Tom Konrad CFA
What’s the budget-conscious way to travel in the US?
- If you buy in advance, flying is still reasonably priced, but increased security and wait times mean that it’s quicker to drive for shorter trips.
- With current high gas prices, driving is increasingly expensive.
- Except on a few routes, Amtrak is slow, has very limited service, and costs a bundle.
In our new peak oil world of $4 gas and, more and more people are opting for bus travel. The young like it: My girlfriend’s daughter travels by bus almost exclusively, even though she owns a car. None of the problems above are likely to get any better. Airline and gas prices will go up with oil prices. TSA procedures are ever more invasive. Amtrak needs fundamental reform and rail lines that are separate from freight to deliver better service.
Hence the Bus.
|Cost and travel time, booked a month ahead,
NYC to Albany
|Airlines||1:12 plus 2hr for security||$99|
|Drive||2:50 (Google maps)||$25 for gas|
Which is why Stagecoach Group‘s (LSE:SGC) Megabus division has been driving rapid profit growth in North America. For passengers, the price is right (see table), and the buses have amenities like free Wi-Fi.
Now Stagecoach Group is buying part of struggling Coach America‘s business in order to accelerate Megabus’s expansion in Texas and California with ready-built depot infrastructure.
|Megabus.com revenues, Stagecoach 2011 Annual report|
Green Profit From Peak Oil
Investors should take note. Megabus can achieve these low fares because they use much less fuel per passenger than flying or driving. Those fuel cost savings will only grow as oil prices rise.
As a green, I’m not willing to invest in oil companies in order to profit from the rising oil prices.
Many people say the solution is Electric Vehicles (EVs). But expensive batteries leave Nissan’s (OTC:NSANY) Leaf and Tesla’s (NASD:TSLA) Model S in an expensive niche despite extensive government subsidies.
Alternative transportation companies such as Stagecoach (LSE:SGC), bus manufacturer New Flyer Industries (TSX:NFI), and bicycle maker Accell Group (AMS:ACCEL) are already mass market. They seem at least as likely to drive (and pedal) off with the profits from Peak Oil than makers of electric vehicles.
Alternative transport stock valuations are good, too. At a price of 236 pence, Stagecoach paid a 3.1% dividend last year, and has raised its dividend for the last four. The P/E ratio (based on 2011 earnings) is 9.9. That’s a pretty good valuation for a growing company which will gain from rising oil prices, and is likely to do well from budget tightening in an economic downturn.
In contrast, luxury car company Tesla will probably be hurt if the economy falters, has no prospect of paying a dividend, and lost almost $300 million ($2.87 per share) last year.
EVs may be sexy, but this value investor is taking the bus.
Disclosure: Long NFI, ACCEL. I may buy SGC in the next 72 hours.
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