Climbing Aboard The President ‘Bush Push’
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The projected stock gains are awesome — roughly 53%, 80% and 185%. Sounds kind of touty, especially in this schizophrenic market, but investment advisor Stephen Leeb of Leeb Capital Management contends the three stocks he’s pitching that offer such giant-sized gains are the real deal. The companies — each with annual sales of well up in the billions — are all plays on what some Wall Street pros call the ‘Bush push,’ a reference to the President’s persistent pitch for the use of alternative energies to lessen the country’s dependence on oil.
The names and Mr. Leeb’s price targets are as follow:
• Sasol Ltd. ($35.32); three-year target: $100.
• Air Products & Chemicals ($65.63); 18-24 months’ target: $90.
• Toyota Motor ($107.16) Five-year target: In excess of $200.
Reacting to the Bush push, shares of a lot of so-called oil replacement companies, some real and others little more than pipe dreams, have gone through the roof.
That raises the obvious question: What’s the real deal in alternative energy? In other words, what’s realistic and therefore the best stock plays?
Mr. Leeb, a dogged tracker of this business, reckons his three selections fit the bill. His biggest projected gainer, 185%, is South African-based Sasol, which posted sales last year of $10.1 billion. Alternative energies encompass a wide group, including coal gasification (CTL), a process that turns coal into clean, usable motor fuel, and gas to liquid (GTL), a comparable process involving natural gas. Sasol is the world leader in both these technologies.
Since energy prices began rising in 1999, Sasol has generated earnings growth of more than 20% a year as its processes have become increasingly vital in providing energy to its home country. Now, though, the company is on the verge of extending its reach, what with both America and China having signed major agreements with Sasol as part of a plan by each country to rely more on both CTL and GTL.
Mr. Leeb believes that if energy prices just hold steady, Sasol’s earnings growth should easily continue at 20% a year. Even taking in account some currency and political risks, he says, the stock is dramatically undervalued. Accordingly, he recommends aggressive accumulation of Sasol for a three-year target of $100.
Another expected winner in alternative energies is Air Products & Chemicals, which had 2005 sales of $8.1 billion. Tar sands by themselves won’t solve the energy crisis. But still, heavy oils, which include tar sands, shale oil and hard-torefine heavy crude, should at least make somewhat of a dent in the problem, as should liquefied natural gas (LNG), Mr. Leeb observes. That’s why he says he likes Air Products & Chemicals, whose products are essential in the development of these alternative energies. The company is the leading producer of hydrogen, which is critical in refining any heavy oil and also manufactures components vital to LNG production.
An additional plus, Mr. Leeb points out, is that the company plans to sell its cyclical chemical business, thereby transferring itself from a cyclical growth company into a dynamic growth company. The combination, he adds, of a rising p/e multiple and strong earnings translates into his price target of $90 over the next 18 to 24 months.
On to Toyota, the world’s top auto maker with 2005 sales of $179 billion. Conservation clearly has a major role to play in coping with the energy crisis, and the best kind of conversation, Mr. Leeb observes, is one that substitutes an abundant energy source for a scarce source. Plug-in hybrid cars deriving much of their fuel from a wind-powered electric grid are viewed as a quintessential example.
Mr. Leeb notes that Toyota is the only car company capable of mass-producing plug-in hybrids in the foreseeable future and he figures this emerging technology has the potential to transform the world’s leading automaker into the world’s largest manufacturer, period, as plug-in hybrids could replace a huge chunk of the world’s automotive fleet. Such a long-term project suggests to Mr. Leeb the wisdom of taking a long-term perspective on Toyota; thus, he says,”we’re targeting it to easily top $200 over the next five years.”
