The "electrification of everything" trend is real and permeates all areas of the economy. From the consumer (electric vehicles, charging infrastructure, connected homes) through the industrial sector (automation, smart buildings) and infrastructure (renewable energy, transmission and distribution, electric rail, smart infrastructure), the world is electrifying.
It's an exciting investment theme, and I think copper miner Freeport-McMoRan (FCX 2.23%), electrical products maker nVent Electric (NVT 1.68%), and power and sending technology company ON Semiconductor (ON 2.53%) are great ways to play it. Let's take a look at each company.
1. Freeport-McMoRan, the pick of the mining sector
Copper is an essential part of the electrification trend. It is a critical material in transmission and distribution networks and is also heavily used in storage technology.
Moreover, a shift to clean energy sources from fossil fuels implies a pick-up in demand. For example, electric and hybrid vehicles use significantly more copper wiring than internal combustion engines, and renewable energy deployment (mainly solar) implies investment in copper to store and transmit electricity. In the past, I've discussed the demand side perspective.
Meanwhile, on the supply side, the increasing difficulty of obtaining permits (driven by increasing regulatory and environmental concerns) may also constrain supply. Indeed, recent news that the world's biggest copper-producing country, Chile, is raising mining royalties in a year when its production has been falling is a sign of the pressures that suppliers are under.
All of this speaks to a positive long-term outlook for the price of copper -- good news for Freeport-McMoRan, particularly as 74% of its copper resources are in the U.S. and Indonesia.
Image source: Getty Images.
In addition, Freeport-McMoRan has an exciting leaching technology in development. Using the leaching technology, it aims to recover a run rate of 200 million pounds of copper from its stockpiles by the end of 2023. Longer term, management is aiming for 800 million pounds per annum. The numbers are significant, given that the company plans to produce 4.1 billion pounds of copper in 2023.
2. nVent stock keeps powering higher
Shares of nVent -- a maker of electrical connection and protection products -- are up 75% over the last year, but I think there's more room to run. The company's all-female CEO/CFO management team has acquired a reputation for underpromising and overdelivering on earnings, and a succession of guidance increases has accompanied the share price rise. Part of the reason for this may come down to some conservative forecasting, but it's also likely from improving momentum in its business.
The company's enclosures, fastening, and thermal management solutions are essential requirements to meet safety and regulatory standards. They are sold across various industries, including industrial automation, smart buildings, data centers, utilities, renewables, and energy.
Moreover, management has been on the acquisition trail recently with the $1.1 billion acquisition of electrical connectivity products company ECM Industries -- a deal strengthening nVent's relevance to the electrification of everything.
Trading at less than 19 times estimated earnings for 2023 and growing earnings at a double-digit rate, nVent still looks like a good value.
3. ON Semiconductor, on point
This power and sensing technology company sees its future in two industries whose growth is geared now toward the electrification of everything, namely the automotive and industrial sectors.
While automotive may not seem like a high-growth industry overall, it contains the high-growth sector of electric vehicles, which are set to gain significant market share from internal combustion engines (ICE). That's excellent news for ON Semiconductor because its power and sensing technology has significantly more content on EVs (from $350 to $1,800 per EV), and they are also used in advanced driver assistance systems (ADAS) too.
Management sees a growth opportunity in alternative energy, EV charging stations, and factory automation in the industrial sector. As such, the company expects its automotive sales to expand at a compound annual growth rate (CAGR) of 17% from 2021-2025, with its industrial sales growing at a 7% CAGR over the same period, and its "other" (everything else lumped together, including consumer electronics) declining at a 1% rate. Management expects automotive and industrial sales to hit 75% of its total revenue by 2025.
While ON Semiconductor does face some headwinds in 2023, not least of which from its consumer electronics exposure, the secular tailwinds in its growth areas, such as EVs and automation, are very strong, and the company's long-term growth prospects are practically assured thanks to the electrification of everything.
