If you’re like most families, rising gas prices have caught your attention.
Then again, this is the time of year when many people begin planning their first big trip of the summer, the Memorial Day weekend.
It’s a three-day holiday tailor made for a road trip. It also is the traditional kickoff for summer travel.
And anyone taking to the road this year is likely to pay more for gasoline, which has risen by 22.6% so far this year. Although we have an energy boom in the U.S., we face two short-term issues.
1. The huge flooding in the Midwest this winter has hurt production of ethanol, a key gasoline ingredient.
2. Venezuela’s collapsing economy has put a pinch on global supplies because that troubled, socialist nation is an energy exporter.
Well, today I want to let you know of a hidden way to “hedge” against rising energy prices.
This is a high-tech firm that is a classic pick-and-shovel play because it helps energy firms optimize output.
That fact alone helps explain why it has doubled the S&P 500’s return so far this year. And is likely to crush it over the long haul…
A Better Way to Invest in the Oil Sector
I probably pay more attention to gas prices than the average American. Here in northern California, I pay a tad over $4 a gallon for premium, the only type I use for my 2019 Acura MDX Hybrid.
And I have to say I bought the car at just the right time last fall before gas prices started moving higher. Equipped with three electric motors, it can shift from gas to electric-driven at just the right time, yielding a combined city and highway rate of 27 miles to the gallon.
Experts at GasBuddy recently found the average price for a gallon of gas at $2.71, up from roughly $2.21 at the beginning of the year.
Yes, I realize that gas prices have fallen from the $2.98 high we saw in May 2018. But at the rate they are rising, I believe it’s possible that we could go well above $3.00 a gallon by the end of the summer.
Here’s the thing. If you were to make a straight sector play like buying a production or distribution stock, your profits would be largely tied to energy prices.
I have what I believe is a much better way to invest. It’s a high-tech firm deeply rooted in the energy sector, but stands to gain no matter which way gasoline prices go this year… or in the future for that matter.
Putting Extra Profits In The Tank
Founded in 1981 as a spinoff from the Massachusetts Institute of Technology, Aspen Technology, Inc. (Nasdaq:AZPN) has become the key tech enabler for a large roster of oil industry clients. The firm sells simulation software that helps engineers optimize production and boost output.
To do so, Aspen often literally gets in on the ground floor when a plant is first designed. It helps clients lay out the most efficient production set-up, and also helps establish the right supply chain for a client to make sure all the production steps are working in harmony.
Simply stated, Aspen sells the most advanced plant optimization software in the industry. Cannacord Genuity says Aspen “has built the deepest, and in our opinion, best process industry supply chain suite in the world.”
All of this resides on the firm’s aspenONE platform. The system provides a central interface for clients to tap into Aspen’s robust service offerings. Plant managers can call up all kinds of information and operate on the fly by making changes as needed.
Setting Up An Earnings Stream
Plus, this is a great mobile play. Clients can access aspenONE from any mobile device through a dedicated app. We’re talking a 24-7 production tool that only needs a good cell signal to keep engineers working at near real time.
You can see why Aspen now handles about one-sixth of what it says is at least a $4.5 billion addressable market. It has steadily expanded its franchise with a string of no less than 20 acquisitions.
Make no mistake. This is a firm deeply rooted in the energy sector. The segment accounts for roughly 40% of revenues. Fully 19 of the 20 largest petroleum companies in the U.S. are now clients.
With the boom in shale oil and fracking, the demands of the oil industry have changed, and Aspen has evolved in tandem.
For decades, the oil industry was fragmented. Some firms drilled for oil, others focused on refining, and others operated as “downstream” units, meaning they focused on converting oil into a wide range of products, such as chemicals and plastics.
Aspen is there to help keep all aspects running smoothly. Plus, it’s helping firms cope with the fact that experienced Baby Boomers are hard to replace when they retire. The firm’s platform can automate many tasks, helping reduce the need to replace some staff members.
While earnings were soft in the most recent quarter, they have averaged roughly 32% over the last three years. That means they could double in about 30 months.
And speaking of doubling, I’d be remiss if I didn’t let you know about a 5G stock that’s set to soar…
This firm has its brilliant ‘small cell’ technology in place and ready to make 5G work across the entire country. Nearly every cellular service carrier – we’re talking Verizon, Sprint, and AT&T – needs their patented, high-tech hardware to build out 5G.
And they’re still under the radar. But not for long…
Rounding Out the Franchise
While this gives us a great tech play on the nation’s energy sector, it also offers us some excellent diversification. I think that’s a good thing because it makes the stock an intriguing “twofer.”
Aspen also serves such sectors as chemicals, pharmaceuticals, consumer goods, transportation and mining. It offers such software tools as advanced process controls, supply chain management and data analytics.
It’s also moving toward higher profit margin sales. In the fiscal quarter ended Dec. 31, license revenues climbed nearly 64% to $93.4 million, and accounted for almost exactly two-thirds of total sales.
This is a firm committed to improving shareholder value. It has been buying up shares of late. In its most recent reporting period, Aspen spent $100 million on its own stock, buying up 1.1 million shares.
And you can’t really complain about the stock’s performance. The S&P 500 is up about 15% so far this year, itself a strong record. By contrast, AZPN has nearly doubled that, coming in at a tad over 29%.
So, the next time you’re at the gas station, try not to focus on the higher prices.
Instead, think of AZPN as the kind of tech stock that is basically paying you to fill up the tank… with stock profits.
Cheers and good investing,
Michael A. Robinson