The picks and shovels investing strategy uses a gold mining analogy. It posits that once a gold find occurs, the surest way to profits is not to buy land around the first lucky prospector, but to open a nearby store selling mining equipment to benefit from those who do.
A recent report from Citigroup analyst Martin Wilkie makes a strong argument that electrical equipment stocks are the picks and shovels investment for the power shortage that is gripping Europe and China, and for the longer term efforts toward net zero emissions and decarbonization.
There are some remarkable statistics in Mr. Wilkie’s report. For one, the European Commission estimates that there are eight billion electric motors in that region alone, accounting for roughly half of electricity consumption. The analyst estimates that new motors, and motor drives that control machinery speed, from companies like ABB Ltd. “can easily save 20 per cent of power consumption.”
Lighting accounts for more than 15 per cent of global power usage, according to the report. Citi believes that higher electricity prices will speed the transition to LED lighting. The U.S. Department of Energy estimates that LED lighting currently makes up 51 per cent of outdoor lighting in the United States but only 30 per cent indoors.
Mr. Wilkie lists three companies he believes are poised to benefit from these trends: ABB for motors and related sensors, Schneider Electric SE for energy management systems and Signify NV for lighting. (In addition to their primary listings in Europe, all three trade as American depositary receipts – ABB on the New York Stock Exchange, the others in the U.S. over-the-counter market.)
A research report released Wednesday from RBC Economics called The $2-Trillion Transition: Canada’s Road to Net Zero highlighted the scale of investment and commitment that will be necessary for this country to reach net zero emissions targets by 2050. In Canada and globally, power management and conservation through electrical equipment will certainly play a major role.
-- Scott Barlow, Globe and Mail market strategist
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Compiled by Globe Investor Staff