2019 Predictions Revisited: The Oil Market

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Last week, we aired our 2019 energy sector predictions roundtable. Four Foolish analysts got together and speculated on where the energy markets were heading on Oct. 4 — a day that turned out to be the literal peak of 2018 oil. This week on Industry Focus, host Nick Sciple and Motley Fool contributor Jason Hall revisit those predictions.

Find out what they got right, what they got wrong, and why long-term investors might just want to put oil companies on the back-burner bucket and focus on renewables instead. Also, the hosts respond to some listener questions. Is Kinder Morgan (NYSE:KMI) out of the doghouse yet? What comes next for American yieldcos? How can individual investors get into the drone market? Tune in for answers to these and a few more.

A full transcript follows the video.

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This video was recorded on Jan. 10 2019.

Nick Sciple: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today’s Thursday, Jan. 10, and we’re discussing Energy and Industrials. I’m your host, Nick Sciple, and today I’m joined by Motley Fool contributor Jason Hall via Skype. How’s it going, Jason?

Jason Hall: Happy New Year! It’s still early enough in January where I can get away with saying that, so I’m going to say it. Happy New Year!

Sciple: Yeah, Happy New Year! This is our first new taping of the year. Last week, we used our pre-record from back on Oct. 4, where looked ahead at what would be going on in 2019. Some of those predictions have panned out, some of them not quite much. The first half of the show today, we’re going to lay down where we went wrong, and pull the thread on why that might have occurred. Then, on the back half of the show, some of our listeners sent in some questions about different topics they wanted us to hit when it comes to 2019 energy trends. We’re going to hit that on the back half of the show. 

First off, Jason, we could have picked better timing when it came to the oil market to tape our last show that we recorded last week. 

You can find that episode in our podcast feed, if you want to go back and listen to that. We recorded our 2019 roundtable with Jason, Tyler Crowe, and Matt Dilallo on Oct. 4. Lo and behold, that was the top of the oil market for 2018. Jason.

Hall: Oct. 3 and Oct. 4 were the two days that the West Texas Intermediate, the big benchmark for U.S. crude oil, and then Brent crude, on the day that we recorded, they peaked for the year. Since then, we’re looking at, I don’t know, a 40% decline? Sure, there are macroeconomic things. There are major geopolitical issues. But I’m pretty sure that the four of us killed the oil rally. I’m convinced that it was us.

Sciple: Yeah, no doubt about that. They say, are we signal or noise? I think we might be signal over here. Don’t want to build us up too much there.

Hall: Somebody call Nate Silver. 

Sciple: [laughs] Right. But, yeah, both Brent and WTI back in October were up above 20% for the year. It actually turned out that crude oil, among asset classes available, was the worst performer last year, down for the year 24.8%. That’s a significant swoon, to have gone from up 20% to 30% for the year back in October to collapse. 

There were a few things that contributed to that. First off, when we recorded that show back in October, Matt had mentioned what kind of impact Iran sanctions might have on the oil markets. It really didn’t turn out to have much of an impact at all when it came to reducing supply. I want to say around 97% of Iran’s exports, at least from 2017, the nations that they exported to, were exempt from Iran sanctions. Essentially, that oil supply never came off the market. Then, in conjunction with that, in anticipation of that supply coming off the market, Saudi Arabia had increased their production. So, we got ourselves in an oversupply situation back in the back half the year. Is that consistent with what you saw, Jason? 

Hall: I think so. There’s also a really good learning opportunity coming out of that. It’s not even just crude oil that we can use this for. It carries over to iron, just about any other raw good, any type of commodity that’s produced on an international basis and has lots of things that affect it. The lesson is, if you look back then, you think about it, you talk about the Iran thing, the big drivers that had pushed oil up to that point was the expectation that with all of the problems that we’ve talked about multiple times on the show — with geopolitical problems in countries that have killed oil production in a lot of places, and then with Iran sanctions — there was this major expectation that the oil market was going to get tight, especially considering coming out of the U.S., President Trump has been so hard on Iran. He was coming down really hard with these sanctions. There was that expectation that, OK, the Saudis are going to have to bridge the gap a little bit, it’s going to take them a little bit of time to do it. 

The other thing that some of us missed that we should have considered — and it’s hard to because there’s always something in hindsight that you see. But, at the same time, the Trump administration has been very, very hard on pushing oil prices down. The impact on economic growth. Trump has said repeatedly when oil prices were peaking that oil prices needed to come down. I don’t know that they necessarily did it on purpose. There was probably some pressure from some of our allies, some of our trading partners, to pass those exemptions for Iran’s oil. But the net result was this thing that nobody was seeing in the tea leaves. We ended up with a lot more oil than we thought. And here we are today. These things happen. 

The big lesson is, it’s so hard in the short term to predict what’s going to happen because there are so many levers and so many things that influence commodity prices that you just can’t predict and you have no control over and no way to know what they’re going to do. That’s where the risk lives. It lives in what you don’t know. Here we are.

