I wouldn’t call the Glasgow Global Climate Summit, which wraps up on November 12, a failure. The pledge to reduce methane emissions is an important step forward: Methane is an extremely powerful global warming gas. And the promise of a big step up in global reforestation is also a solid contribution to the fight to keep the earth habitable for human beings.
But I think it is safe to say that the progress out of the conference isn’t enough.
Which is why I’m adding shares of General Holdings (GNRC) to my Jubak Picks Portfolio on Monday, November 8.
The Glasgow results are certainly not enough to reverse the rise in carbon dioxide in the atmosphere. They’re not enough to stabilize global temperatures. And they’re not even enough, given the observed practice of countries not following through on this promises, to keep the world from blowing through its carbon budget and the limits that mark a “safe” increase in global temperatures.
For the near term at least–and I hope it’s just for the near term–I think the trend for the incidence of extreme weather events will continue its upward trajectory. And it’s pretty clear from the budget figures–even including the spending on grid resilience and climate mitigation in the infrastructure spending bill recently passed by Congress–that we can expect more disruptions like last winter’s collapse of the electric power grid in Texas and the the summer’s extreme heat emergency in the North American West from Canada to the U.S. Southwest.
If you’ve got the money to spend to protect your own family and your own property from some of the extreme events on on upward trend–and many people don’t, which is one reason I’ve always thought that we band together and form governments–you ae going to spend it.
And that’s good for the shares of General Holdings (GNRC). The company owns 75% of the market for home standby generators. (And company also sells commercial and industrial generators.) And Generac’s market share is about 4 times the size of its next largest competitor. That enables the company to use its scale to generate buying power that enables the company to keep its prices at or below those offered by competitors while generating what the company says are the highest margins in the industry. Generac’s scale also has enable the company to build an unmatched network of more than 7,000 dealers and to build a proprietary selling system, PowerPlay, which is used by the company’s largest-volume dealers to supply customer leads. (Think that might produce dealer loyalty?)
This legacy business has been based on internal combustion engines (which last I looked do indeed add to the world’s carbon load) although Generac has been moving toward natural-gas fired generators.
But the company has been using the cash flow from this business to expand its residential solar and energy storage business and to include software to manage home, commercial, and industrial power generation. The 2020 acquisition of Enbala was the company’s first move into the grid services and the market for related software. The company announced its sixth acquisition of 2021, ecobee, a maker of smart thermostats, along with third quarter earnings on November 2. The “clean energy” segment is responsible for about 8% of 2021 sales, Morningstar estimates.
The shares took big dip after the company announced third quarter earnings that flagged near-term margin pressure due to problems in the global supply chain. The shares were down 11.2% for one week as of the close on November 5.
I’m using this dip to add shares of Generac Holdings to my Jubak Picks Portfolio. The stock has traded in a range of $202.56 to $524.31 in the last 52-week. On November 5 Generac Holdings closed at $442.88. I’m setting a target price for $522 on these shares.
I’d look for a big momentum contribution to the price of these shares on the next (and the next and the next) energy disruption due to an extreme weather event. The stock is one of the few with a clear upside from global climate disaster. Who you gonna buy? Generac.
And I would so like to be wrong about the extreme weather trends for the next few years.