A lower-risk and lower-cost way to play increased electricity usage around the country

Published Mon, Jun 17 202410:49 AM EDTUpdated Mon, Jun 17 202411:21 AM EDT

I'll review a way to play increased electricity use as electric vehicle adoption progresses around the country. We'll choose a way to do it with lower risk than risky charger stocks and use long-dated options that are cheaper than buying a stock outright. California has long been at the forefront of transforming auto emissions in the United States, largely out of necessity. Due to its topography, the state has been at war with air pollution — some of it industrial. Areas ringed by mountains can trap air and concentrate pollution. Los Angeles was famous as Tinseltown, an oil town, and a city that celebrates the automobile, but it suffers its downsides in the form of traffic and smog. The California Air Resources Board, more commonly known as CARB, sets requirements for clean cars and fuels in California, but several other states have followed its lead. Some areas of California, particularly coastal cities, have high rates of electric vehicle adoption, and the infrastructure to support that has grown to meet demand. As I've traveled around the country this year, I've observed that the infrastructure for and adoption of electric vehicles lags well behind in many areas. In many places, that makes sense. Across the West, driving distances can test the range of EVs, and the climates can test the batteries. More surprising, though, is to find areas that largely follow California's lead concerning auto emissions, have incentives, are relatively affluent, but have a relative paucity of EV chargers. Realizing the region has far to go to catch up, one might be tempted to invest in those businesses that install the chargers or bet that forward-thinking gas station operator might expand. Still, another way is to bet on a regional utility. The utilities, whose rates are generally regulated, will never experience Nvidia-like growth, but their business will also experience steady growth. Eversource Energy (ES) , a public utility holding company, operates in the electric distribution, electric transmission, natural gas distribution, and water distribution segments. It is involved in transmitting and distributing electricity, solar power facilities, and natural gas distribution. The company operates regulated water utilities that provide water services to approximately 241,000 customers. It serves residential, commercial, industrial, municipal, and fire protection customers in Connecticut, Massachusetts, and New Hampshire. The company was formerly known as Northeast Utilities and changed its name to Eversource Energy in April 2015. Eversource Energy was incorporated in 1927 and is headquartered in Springfield, Massachusetts. ES 1Y mountain Eversource Energy, 1-year The stock hasn't traded particularly well recently, but that may present an opportunity. Generally, I prefer to pick stocks with positive momentum, the rationale in part is that companies whose stocks are "cheap" and performing poorly, may be experiencing a negative secular shift, but if anything we would expect electric utilities to have a tailwind. The natural gas business for many utilities, including Eversource is another matter as some regions are increasingly trying to curb its use. The trade One way to make a bullish bet with a smaller capital outlay is by purchasing a call option. When playing for a rebound, the timing of which is uncertain, it's best to use a longer-dated option, in this example the January 2025 $60 strike calls which cost about $4. The trade: Buy ES Jan 17, 2025 call A gap lower is unlikely, and I would consider a $2 stop loss in the event that no resurgence emerges. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.