Battleground - AES

Let’s check in on AES Corp. - AES - $10, which was down 10% yesterday and is now down 20% for the year. AES was one of my Biden hedge stocks, that has now morphed into a “battleground stock”

In a perfect world I should have sold around $13 after the election, and basically “covered” my hedges. That is now perfect 20/20 hindsight since the stock has death marched straight to $10.

The battleground is AES is now right in the middle of the “big beautiful bill” debate. AES’s future solar projects might lose some tax credits. In fact, there projects might be exactly the type of projects are ones that are tough to cut. The projects generate jobs, and now using US made materials. The tax benefits go to those that build data centers. It takes five years to permit and build gas fired generation plants, but less than 12 months to get solar online. To date Amazon, Meta, and others has been willing to pay up for solar.

I cannot say I understand all the politics. NextEra Energy - NEE faces exactly the same issues and their stock is not at new lows.

AES has done all it can do do to restructure. They have made impressive asset sales. AES operates two strong utilities in Indiana and Ohio. There are no tariff issues because the materials are either here, or they have domestic sources. AES has a backlog of big name customers.

Right now it sounds like the best we can hope for is a “sunset” of certain IRA provisions. The worst case might involve changing the economics of deals already in place. The story in the Senete is less willing to make cuts than the House, but who knows. I feel a little better knowing the shining faces of the tech oligarchs were all at the inauguration.

I have followed AES since it first went public. We used to write about their accounting issues when they were doing crazy power deals in the Third World. To their credit AES has done a nice job of selling the junk and keeping the good stuff.

This has always been more of a growth stock name. There are a few big hedge funds, including one with a big RXO position. You know I am desperate when I tell you that Goldman and Morgan Stanley each add 2 million shares last quarter. Short interest is only 6%.

Maybe I reached too much for the 5%+ yield. I would prefer to avoid battleground stocks, but here we are. I cannot sell at the bottom. This is not a top idea, but a reasonable idea.