials (MP), becoming its largest shareholder and sending its shares up almost 50%.
The energy sector has been a mixed performer year-to-date, according to rankings by the likes of Bloomberg and Standard & Poor’s. Gains in utility stocks have offset declines in areas of the renewable area and in oil and gas as investors eye the utilities for their potential role in the data center wars.
As financial giants such as BlackRock (BLK), Blackstone (BX) and JPMorgan Chase (JPM) look for ways to join their tech clients in growing AI, the attraction of energy providers — including nuclear — is leading to a search for large energy companies with underperforming stocks.
It’s a shift in market psychology that could help build the next leg on a bull market if it plays out. Of course, investors should always be wary that these stocks might be underperforming for a reason.
Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.
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Sustainable energy stocks’ surprising year-to-date performance
. . . . Truth is stranger than fiction, especially in financial markets. Despite the onslaught of the Trump White House against renewable energy this year, the average mutual fund focused on sustainable strategies has outperformed the average fund focused on fossil fuels, writes Mark Hulbert, citing Morningstar data. Part of the reason may be that investors sold off sustainable funds ahead of the Trump election and are simply buying them back at lower prices. Another reason might be the broad nature of some of the funds, which might include full-service energy companies such as GE Vernova (GEV), that also have renewable businesses. But the performance data is a clear indicator that there is still money to be made in the broad energy sector, despite the headlines.
Thursday’s investor insights
Copper tariffs and the AI data center play
. . . . Futures traders knew it was only a matter of time before the Trump tariff wrecking ball came thrashing through the copper market, bidding up prices over the past week. Sure enough, copper futures soared as much as 14% late Tuesday after the president said he would impose 50% tariffs on copper imports.
Copper has been on a roll for awhile now. Because of its superconductivity it is widely used in new technologies, from semiconductor production to batteries for electric vehicles. And it is an integral part of development plans for the army of new AI data centers planned by Big Tech. The copper market is smaller than gold, but only just, and it dwarfs the market for silver because of its many more uses, which makes it ripe for manipulation in the small world of copper suppliers and producers.
Copper stocks, however, did not enjoy the potential for market disruption over the next several months. Shares of companies such as Freeport-McMoran (FCX), Southern Copper Corp. (SCCO), and Hudbay Minerals Inc. (HBM), all up between 10% and 20% year to date, fell on the tariff news.
The U.S. used to be the largest copper production market in the world, but it has fallen as competitors such as Chile and China have grown in recent years, which is one reason President Donald Trump may be trying to generate U.S. production with his tariffs. The U.S. currently represents about 6% of the world market, which means it must import a lot of copper to feed its ravenous energy needs.
Like with all markets, the Trump tariffs promise a sustained period of volatility for copper, which will be great for traders but perilous for equity investors in the copper miners, EV makers, and now, the data center builders. Not to mention the tech companies trying to budget for all this growth.
Editor’s picks: When will extreme heat be too much? Plus, plan for new coal mine leases
Watch the video: Heat is the deadliest weather hazard in the U.S. and many places around the world, and it’s only getting worse. Weathered, from PBS Terra, reports the most deadly heat waves so far have been dry heat waves. But a new threat is rising: humid heat waves, also known as wet-bulb events. Scientists have identified wet-bulb temperatures where sweat can’t evaporate fast enough to cool the human body. And once this threshold is crossed, it doesn’t matter how much shade or water you have: You won’t survive without environmental cooling like air conditioning.
Swaths of Montana, Wyoming could be leased for coal mining
Large areas of public lands in Montana and Wyoming could be opened to new coal sales under a plan by the Interior Department. The Associated Press reports the Trump administration is looking at selling leases for coal mining on more than 2,600 square miles of federal lands in what it calls the nation’s most productive coal fields — the Powder River Basin in northeastern Wyoming and southeastern Montana. The AP notes the move is “part of Trump’s broad push to increase oil, gas and coal extraction from publicly owned lands and waters in the U.S., even as Republicans pull back support for renewable energy projects.” A spokesperson for the Interior Department’s Bureau of Land Management told the AP that the announcement about Powder River Basin leasing was preliminary and could change after a public comment period. The agency declined to say how much interest it expects from mining companies or how quickly new mines could open.
Latest findings: New research, studies and projects
Fostering low-carbon innovation
This IMF working paper, titled The Drivers and Macroeconomic Impacts of Low-Carbon Innovation, investigates how climate policies affect low-carbon innovation (as measured by patents) and assesses the link between such innovation and economic activity. From the abstract: “Climate policies, including international cooperation, spur both specific and overall innovation, with regulations, emissions-trading systems, and expenditure measures such as R&D subsidies and feed-in tariffs being particularly impactful. In turn, low-carbon innovation raises economic activity as much as other types of innovation and past technological revolutions. However, the mechanisms are different: low-carbon innovation increases capital accumulation, while other types of innovation increase total factor productivity (TFP).” Authors: Zeina Hasna; International Monetary Fund; et al.
More of the latest research:
Environmental Goods and Services — Unlocking the Full Potential
Central Bank Green Policy, Financial Stability, and the Environment
Words to live by . . . .
“We hear the cry of the earth, we hear the cry of the poor, because this cry has reached the heart of God. Our indignation is his, our work is his.” — Pope Leo XIV, celebrating a new Catholic mass formula dedicated to the “Care of Creation” this week.
Gee, now that we're solar with storage batteries and two EVs, we're really focusing on doing things without old style stuff. (I'll correct that if I can recall the proper term, but my use of language is deteriorating.)