December 19th, 2023 | 07:10 CET
Star investor Buffett bets on oil: BYD, Plug Power, Shell, Prospera Energy
While the world was watching the Dubai Climate Conference, Warren Buffett invested in oil. The star investor increased his stake in Occidental Petroleum to 27% via Berkshire Hathaway. There is also the possibility of increasing the stake in the US oil company to 33%. The move came after Occidental shares had lost 20% in just a few weeks. This anti-cyclical move is typical of Buffett and shows that oil stocks like Shell are exciting. A similar turnaround story to Occidental is Prospera Energy. Things are expected to get interesting for the Canadian oil producer next year. This is likely also the case for BYD and Plug Power. Chinese companies want to attack the Japanese market, among other things. Like so many hydrogen companies, Plug Power has to address the question of the profitability of its business model.
time to read: 3 minutes
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Author:
Fabian Lorenz
ISIN:
BYD CO. LTD H YC 1 | CNE100000296 , PLUG POWER INC. DL-_01 | US72919P2020 , Shell PLC | GB00BP6MXD84 , PROSPERA ENERGY INC. | CA74360U1021
Table of contents:
"[...] Recovery rates of more than 90% rare earths are another piece of the puzzle on the way to the economic viability of our project. [...]" Craig Taylor, CEO, Defense Metals
Author
Fabian Lorenz
For more than twenty years, the Cologne native has been intensively involved with the stock market, both professionally and privately. He is particularly passionate about national and international small and micro caps.
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Prospera: Is it now set for growth after the turnaround?
As a reminder, Warren Buffett first invested in Occidental Petroleum when the oil company faced difficulties a few years ago. The turnaround was successful, and today, Occidental is one of Berkshire Hathaway's top 5 shareholdings. Prospera Energy is, of course, much smaller than Occidental, but the growth story has only just begun. The turnaround has been achieved in recent years with a new management team. The Company is concentrating on the production of medium and light oil. In the past third quarter, the Canadians slightly increased turnover to around CAD 4 million. Despite the low oil price, the operating result amounted to CAD 1.3 million.
A few days ago, Prospera Energy announced an important milestone for revenue and earnings growth in 2024. Another well was put into operation. After stabilization, it should be possible to produce around 150 barrels per day. Another well with similar production potential is to be commissioned by the end of the year. Due to the successful development, Prospera expects the daily gross production rate to exceed 1,800 barrels of oil equivalent by the end of the year. This would exceed the annual target. The Company is currently valued at around CAD 36 million on the stock exchange. Given current production and potential growth in the coming years, this seems anything but a lot. The Company aims not only to advance its own drilling program but also to grow through acquisitions.
Plug Power: Successful with Walmart
Takeovers are hardly realistic for Plug Power at present. The hydrogen pioneer needs capital to finance its path to break even. Analysts repeatedly doubt that this is feasible with the available funds. Sooner or later, a capital increase or other form of financing seems inevitable. Nevertheless, the share price has risen by around 30% in recent weeks. However, the share has lost over 60% of its value this year. While there are no new company announcements, the Americans have published an interesting case study on their collaboration with Walmart. It demonstrates that hydrogen has a fundamental future.
Walmart has been using forklift trucks with hydrogen fuel cell drives from Plug Power since 2012. Plug provides Walmart with end-to-end hydrogen solutions that include hydrogen fuel cells, fuel and maintenance services for all forklifts and hydrogen equipment at various Walmart distribution centers in the US. The retail giant now operates more than 10,000 fuel cell units in numerous distribution and fulfilment centres. The fuel cells can operate in forklifts at sub-zero temperatures and have been proven to improve sustainability and productivity compared to alternative, grid-powered battery solutions. In addition, Plug and Walmart have entered into an agreement in 2022 for an option to supply up to 20 tons of green liquid hydrogen per day to power forklifts in Walmart's US distribution and fulfilment centres.
BYD: Attacks in Japan
While BYD's share price at the end of the year is practically where it was at the beginning of 2023, the Group is going full throttle operationally. In 2024, the Company wants to attack not only in Europe but also in Japan. So far, the Chinese company has sold most of its e-cars - a total of 2.1 million in the first three quarters - in its home market. In Japan, among other countries, BYD plans to boost sales next year and sell 30,000 electrically powered vehicles there by 2025. To this end, BYD will operate around 100 sales outlets in Japan. The Dolphin is set to become a bestseller on the Japanese market. The all-electric compact car has also been available in Germany since the summer of 2023 and competes with the ID.3 from Volkswagen. Official prices for the Dolphin in Europe start at EUR 30,990 for the 44.9 kWh battery version with 70 kW. The top version (Comfort), with a larger battery and more kW, starts at EUR 33,313. The maximum range of the top version is 427 km, according to WLTP. Unfortunately, BYD has not yet reported any sales figures for Germany or Europe this year.
And there is another product launch. Official sales of the Song L started in China on Friday. The Song series is one of the best-selling BYD models. It is a medium-sized SUV. The prices of USD 26,700 to USD 35,200 in China are said to be below the pre-sales level. So apparently, BYD also has to make concessions on price.
All three stocks discussed did not perform well in 2023. And in 2024? Prospera Energy is attractive for anti-cyclical investors. The Company produces oil, is gradually expanding its production volume and should benefit significantly from a rising oil price. Warren Buffett's confidence supports the entire sector. In contrast, the hydrogen sector has been badly shaken. The technology's prospects are undisputed, but companies such as Plug Power and Nel must succeed in making money. BYD is growing profitably. However, the shares are currently not making any headway.
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