To bears obsessed with “trees-in-the-forest” details like the yield-curve inversion, whether the Fed’s benchmark rate will end up at 4.9% or 5.4%, and the S&P 500’s price-earnings ratio, this seems like a horrible time to buy stocks. But actually, overlooked, bullish developments and huge, under-the-radar transformations have produced many sectors to invest in now that will produce huge profits down the road.
In the last decade, hydrogen, solar, and artificial intelligence are examples of spaces that were once overlooked and subsequently became Wall Street darlings as the “big money” realized how lucrative they were becoming. Among the sectors that are highly likely to capture the Street’s imagination down the road are airtaxis, renewable diesel, and electricity generation.
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As I noted in a recent column, wealthy people would pay a tremendous amount of money to avoid the traffic that plagues most of America’s biggest cities every workday. Two companies —Archer Aviation (NYSE:ACHR) and Joby Aviation (NYSE:JOBY) — look very well-positioned to exploit that huge, nascent market. Both Archer and Joby have developed electric airtaxis that can carry several passengers at a time and take off and land like helicopters.
Archer is partnering with a major automaker, Stellantis (NYSE:STLA), which owns the Fiat and Chrysler brands. Even more impressive are its alliance with United Airlines (NASDAQ:UAL) and the fact that the FAA has preliminarily approved the design of its aircraft, Midnight. And the fact that Archer’s CEO and CFO both recently bought a significant amount of ACHR stock doesn’t hurt either.
And in a note to investors in October, Morgan Stanley, after visiting Joby’s factory, was “particularly impressed with the engineering and design teams for in-house battery integration, electric motors, and flight electronics,” Seeking Alpha reported.
With market capitalizations of $680 million and $2.7 billion, respectively, the valuations of Archer and Joby far underestimate their long-term potential.
Last month, a Canadian farming publication had the following headline on one of its articles: “Renewable diesel demand expected to soar in next two years.” And a website called AgriPulse reported that “The renewable diesel boom has fueled a surge in expected soybean crushing capacity and a need for more production of the crop.”
This huge demand jump makes renewable diesel one of the best sectors to invest in now.
Among the forces fueling the huge increases in the demand for renewable diesel is the fact that it can be used in “regular diesel engines” without any alteration of those engines. Also propelling the increased proliferation of renewable diesel are tax credits and clean-energy targets by the U.S. federal governments and state governments.
The world’s largest producer of renewable diesel is actually Finland-based Neste (OTCMKTS:NTOIY), the Finnish company reported. This year, its production capacity of the fuel will be 1.8 billion gallons. The company is partnering with a large U.S. oil producer, Marathon (NYSE:MRO), to generate renewable diesel at Marathon’s California refinery.
Similarly, a U.S.-based joint venture between Darling (NYSE:DAR), which develops products from bio-nutrients, and an American refiner, Valero (NYSE:VLO), produces renewable diesel. The joint venture was slated to expand its renewable diesel production late last year significantly, and it is expected to begin producing sustainable aviation fuel in 2025.
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I have long believed that the proliferation of electric vehicles will require much more electricity production, even though some experts have disputed that assertion. Last year, Stanford University researchers came down on my side, reporting that, in just over ten years, ” rapid EV growth alone could increase peak electricity demand by up to 25%,”
Among the companies well-positioned to benefit from the greatly increased use of electricity are electricity producers, firms whose products improve the electric grid’s capabilities, and those whose offerings help companies limit their use of electricity. The latter firms will be important because electricity prices will likely surge as demand jumps.
One promising strategy involves investing in companies that can benefit from more than one aspect of this electricity revolution. For example, General Electric (NYSE:GE) provides infrastructure for electric plants and sells wind turbines, while NextEra Energy (NYSE:NEE) owns a large electric utility and sells electricity generated by solar panels.
Another good choice in the sector is American Superconductor (NASDAQ:AMSC), which sells products that help companies manage their electricity flows and has developed a system that makes the grid much more resilient. Finally, Stem (NYSE:STEM) uses artificial intelligence to help companies manage their electricity flows and should benefit a great deal from its recently announced partnership with ChargePoint (NYSE:CHPT), a leading owner and operator of EV chargers.
On the date of publication, Larry Ramer held long positions in DAR,GE, AMSC, and STEM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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