The Penn Wealth Report Vol 9 Issue 02 The Shift to Renewables by Penn Wealth

P E N N

W E A L T H

P U B L I S H I N G

I N V E S T M E N T

I N T E L L I G E N C E

THE PENN WEALTH REPORT VOLUME 9/Issue 02 21 Mar 2021

The Shift to Renewables The New Utilities Investor Think Utilities are the archaic holdings found in your Grandparents’ portfolio? Think again

IN THIS ISSUE How to use the reddit brigade to gain advantage

ON PAGE 08 The Threat to the US Water Supply

ON PAGE 14 Our Top Utilities Pick Right Now

ON PAGE 16 An Energy ETF for the Future of Power

penn wealth

publishing Cover: The synergies of traditional power sources merged with renewables. Photo licensed by Penn Wealth Pub.

9393 West 110th Street, 51 Corporate Woods, Overland Park, KS 66210 913.538.7174 2 Penn Wealth Report

www.pennwealthreport.com volume

9 issue 02

member.services@pennwealth.com

21 Mar 2021

In Pursuit The Pofenn Personal WealthExcellence report

08 14 American Electric Power

The utilities sector is about to morph into something new and exciting, and one particular utility appears especially well-poised to take advantage of the changes.

Front Matter 04 Editor’s Desk

The wonderful boringness of utilities. While they have been in the doghouse for years, things are about to change.

17 Bright Ideas Being Ignored

Biological warfare, in some form or another, is about as old as war itself, but the pandemic will be the catalyst for a massive ramp-up in America’s biosecurity effort.

Investment Intelligence 10 The New Utilities Sector

The push for renewable energy will transform this sleepy sector into a vibrant player full of growth opportunities. We outline some of the potential winners investors should be aware of.

Investor darling Workhorse has its shares cut in half after losing USPS contract

Regional banking, chemicals, industrials, and renewables: Four ideas that are being missed—or ignored—by investors and the press.

A quick-and-dirty method for leveraging the reddit army’s strategy to gain a tactical advantage.

Upgrades, Downgrades, & Trades

Actions we have taken at the Penn Trading Desk, plus a look at what other Wall Street analysts have to say, along with accompanying charts.

The Penn Strategies 24 Strategic Income Portfolio 26 Dynamic Growth Strategy 28 Global Leaders Club

AT&T is finally spinning off its satellite and cable TV services, but that doesn’t necessarily make the company attractive A massive Chinese hack hits Microsoft...and some 60,000 of its organizational and corporate customers

The Trading Desk 18

Our maritime shipper spikes on the growing concern over container shortage Yet more problems for Boeing as engine failures mount

Under the Radar

06 The reddit brigade strikes again

Water Supply

Thematic investments always carry added risk, but we uncovered a new fund in an exciting corner of the energy market.

A look at some of the charts which shaped the news this past month.

08 The Growing Threat to America’s

Weekly Business Report

16 Blue Horizon New Energy ETF

05 The Year in Charts

Tactical Awareness

Vaccine Spring: All along, there was only one Covid-19 vaccine we said we would not take

23 Top Quotes of the Week Thomas Jefferson on Apprehension Alfred Lord Tennyson on Following Your Passion Benjamin Franklin on Risk Management

30 Intrepid Trading Platform 32 New Frontier Fund 34 Most-Shorted Stocks List

21 Mar 2021

Penn Wealth Report

volume

9 issue 02 3

Penn Wealth Report

From the Editor/

The Wonderful Boringness of Utilities

We hold the advantage of having seen this movie before—firsthand. Consider this fair warning. Take a look at the three colored lines on the graph below, each representing one specific investment over the past five years. Which would you have liked to purchase five years back? Silly question in that the returns are evident, so let’s pose it another way: which would you like to own over the next fiveyear period? To better help you decide on an answer, the blue line represents an investment in the Utilities Select Sector SPDR®. More than doubling that return we have the orange line, representing the S&P 500 Trust. Nearly doubling that return we have QQQ, the Nasdaq proxy. We tend to take past events and extrapolate them into the future. Everyone knows the Nasdaq always outperforms the blue chips; just like everyone knows growth always outperforms value. Of course, neither of those statements are factual. Would you want to own the purple line if you knew it was about to fall 78% and wouldn’t get back to “zero” for fifteen

years? That’s exactly what happened to the Nasdaq beginning twenty-one years ago this month. As for stodgy old utilities, they have been in nearly every investor’s doghouse for years. It was unintentionally clever that in this issue focusing on the unloved sector we also included a story on the GameStop frenzy. People get caught up in frenzies; they also tend to get slaughtered in them. As for the growth over value narrative, it is an easy one to buy. After all, technology is changing everything about the way we live and work, and technology stocks are overwhelmingly growth stocks. By the way, we could have written that statement (and may have) back in January of 2000. We have been here before, and we see a major cyclical shift in favor of value stocks. And no sector screams value like utilities. If for no other reason, investors should consider buying good names in this sector to balance out their portfolios, which are probably on tech overload. Read on...we’ll offer up some names. —MSH

