Two megatrends. One very large income stream.

Today’s issue in preview:

• Two megatrends. One very large income stream.

• Looking for a trade? This unloved sector is due for a rebound

• Our incredible track record gets even better: Our thematic trades in AI Data Traffic, Robotics, Solar Energy, and Critical Resources generate more profits.

Two megatrends. One very large income stream.

Credit: Denis Shevchuk

Last month, the U.S. Energy Information Administration (EIA) forecasted that exports of U.S. natural gas would increase 18% in 2026.

The chief use of natural gas is in electrical power generation. It’s the fuel that powers power plants. The U.S. exports more of it than any other country. As the EIA’s forecast shows, demand for this fuel is soaring.

This is bullish for the oil and gas pipeline stocks’ uptrend.

In early 2024, I saw the natural gas pipeline business as the best way to generate substantial passive income from the AI boom.

Given AI’s enormous promise, big tech firms Meta (META), Google (GOOG), Amazon (AMZN), OpenAI, and Microsoft (MSFT) are racing to build the world’s best AI models and infrastructure. They’ve already spent more than a trillion dollars. This year, they are on pace to spend over $700 billion on AI infrastructure, with more than $3 trillion expected to follow. A lot of this money is flowing into optical networking equipment.

All that AI infrastructure is poised to consume vast amounts of electricity. S&P Global estimates that global electricity demand will increase by nearly 50% by 2040.

I’ve frequently mentioned how AI’s growing power demands are a bullish driver for natural gas because it is the preferred clean-burning fuel for power plants that support AI data centers. This is why I believe natural gas producers such as EQT (EQT), Antero Resources (AR), Expand Energy Corp. (EXE), and Range Resources (RRC) are compelling long-term stock ideas.

The U.S. sits on enormous reserves of natural gas. These companies play key roles in extracting them.

However, all the natural gas in the world isn’t worth much if you can’t transport it to customers.

This is where America’s vast natural gas transportation, processing, and storage industry comes in. An extensive network of pipes crisscrosses America to allow energy companies to transport natural gas from the wellhead to the power plant. If we get an AI-driven boom in natural gas consumption, we get a boom in natural gas transportation by default.

This year, the market has enthusiastically supported our thesis. Blue chip pipeline operator Enterprise Products (EPD) is up 23% to reach a new all-time high. Fellow blue chip Kinder Morgan (KMI) is up 20% to reach an all-time high. Fellow blue chip operator Energy Transfer (ET) is up 26% to reach an all-time high. These individual stock gains have driven the pipeline operator-focused Alerian MLP ETF (AMLP) to a 17% year-to-date gain. Despite AMLP’s big run, it still yields around 7.3%.

The typical pipeline operator is not your conventional “high-risk, high reward” AI play. Instead, it’s a boring, predictable business that generates steady cash flows and shareholder distributions.

But the AI megatrend is giving natural gas a boost that will last for years. Plus, the Iran war and its constriction of Middle Eastern energy flows have made U.S. natural gas exports increasingly more valuable to customers in Europe and Asia.

In other words, two megatrends are converging to create a highly favorable environment for U.S. pipeline operators… one that should allow them to continue generating steady income for years.

Looking for a trade? This unloved sector is due for a rebound

Credit: anilakkus

In yesterday’s trading, technology stocks of many shapes and sizes suffered significant selloffs. The Invesco Equal Weight Technology ETF (RSPT) declined 1.87%. Individual tech leaders Lumentum (LITE) and Western Digital (WDC) each fell more than 5%.

Meanwhile, the world’s largest health care ETF – the Health Care Select Sector SPDR Fund (XLV) – climbed nearly 2%.

This big difference in price action suggests that, after a steep selloff this spring, the health care sector is poised for a “sector rotation” rebound.

Over the past month, we’ve scored a series of huge winners in the technology sector. Our recommendation of the optical networking theme has soared. Our recommendation of semiconductor firm Marvell Technology (MRVL) has soared. Our recommendation of AI infrastructure leader Dell Technologies (DELL) has soared. Our recommendation to own semiconductor equipment leaders such as Applied Materials (AMAT) has soared.

Although I’m wildly bullish on these technology themes over the long term, it’s reasonable to expect a correction in these trends. We must remember that no uptrend – no matter how powerful – runs higher in a straight line. Uptrends must take breathers. They must go through short-term corrections. Markets swing up and they swing down. It’s just how the market works.

For every significant short-term move in the financial markets, it’s important to know that there’s always a group of traders who have made money on that move.

These traders are sitting on profits. Once they decide to exit their positions and lock in profits, it can set off a cascade of money flowing in the opposite direction of the original move.

For example, a big rally in crude oil can be followed by a downside move simply because a group of money managers locks in profits and sell… which sends prices lower and then forces other traders to sell.

This dynamic works on the downside as well. A big move lower in a stock sector like homebuilders can make money for traders who are short homebuilders. The decline can be followed by an upside move as traders exit their bearish positions.

These profit-taking counter moves are just part of the natural ebbs and flows of money in and out of financial assets. There’s often no news to explain why they are happening. It’s just because traders are taking profits and moving their money into different areas of the market. That’s it.

Some of these moves are chalked up to “sector rotation,” or the pulling of money out of one successful sector trade and directing that money into another sector… often one that has lagged the broad market and may be due for a “catch-up” rally.

This may be what is happening to the beaten-down health care sector.

From late February to early May, XLV dropped 10%. Much of this decline was due to broad market Epic Fury-induced weakness. But as technology led the market higher in April, health care stocks largely sat out the rally.

As you can see in the four-year chart below, XLV remains mired in this correction, yet it is in the confines of a long-term uptrend.

Given health care’s favorable long-term fundamentals driven by the Boomer population, I see XLV’s weakness as a buying opportunity.

Market Notes

• Our recommendation to ignore the AI bears and stay long the AI boom continues to pay off. Nvidia (NVDA) just hit a new all-time high, along with Nebius (NBIS), which we recommended on April 15th. NBIS is now up 457% over the last year.

• Our February 5th recommendation to own Vishay Precision Group (VPG) as part of our robotics basket is a winner. VPG just hit a new high and is now up 50% over the last week alone. It’s up a giant 81% in less than three months.

• Our recommendation to own Cisco (CSCO) to play booming AI data traffic is a huge winner so far. The stock reached a new all-time high today. It’s up 23% in less than two months.

• Our April 6th recommendation to stay long the optical networking is paying off. Optical networking giant. Coherent (COHR) just hit a new all-time high.

• Our February 18th recommendation to own the solar theme is a still going well. Solar equipment and software giant Nextpower (NXT) just jumped 12% to reach hit a new high after reporting strong earnings. It’s up 56% YTD.

• Our recommendation to get long the critical resource bull market continues to win. Mining giants BHP Billion (BHP), Teck Resources (TECK), and Rio Tinto (RIO) reached new one-year highs today.

Regards,

Brian Hunt
Editor, Money & Megatrends

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