The year 2020 has been unusually volatile for the U.S. financial market, but more so for the energy sector thanks to nationwide lockdowns and subsequent fuel demand destruction. It's become a recurring theme, but the oil and gas sector has again emerged as the worst performer among America's 11 sectors for the 11th straight year.
Indeed, Refinitiv data shows that the S&P 500 earnings growth rate would have only declined 2.3% when you exclude the energy sector instead of the 6.5% when you include it. That's quite damning for the index's smallest sector, representing just 2.3% of the index in aggregate market cap weighting.
But that does not automatically mean that the sector has become totally uninvestable.
In fact, here's a big secret: Not only has the Energy Select Sector SPDR Fund (XLE) climbed 23% over the past one-and-a-half months, but in today's battered energy sector, the best place to be is at the end of the line - the gas pump.
That's partly because low oil prices favor gas stations but also because there's a new breed of fueling stations: EV charging stations. Gas station margins tend to widen when oil prices decline, meaning they typically make more money when oil prices are falling. EV charging stations on the other hand, are taking advantage of a major boom in their sector.
Oil revenues have spent most of the year at historical lows, but it's the bigger upstream and midstream players that have been feeling the pinch more than their downstream brethren.
Here are 3 pumping and charging companies worth a second look.
Source: Federal Reserve Bank of St. Louis
#1. Casey's General Stores Gas stations are the final link between oil producers and the consumer. There's roughly 115,000 gas stations in the U.S., with the vast majority being independent operators and dispensing more than 90% of the fuel sold in the country.
That's what makes Casey General Stores, Inc. (NASDAQ:CASY), a 52-year-old company based in Ankeny, Iowa, a Des Moines suburb, an interesting case. A familiar name in the upper Midwest, Casey's operates more than 2,000 convenience stores offering a selection of food items as well as self-service gas stations.
Casey's appears to have become more focussed under new CEO Darren Rabelez. Rabelez started his career with Exxon Mobil (NYSE:XOM) before he became president of Dine Brands Global (NYSE:DIN) where he learned that the big opportunity in gas stations is in food, specifically prepared food.
At the company's latest earnings call, Rabelez revealed that 31% of Casey's merchandise mix is pre-made food, like pizza. Last term, the company earned $112 million, or EPS of $3, on revenue of $2.2 billion and even hiked the dividend 6.3% to 34 cents per share. Rabelez credited the strong quarter on higher grocery sales and fatter margins on gasolines.
Casey's General Store is currently rebranding to simply Casey's, complete with an ad campaign. With many company stores located in rural areas, food sales should pick up when interstate travel bounces back after the pandemic.
#2. SwitchBack Energy In recent years, special purpose acquisition companies (SPAC) or "blank check companies" have become hot property. SPACs have served as an alternative to the traditional IPO process for decades, but SPAC IPOs have exploded this year: There have been 217 SPAC IPOs year-to-date, with gross proceeds exceeding $74B compared to just 59 SPAC IPOs in 2019 representing $13.6B in gross proceeds. In fact, SPACs have become so popular that two weeks ago, SPAC and New Issue ETF (NYSE:SPCX), the first actively managed fund dedicated to the asset class, was launched.
It's, therefore, hardly surprising that companies looking to capitalize on the SPAC trend have trained their sights on the energy sector.
SwitchBack Energy (NYSE:SBE) is a special purpose acquisition company that's designed to take ChargePoint public. ChargePoint is an electric vehicle infrastructure company based in Campbell, California. The company currently owns 114,000 EV charging stations across 14 countries, including the United States, making it the largest player in the market with a 44% market share. The company has realized incredible growth clips, having nearly tripled its total locations since June 2017 (35,900) with a projected 2.4 million locations by 2025.
SBE has been on a tear, more than tripling about three months since it made public its intentions. Granted, much of that run has been powered by investors betting on the SPAC craze, and the shares could have entered bubble territory. However, the company still has a good chance to grow into its steep valuation given the sector has been projected to grow another 250% over the next five years.
More importantly, ChargePoint's business model of hardware sales, recurring software, and service revenues makes it eminently scalable and able to pivot with changing technology as the EV industry evolves.
#3. Blink Charging
Another charging infrastructure company, Blink Charging Co. (NASDAQ:BLNK) owns, operates, and provides EV charging equipment and networked EV charging services in the United States.
Blink Charging really is a mature company, having been around since 1998. Its unique proposition is that many of the company's charging stations are found in practical locations, such as airports and hotels, making it convenient for drivers to charge up while waiting on flights or in their rooms.
BLNK shares have enjoyed a torrid 2,560% YTD gain, one of the favorite momentum stocks in the EV space, suggesting it could also be another bubble. However, BLNK has lately been particularly active inking new deals, including 26 dual-port Level 2 IQ 200 EV charging stations at key Burger King locations across the Northeast; 20 Blink-owned IQ 200 electric vehicle charging services with Illinois' Blessing Health, and an exclusive seven-year agreement with Lehigh Valley Health Network for the former to own and operate charging stations across the health network's extensive portfolio of locations. To sweeten the deal, BLNK recently unveiled an innovative pole mounting kit for the company's IQ 200 EV charging stations designed to bring on-street parking to urban areas where EV drivers do not have access to residential chargers. CEO Michael D. Farkas says this will be a game-changer that will spark significant growth in 2021and beyond.
That said, Blink's upside at this point largely revolves around how well it's able to protect its rather narrow moat.
By Alex Kimani for Oilprice.com
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