Penn Wealth Publishing Subscription Information https://www.pennwealthreport.com Penn Wealth Publishing 9393 West 110th Street 51 Corporate Woods Suite 500 Overland Park, KS 66210

Michael S. Hazell editor-in-chief

4 Penn Wealth Report

volume

9 issue 02

21 Mar 2021

Penn Wealth Report

The Month in Charts

Charts tell the story. Here are some of our favorites from the past month. For the top business and economic stories of the week, visit Penn...After Hours at www.penneconomics.com.

On the pandemic front... Great news on the pandemic front: nearly one-quarter of the US population has received at least one dose of a vaccine. As expected, this has caused a precipitous downturn in the hospitalization rate for the deadly virus. Sadly, 540,000 Americans never recovered from the disease.

Nothing to see here, folks... Some would look at the chart on the left and see a reason to buy bitcoin. Others look at the chart and see a massive bubble forming. Count us in the latter camp. Whether bitcoin becomes universally accepted as a method of payment or not (it is not a currency!), the digital stuff is not immune from an ugly downturn. Diamond hands, baby! (Not.)

A new wall of worry... For the first time in a year, the pandemic is not the biggest threat to the markets, at least according to investors. Their biggest concerns? Inflation and rising rates. It has been repeated on the business networks that a 2% ten-year Treasury yield would precipitate a 10% drop in the markets. As crazy as that may sound, interest rate fluctuations have led to some ugly days in the market recently.

21 Mar 2021

Penn Wealth Report

volume

9 issue 02 5

Tactical Awareness Biosecurity Threats

The Growing Threat to America’s Water Supply The recent attack on a treatment facility near Super Bowl location was similar to Iranian attacks on Israeli facilities. When the global pandemic was unleashed on the world from a province in central China, seizing up global economies and killing 2.5 million people—thus far, it struck us how unprepared governments were for this biological event. It also struck us just how easy it would be for a nefarious actor with state-sponsored resources to inflict damage through more tactical strikes. America’s utility infrastructure came to mind. Precisely seven years ago, in February of 2014, we reported on a California power grid attack which began with the 1 a.m. slicing of underground AT&T fiber-optic cables, and ended with the 2 a.m. assault rifle barrage on a bank of PG&E transformers. Seventeen transformers were knocked out, and in the morning law enforcement collected over 100 rounds of ammo. Simply a case of local vandals? Perhaps. But recall that the Twin Towers were first attacked in February of 1993, eight years before the 9/11 strike.

collectively comprise America’s critical infrastructure are becoming increasingly controlled by computer systems. This means that adjustments to these systems may be made with ease, generally by one technician on a computer; it also means that these systems can be easily hacked. Around the start of his shift on Friday the 5th of February, an employee at the city’s water treatment facility noticed his mouse cursor moving around on his computer screen. As the plant uses remote-access software, he wasn’t too concerned; he assumed it was his supervisor monitoring the systems. A few hours later, however, the moving cursor was back—this time it was making actual adjustments to the level of chemicals entering the water supply. Sodium hydroxide is used in municipal water supplies, at a ratio of 100 parts per million (ppm) or so, to control acidity and help remove heavy metals from the water. This chemical is also known by a few Breach of the Oldsmar water plant by hackers. other names, such as lye or caustic soda. In high conTwo days before the Super Bowl in Tampa, the local centrations, this corrosive chemical damages human suburb of Oldsmar had a breach at its water treatment tissue. The technician at the Oldsmar plant watched facility. This time, it wasn’t a physical attack like the as the mysterious stranger behind the cursor’s moveone which occurred at the PG&E facility, but a cyber- ments began altering the water supply’s sodium attack. For good or bad, the individual systems which hydroxide levels to 11,100 ppm—over 100 times the correct amount. The chemical injections were quickly moved back to normal levels, and plant officials were fast to point out that testing safeguards would have detected the issue long before the water reached any taps, but the threat is alarming.

Water purification plant filtration process. Image licensed by Penn Wealth Pub.

8 Penn Wealth Report

volume

9 issue 02

21 Mar 2021

An identified target of terrorists. Including the smaller districts, there are over 100,000 municipal water treatment facilities in the United States, each one vulnerable to attack. From a physical standpoint, a majority of the pipes which transport water to customers are between 50 and 75 years old and in need of repair. On the digital side, the threat of global hacks into local systems will only rise.

