House Keeping: Long ‘The Green Movement’ Still Short Banks & Retail

By Greg Tolpigin | More Articles by Greg Tolpigin

The past few months I have been explicitly identifying long opportunities in what I call “The Green Movement” which essentially encompasses all the beneficiaries of the global push to a healthier lifestyle. Electric cars, clean energy and better quality foods.

In my report recommending Lynas Corp back in August I highlighted that one of the biggest developments moving forward will be the requirement of Government’s and car manufacturers to build an electrical charging network that rivals today’s fuel stations in order for the EV to be adopted by the mainstream consumer. Just like the original car was not much use without the infrastructure of roads and fuel stations, the same applies for EVs when the issue of ‘range’ is involved.

This is a huge task and a massive global infrastructure project and the sheer demand on the raw materials required is significant. What I wanted to see was plans being developed to combat this issue, in order for a multi-year boom to bubble to emerge.

I am happy to report that there has been and I think readers will begin to understand the sheer size of some of these projects. Last week Ionity (a JV between BMW, Diamler and Ford) announced that work is underway to build 400 fast charging stations across Europe by 2020, with many more to come in the years beyond. Each charging station will cost around US$200,000.

However this announcement was dwarfed this week by E.ON announced 10,000 new charging stations by 2020. That’s right, 10,000 vs 400. Now we are talking. E.ON already has 6,000 charging stations splattered across Europe, so it’s not some pie in the sky type dream.

The best part though for us investors and traders is that as this charging networks are deployed the appeal of the EV to the consumer increases and as a result so too will sales, thereby increasing the demand on aluminium, cobalt, lithium, copper and nickel. Happy days.

But it gets better. Because all these charging stations are fast charging, this reduces the life of the lithium battery. A traditional lithium battery when charged slowly and correctly will last approximately 10 years. Fast charging reduces this to 3 years. Let’s assume that a majority of users will for most of the time charge their EVs at home properly, the average life of the lithium battery will be about 5-6 years. So not only will demand come from new EVs but also replacing old ones. This adds an exponential demand in the coming years and why in 2016 I started to really push cobalt, lithium etc as the metals to be in during 2017 and beyond.

For us rare earth bulls we can add some more optimism in the announcement from Tesla that they will be preferring Neodymium (Nd) and Praseodymium (Pr) in their magnet motors for the new Model 3.

The rare earth revival following the 2011 boom is still in the early stages of recovery as the weekly chart below of the Rare Earth ETF (REMX) shows but a new breakout has occurred to new highs suggesting another fresh leg higher has begun. I believe the recovery will be stronger than the sell off of the past few years. Lynas (LYC) itself has been lagging this index and is due for a major catch up. Lynas represents off memory about 6-7% of this ETF.

I also remain long lithium stocks, cobalt stocks and nickel plays as well.

Readers will also know that I have been broadly bearish most other areas of the market, in particular banks and retailers. The latest results and share price reactions further cement my view that there is an ongoing danger in having an exposure to this part of the market. While the headline numbers on profit may have been impressive, behind the scenes we saw ongoing margin contraction and profits being boosted purely because management decided to decrease their bad debt charges. That’s just taking your medicine later.

From the chart below of ANZ it can be seen that share prices are still at the same level as they were back in July so while indices across the globe make new highs, there has been a zero return for bank shareholders. The same applies to the other banks as well. At the same gains of 50% to 200% has been seen across “The Green Movement” stocks.

Retailers have fared even worse and again I see even more vulnerability here to increased competition, low wage growth, rising living costs and a vulnerable property market. Even after yesterday’s rebounds JB Hi FI is down 5% from its October high, Harvey Norman (below) down 9% and Super Retail down 7%, all while the major averages are at new highs. The numbers don’t lie and there has been money to be made short these and plenty being long “The Green Movement”.

While we may see volatility appear at any moment and that is impossible to predict, the longer-term developments for stocks exposed to “The Green Movement” will enjoy a reliable and sustainable boom for some time to come. Obviously don’t chase these investments, use some sensibility to your entry points and accumulation zones.

Finally avoid the retailers and the banks and if you are like me, be short these, as when volatility does hit this space will be the first to fall.

Greg Tolpigin

About Greg Tolpigin

Greg Tolpigin has over 20 years of experience as a proprietary trader and high-level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank.

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