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ExxonMobil Corp. (NYSE: XOM), which has been around in one form or another since 1870, had been one of the world's largest energy companies by market cap for the past 20 years.
But last Friday, ExxonMobil was lapped by NextEra Energy Inc. (NYSE: NEE), an energy company barely 20 years old that gets most of its capacity from renewable sources like solar, wind, and nuclear.
NextEra is now the largest electric utility holding company by market cap - king of the energy hill.
The writing's been on the wall for a long time. The days when you had to fork over nearly $150 for a barrel of crude are long gone. In the COVID-19 era, that same barrel will cost you less than $40.
ExxonMobil itself was bumped off the Dow Jones Industrial last month.
The Energy Select Sector SPDR ETF (NYSEArca: XLE), which holds the world's biggest, most powerful oil and gas companies - Chevron Corp. (NYSE: CVX), Schlumberger Ltd. (NYE: SLB), BP Plc. (NYSE: BP), and so on - hasn't traded above $100 in more than six years, since it topped out at $100.02 intraday on June 27, 2014, two weeks before ExxonMobil peaked at $101.74.
Right now, XLE is going for less than $31 a share; XOM is less than $35.
Meanwhile, NextEra and its sector cohorts are absolutely surging. NextEra itself is hitting all-time highs. The iShares Global Clean Energy ETF (NASDAQ: ICLN) is at this very moment blowing past all-time highs. In fact, most of the big renewable ETFs, like Invesco Solar ETF (NYSEArca: TAN) and Invesco Wilderhill Clean Energy ETF (NYSEArca: PBW) are doing that, too - setting profit records.
There's nowhere to go but up.
So ExxonMobil is a dinosaur, and fossil fuels as a whole are falling out of favor in the market.
That's great news for our trading, because we can make even more trading on renewables than we could ever make trading on oil.
Today, we're going long...
Renewable Energy Is a High-Profit Hotbed
NextEra Energy has doubled in the three years since 2017 - even when you figure in the Coronavirus Crash.
The wider ICLN ETF, which tracks a big basket of renewable stocks, has doubled in a little over a year. Some of its biggest holdings, like Vestas Wind Systems (OTC: VWDRY) and Renewable Energy Group Inc. (NASDAQ: REGI), are hitting all-time or at least multi-year highs.
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That says to me that this growing segment is the way to profit on energy from here on out. The next few years could see even more explosive growth.
It's not hard to see why...
The U.S. Energy Information Administration projects that, literally any day now, renewable electricity generation will clobber coal, and even nuclear. When they look out toward 2050, most of America will get its electricity from renewable sources.
NextEra slashed its generation costs by 50% by expanding natural gas capacity, but its wind and solar capacity grow faster than any other source.
I actually called NEE's big move a few weeks back, and the way I see it, its moonshot past Exxon is proof I was right on the money.
If its bullish trend continues, as it should, NextEra will be not just the largest electric utility, but the largest energy company in the United States, period. It's padded its market cap by more than $8 billion in less than two months.
Now, buying and holding NextEra, Vestas, or ICLN is a great way to get exposure to the surging renewables sector.
But that's when those all-time highs start to look like a double-edged sword.
The leader of the pack, NextEra, is currently trading at nearly $303 a share - great news if you got in at March 2020 lows, but grabbing 100 shares right now would cost you a whopping $303,000.
No two ways about it: Options make the most sense here. Trading this stock using a little leverage over the long run will bring even bigger profits than the big pile buy-and-hold investors are sitting on.
Now, I recently showed some of my subscribers how to profit on these companies with shorter-term options (which reminds me: you can click right here to learn about an incredible "fast-money" options strategy I've been eyeing), but, as I mentioned, I think the renewables "long game" is going to be incredibly profitable.
And I'm not just talking about pure profits here; right off the bat, this trade is going to cost a lot, lot less, just because of the way the market values these options.
I'm talking about LEAPs - long-term equity anticipation securities. These allow you to control shares of stock for up to three years at a fraction of the price of the shares.
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By using LEAPs, you could buy a Jan. 20, 2023 $300 call for less than $49 per share controlled and leverage the stock at better than 17%. You get three years of breathing room and, at the end of it, you're likely to make a bucket of money.
If you don't want to wait three years, or you're feeling a little more aggressive, and you own the stock, you can consider writing out-of-the-money (OTM) calls each month and collect some "rent" on your stock. Just pick a strike price one or two pegs higher than the current share price.
Renewable energy's performance over the past few months has me absolutely convinced that it's got a bright future; it's the perfect sector for short-term trades and longer-term LEAPs both.
But don't think you have to wait three years for your biggest profit potential.
In the meantime, check out my presentation on the Four-Day "Profit Cycle"...
You see, I just finished up some research on an extremely short-term pattern that's outperformed the S&P 500 by nearly 17% in the first eight months of 2020.
How short term?
Four days. You read that correctly. Playing this cycle correctly could potentially double your money in under 100 hours.
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About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.
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