As a result of BP PLC's oil spill in the Gulf of Mexico, many money managers see a host of investing opportunities in emerging markets, natural gas, renewable energy, cleanup technologies, environmental consulting and, in some cases, the oil industry itself.
For instance, given the potential damage to the fishing industry in the gulf, it is a good time to invest in countries that have big fishing industries, managers said.
“All the shrimp farms in South America are gearing up for large volumes,” said David R. Kotok, chairman and chief investment officer of Cumberland Advisors, which manages $1.4 billion in assets.
HOOKED ON PERU
Peru, which produces 10% of the world's fish catch, is more attractive in the wake of the BP debacle, he said. Cumberland just added BlackRock Inc.'s iShares MSCI All Peru Capped Index ETF (EPU) to its portfolios.
“I would have added Peru anyway, but this incident gives it a kicker,” Mr. Kotok said.
A more obvious bet for managers is natural gas, which many believe will get a boost as the price of energy rises in light of upcoming regulation. President Barack Obama's moratorium on deep-water drilling also is expected to increase the price of oil.
Tom Lydon, a registered investment adviser and president of Global Trends Investments, is holding on to two exchange-traded funds that invest in natural gas: United States Natural Gas Fund (UNG) and First Trust Portfolios LP's First Trust ISE Revere Natural Gas ETF (FCG).
Although the renewable-energy sector has shown weakness, managers anticipate that this market will take off as the Obama administration opens up the market for renewable energy in the United States.
The Standard & Poor's Global Clean Energy Index was down 35.8% year-to-date as of last Wednesday, and solar-company stocks in particular have taken a beating. But in the long term, Sam Jones, president of All Season Financial Advisors, which has $100 million in assets under management, thinks that stocks of such companies as First Solar Inc. (FSLR) and SunPower Corp. (SPWR) are good bets.
He also is looking at stocks of technology companies that enable renewable energy, such as Cisco Systems Inc. (CSCO).
Kevin Landis, the portfolio manager of Firsthand Capital Management Inc.'s Alternative Energy Fund (ALTEX), thinks that as the costs of gas and oil rise as a result of increased regulation, there will be a runup in the battery-operated car sector.
One stock he likes is A123 Systems Inc. (AONE), which produces high-powered ion batteries for cars.
“The cost of producing energy from coal and oil will go up, and therefore, the value of any form of energy goes up,” Mr. Landis said.
Bruce Jenkyn-Jones, managing director at Impax Asset Management Group PLC and co-manager of Pax World Management LLC's Global Green Fund (PGRNX), also likes companies involved with the cleanup of the spill.
“I think the water treatment and pollution control sector is compelling, specifically companies that are treating and recycling the oil,” he said.
Mr. Jenkyn-Jones likes Clean Harbors Inc. (CLH), which handles hazardous waste, and Nalco Holding Co. (NLC), which conducts water treatment. He also likes companies involved with environmental testing, such as Thermo Fisher Scientific Inc. (TMO), and water pumping, such as Idex Corp. (IEX) and Pentair Inc. (PNR).
“In the short term, we are looking for companies that could benefit in the next quarter,” Mr. Jenkyn-Jones said.
In the longer term, however, he thinks that environmental consultants are a good investment.
“One can speculate that regulation will tighten around offshore drilling in general and create opportunities for the environment age,” Mr. Jenkyn-Jones said.
Some hedge fund managers are discussing which company stocks to short in the wake of the oil spill.
For example, one hedge fund manager, who asked not to be identified, mentioned the possibility of shorting stocks of local banks in the gulf region because they do a lot of commercial loans, and clearly, many businesses will be hurt, he said.
The BP spill and the moratorium on deep-water drilling will benefit onshore and shallow-water drilling, said Craig Hodges, president of Hodges Capital Management Inc. and co-portfolio manager of the $450 million Hodges Fund (HDPMX) and $40 million Hodges Small Cap Fund (HDPSX).
He likes Atwood Oceanics Inc. (ATW) and Rowan Companies Inc., (RDC), both of which participate in shallow-water drilling.
“Their business may get strong- er,” Mr. Hodges said.
He even thinks that Transocean Ltd. (RIG), which owned and operated the rig that exploded April 20, is a good investment. Last week, Transocean's stock hit an 18-month low, closing the week at TK, down TK% since April 20.
“We like Transocean,” Mr. Hodges said. “They have gotten hit harder than BP, but BP is responsible, and they are the ones who are going to be paying for this.”
Transocean was a top holding for The Hodges Fund as of May 31.KEEPING THE FAITH
Although most investors are steering clear of BP, MMA Praxis Mutual Funds group is maintaining its investment.
The faith-based fund group, which is part of Mennonite Mutual Aid Inc., prides itself on being a socially conscious investment firm and doesn't think that investing in BP goes against its philosophy, said Mark Regier, director of stewardship investing at MMA.
As of April 30, the MMA Praxis International Fund (MPIAX) had a 1.9% weighting in shares of BP.
“There are some financial reasons for not selling,” Mr. Regier said.
Shares of BP plummeted to a 15- month low last week. The stock closed at TK Friday, down TK% since April 20.
MMA also wants to give BP some time to see how it handles the oil spill, Mr. Regier said.
“I think we will be concerned in four to six months if we don't know what happened,” he said.
“When it comes to a crisis like this, there is a tendency to react to the implications, but we want to know what the problem was, what the solution will be — and see what their response is to fixing everything.”
E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.
