Ten Green Energy Gambles for 2010: Q2 Update

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Tom Konrad CFA

My speculative green gambles still have chips, but the mild decline of the stock market so far this year is not enough to make them really pay off, yet.

In January, I brought readers a collection of nine bearish puts on non-green companies and ETFs and one tiny energy efficiency company with a chance of taking off big before the end of the year.  They considered of bets against three fossil energy companies, four travel and leisure stocks, a Mexico ETF [EWW], a Trucking company (JB Hunt [JBHT]), and a long bet on Power Efficiency Corp [PEFF.OB].   These puts are intended as a complement to my more conservative Ten Green Energy Stocks for 2010, and as a possible hedge for those stocks in a green portfolio.

The energy companies are Consol Energy [CNX], Peabody Energy [BTU], and Chesapeake Energy [CHK], all of which have fallen considerably since the start of the year, making the Puts against their stocks the best performers in the portfolio.  The fall in these coal and shale gas companies seems to be mostly unrelated to BP’s Deepwater Horizon oil spill, since the fall relative to the general market predates the disaster.

The travel stocks I thought worth betting against are airlines Delta Airlines [DAL], AMR Corporation [AMR], and Southwest Airlines [LUV], trucking company JB Hunt [JBHT], and Starwood Hotels [HOT].  These stocks have been strong this year, making the puts against them the worst performers of the lot.  The two remaining gambles were puts against the Mexican ETF [EWW].  My one long bet was Power Efficiency Corporation, which has also fallen since the start of the year.

Overall Performance

Overall, a speculator who decided to buy this portfolio in January, would still be at the table six months late, having lost about a quarter of his money.  However, in my most recent update on these gambles in late April, I concluded that “it makes sense to add to it now with some more puts on some of the higher-flying travel and transport stocks, such as Starwood Hotels (HOT), Southwest Airlines (LUV) and JB Hunt (JBHT) at strike prices closer to the current stock price.”   That has so far turned out to be excellent advice, since I gave it right before the stock market started falling in April.

The chart below shows the performance of the portfolio of all ten gambles (dark blue), and each of the portfolio segments (Travel, Energy, and Miscellaneous) against a benchmark that is 80% composed of a put against the Dow Jones Industrials and 20% of the Powershares Wilderhill Clean Energy Index (PBW).  The light blue “Portfolio 2” line shows the returns that would have accrued to an investor who followed my April 27 suggestion, and moved 30% of his invested funds into additional puts against HOT, LUV, and JBHT.  An investor who had invested new funds in the puts on HOT, LUV, and JBHTwould have done even better.
10 Green Gambles for 2010 Q2 Performance chart
Although the market as a whole has fallen this year, the fall has not as yet been drastic enough for most of these gambles to pay off, although investors who followed my April 27th suggestion to increase their bearish gambles would be slightly ahead for the year so far. 

The Second Half

Going forward, I remain bearish for the second half of the year.  At the start of the year, stocks were generally priced for a swift economic recovery, which I have long though was unlikely to happen, and now the general economic consensus seems to me moving in my direction.  If the stock market begins to price in a double-dip recession or just a long period of little or no economic growth as I expect, we will see further economic declines.

I continue to think that these gambles are an excellent hedge against the very real possibility of a considerable market decline in the second half of 2010, and since they are mostly focused on fossil fuel producers and fossil fuel dependent industries, they will also continue to make your portfolio that much greener while providing protection against general stock market declines.  You can find the full list of ten green gambles here, although if you are considering investing now, it probably makes sense to choose puts on the same underlying stocks that will expire in January 2012, rather than January 2011.

Security/Index Change since 1/7/2010
CHK Jan 2011 17.500 put 36%
CNX Jan 2011 35.000 put 97%
BTU Jan 2011 30.000 put 8%
DAL Jan 2011 7.500 put -41%
AMR Jan 2011 5.000 put -32%
LUV Jan 2011 7.500 put -70%
HOT Jan 2011 25.000 put -57%
JBHT Jan 2011 20.000 put -46%
EWW Jan 2011 30.000 put -30%
Power Efficiency (PEFF.OB) -38%
Portfolio -24.0%
Portfolio 2 -0.3%
Benchmark -13.6%
Energy 49%
Travel -50%
Misc -34%


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.


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