Tactical Awareness The events of 9/11 served as a sobering wake-up call to Americans. The threats once seen as external, taking place in distant parts of the world, suddenly appeared uncomfortably close to home. “What if ” scenarios began dancing around in our heads. With respect to one of the most basic of needs, our ability to access clean drinking water, we have every right to be concerned. Eight years ago, Iranian hackers were able to infiltrate the control system of a damn near New York City. This past April, six Israeli water treatment facilities came under cyberattack, with increased levels of chlorine being added to residential water supplies. In July, a similar attack took place in Galilee. Israeli intelligence traced the hacks back to Iran. Whether the Oldsmar incident emanated from a disgruntled employee or Iranian hackers on the other side of the globe, it is clear that our water supply is a designated target. Safeguarding water distribution systems. There are a number of coordinated steps which must be taken to keep our water supply safe. While the much-anticipated infrastructure bill has yet to manifest in congress, we fully expect it to gain traction this year. A big part of any plan would certainly be the renovation and repair of America’s outdated utility systems. This would include computer system upgrades to help prevent unauthorized access, and deployment of advanced instrumentation to detect anomalies throughout the distribution network. We can also expect a major outlay of funds to replace thousands of miles of generations-old pipes. On the personal responsibility level, think back to the surreal hoarding of everything from toilet paper to cleaning supplies to bacon and eggs during the early stages of the pandemic. Imagine how Americans would react if they were told that their drinking water may be contaminated. We could expect bottled water, water filtration systems (we prefer Zero Water Filters), and contaminant detection devices to suddenly become scarce. If we have learned anything from the most recent public health threat it is this: preparation is paramount, and relying on government assistance in a crisis is a fool’s gambit. Armed with the knowledge that this threat is real, let us take the necessary precautions now. Maintain a number of effective water filters, jugs of spring water, and water test strips for ready use. As a catalyst for action, simply think back to the empty toilet paper shelves of last year.

Investing in Water We mentioned that there are over 100,000 municipal water treatment facilities in the US, but the big industry players are trying to change that. And considering the cash-strapped condition of most small players— such as the Bruce T. Haddock Water Treatment Plant in Oldsmar, they are finding receptive ears. The big dog in the space is $29 billion regulated water utility American Water WorksAWK $161. Founded in 1886, AWK is the largest investor-owned US water and wastewater utility, serving over 15 million customers in 46 states and assisting municipalities and military bases with their upkeep and maintenance needs. Over the trailing twelve months, AWK generated $3.75 billion in revenue and $662 million in profits. The company has been purchasing smaller municipality-run districts at a rapid clip, generally with the approval of regulatory bodies due to their ability to streamline costs and improve service for residents. While many utility companies are facing increasing scrutiny due to ESG and green energy concerns, the opposite is true for the water utilities. Government bodies don’t see them as an adversary, but as a group which will play a critical roll in creating a greener environment. This should equate to increased spending on new infrastructure projects such as new pipes and more efficient monitoring and control systems. When we think of infrastructure work, the one sector that should come to mind is industrials. To bring America’s utility infrastructure into the 21st century, specialty industrial machinery companies and engineering/construction firms will be awarded billions of dollars in new contracts. Yet investors tend to ignore these industries.

21 Mar 2021

Tetra Tech IncTTEK $135 is a midcap engineering firm specializing in full lifecycle support for water treatment projects. The $7 billion mid cap has been ranked #1 in the water field by Engineering News for seventeen straight years. The firm’s expertise includes threat and vulnerability assessments for water treatment facilities. Rockwell AutomationROK $249, or its previous iterations such as Rockwell Collins, has been one of our longtime favorites. This storied industrial, maker of the B-1 Lancer and the Space Shuttle, is now a pure-play automation company operating in three segments: intelligent devices, software and control, and lifecycle services. All three apply to water infrastructure. This $29 billion industry leader has a P/E ratio of 22. When you think IBMIBM $120, you may not think utility systems, but the company is a global leader with respect to the IT services of critical organizations—to include countering their cybersecurity threats. It has been in the investor doghouse lately, but it provides a 5.45% dividend yield and appears quite undervalued. We saved our favorite options for last. The risk of investing in a sector, industry, or theme can be greatly mitigated by buying a basket of relevant holdings through an ETF. Here, we have three excellent choices: the Invesco S&P Global Water ETFCGW $48, the Invesco Global Water ETFPIO $35, and the First Trust Water ETFFIW $77. All three are strong choices if one truly believes in this thematic play, but our top pick is the first: CGW. A nice mix of cap sizes (a plurality of mid caps) and a healthy ratio of utilities to industrials gives this fund the edge in our evaluation. (See the Trading Desk for more.

Penn Wealth Report

volume

9 issue 02 9