Homer Simpson may have coined the term "crisitunity," but savvy investors have long known that crisis brings unusual opportunities. Predating Homer by more than a century, the axiom to buy "when there's blood in the streets" came from Baron de Rothschild's reported financial advice during the Paris Commune of 1871, when the city's streets literally ran bloody.
In the wake of the nuclear plant damage in Japan, we've seen stock markets veer crazily, as investors give in to waves of fear. Members of my Motley Fool Hidden Gems service have posed a natural question to me: "Where should we invest now?"
Panic and potential
Maybe we should back up a step. Before getting to where we should invest now, it's probably good to revisit whether or not we should at all. Is buying during panics really a recipe for investment success?
In my experience, the answer is, "Yes!" Especially if you choose your targets well. During last summer's BP oil spill, Gulf-based energy stocks sold off massively, as investors sold first and asked questions later – or not at all. No wonder: Reporters and pundits felt comfortable making blithe comments about companies involved being bankrupt within months, if not weeks.
I know it was difficult to buy in that climate of fear -- because I did it myself, sweaty palms, pounding pulse and all. But I was so convinced of the potential in the panic that I wanted to make sure as many Fools could profit as possible. That's why I had my team at Motley Fool Hidden Gems compile a special report with eight of our favorite picks from the sector.
The returns from that report have been astounding, with average gains of nearly 62% to date, and every single one of the stocks outrunning the S&P 500's 21% return over the same period:
|National Oilwell Varco||
|ATP Oil & Gas||
Returns dividend adjusted from special report date of July 8, 2010. Information from Capital IQ, a division of Standard & Poor's.
Not the same panic
Unfortunately for investors, I don't think today's situation is as clear-cut as last summer's oil sell-off. That panic punished a wide swath of already successful companies, backed by decades of profitable operations. In contrast, the biggest losers in the post-Japan nuclear panic have been junior miners and other uranium stocks such as Uranium Resources
I expect winners in the energy space will be found not by bottom-feeding for speculative stocks that may or may not make it in the future nuclear business, but by thinking bigger, and looking toward companies that benefit from the changes in energy demand, policy, and delivery. Here are three energy themes I'm watching -- each with a stock to avoid, and one to watch.
Uranium stocks, like bell bottoms, go in and out of fashion, leaving those on the tail end of the trend wondering what they were ever thinking. There was a new craze for uranium from 2007 to 2008, as sky-high oil prices persuaded Mr. Market that nuclear would be the new new thing. Nuclear fuel-related stocks have bounced wildly since the Japanese reactor was damaged, making me wonder, along with many others, where the best investment play in the space might be.
One to avoid: I wanted to like USEC
One to watch
Smart grid and distributed power
We hear a lot about a smart grid, where power is quickly and automatically shifted to where it's needed, and where small producers or storage devices (such as that electric car in your garage) can feed power back in. But for the most part, our grid is pretty old-school, with large plants producing the power we need, and shipping it over lines to where it's needed. There's good economic reason for that: The turbines that produce our power work best when they're huge. Thus, we need to look for companies that address that reality.
One to avoid: The bigger = better principle hasn't stopped Capstone Turbine
One to watch
: If you're interested in capitalizing on a smarter, greener grid, take a look instead at EnerNOC
Everyone seems to realize that the U.S. needs to curb its appetite for foreign oil, but there's no agreement at all about how to accomplish the task. As a woods-and-clean-air type, I love the idea of alternative energy sources like solar. But as an investor, I see precious few good opportunities in the space. There's a lot of money chasing returns in this industry, which tends to depress the opportunities for all players. But if you feel like you must own a solar stock, consider the following.
One to avoid: Suntech Power
One to watch
: First Solar
Foolish final thought
Not all energy crises are created equal. We might even argue that what we've got today isn't so much a crisis as a fear-inspired reevaluation of one of the most important industries in the world economy. While I don't see the same kind of forehead-slapping values today that I did in the wake of the Gulf oil spill, I do see significant opportunities in the smaller energy players highlighted above. But these are longer-term plays, and investors shouldn't expect the same kind of reversal that rewarded opportunistic buyers of depressed oil patch stocks last summer.
Even if you're not ready to take the plunge into any of these stocks, it pays to keep track of them. In fact, a good watchlist is one of the most powerful tools in investing. Use the links below to start a free, no-hassle watchlist that will deliver up-to-date news on any of the stocks discussed above.
At the time of publication, Seth Jayson owned shares of the following: BP, Dril-Quip, Oceaneering International, and Transocean. He had no position in any other company mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.