Sciple: Exactly. You said it perfectly. When it comes to these global commodity markets, there are an innumerable number of variables that can impact the price on any given day or month or year try to predict that is a very dangerous game to play. You’re always going to get surprised coming around the corner. 

Hall: Absolutely. 

Sciple: Talk about some geopolitical events that are still continuing to play out. Venezuela’s production is still continuing to fall. That’s going to continue to affect markets. That’s a thing we pulled the thread on a little bit back in October. There’s been some issues as well in Libya, some folks, malicious and things of that nature, shutting down some major oil fields there. Those are things affecting the market. It’ll be interesting to see how things continue to play out geopolitically there. 

The oil markets have rallied a bit to start the year. But it’s really very difficult to predict. As Jason mentioned, for investors, you don’t want the key of your thesis to hinge on predicting what’s going to happen in these global commodity markets. It’s very, very difficult to predict, and it’s a dangerous game to play. 

Hall: Absolutely. 

Sciple: Another trend we talked about, and we are starting to see play out a little bit, was what kind of role LNG is going to play going forward. Just this past week, we heard reports out of the Wall Street Journal that Saudi Arabia is looking to make potentially significant investment in U.S. LNG exporting facilities. What’s your takeaway when it comes to those rumors and looking at LNG going forward this year?

Hall: Liquefied natural gas, I’ve been relatively bullish on it for a few years now. For the U.S., we have this massive glut. It’s not just in natural gas fields. It’s also associated gas. You think about the Permian and the huge growth in oil production in that area, there’s a lot of natural gas that just comes up along with the oil. Capturing that and maximizing the economic value of that gas has been a challenge. But the technology’s gotten better. There are some regulatory pressures to do that, too. 

Anyway, we have this ton of gas. Really, it’s more than the U.S. is able to consume internally. Historically, gas has been relatively geographically used. But LNG is changing that. To be able to export it across oceans, to be able to use it for petrochemical manufacturing, especially for energy production, as a challenge to coal. It’s cheaper. You think about countries like China that still have a rapidly growing economy, that have a burgeoning middle class that’s wanting to consume more energy, that has a lot of internal problems with pollution from coal production growth over the years. There’s going to be pent-up demand for gas for a long time. 

When you look at Saudi Arabia, they’ve actually used crude oil distillates to produce a lot of their internal energy. One of the things they’re looking at is being able to utilize natural gas imported from other places for their internal electricity production so that they can monetize their super-duper cheap oil production a little bit more effectively. That’s part of their game. It makes sense. It gives them a little bit of diversity, too, away from just crude oil, which is basically still their economy. 

So, yeah, I think we’re going to hear more noise about this as time goes on. It makes a lot of sense.

Sciple: Exactly right. The Saudis have really wanted to diversify away from oil, get their economy less dependent on that one single resource for their production. We’ve seen, Qatar is going all-in on gas production, even to the point of leaving OPEC to go after that. We’re definitely seeing some signs that it’s a trend that’s going to continue to play out. 

You mentioned coal and where coal’s starting to sit relative to other energy resources. It plays a role in what’s going on with renewables. I saw another article in The Wall Street Journal, it just came out today, speaking about how a lot of utilities in the United States have sped up the pace at which they’re going to retire their coal plants just because of how cheap solar and wind have become on a per-megawatt-hour basis relative to coal. 

We’re seeing these trends from LNG, a little bit cleaner-burning fuel, particularly exporting overseas, that’s a cheaper alternative. But even domestically, we’re seeing these renewables displace coal as a bigger measure of our production. Xcel Energy was the first utility to come out and say, “We’re going to be 100% carbon-free in energy production,” I think they put 2050 as their target for that. We’re really starting to see a push away from these legacy energy producers like coal, and LNG and renewables come to the fore as the energy production of the future.

Hall: Yeah, and I think that’s going to remain the case. One of the interesting things that’s happened in the U.S. that’s driven natural gas prices down is the advent of fracking, hydraulic fracturing, and being able to tap these shale natural gas resources where there’s this huge glut. But at the same time, there have been constant advances in solar technology that have driven down the cost per watt of producing a solar panel, have pushed up the efficiency of the panels to be able to capture more energy per unit of actual panel that’s installed. We’ve seen some of the same efficiency gains, if not quite as much, but we’ve seen a good number of efficiency gains in wind turbines, too. The bottom line is, especially with wind turbines right now, they’re competitive with just about any other way of producing electricity in the U.S., competitive even with natural gas.

Obviously, there are some tax incentives that play a role in that. Those are gradually rolling off for the production side on wind. But even as those roll off, the scale of the industry, driving down costs, and the improvements in the efficiency of the turbines is getting to the point where it’s just cheaper. And if it’s cheaper, and it’s also a carbon-neutral way to do it, that’s just where we are.

Sciple: Right. We mentioned how difficult it is to predict oil prices, and the volatility there, which has led me, at least personally, we discussed this over Slack a little bit, to lump a lot of these oil-related names, oil-related businesses, in the too-hard pile. We don’t know what’s going to happen when it comes to volatility and what’s going to move in these global commodities. But I think if you look out 10, 15 years, what I can know for certain is going to get bigger is solar and wind energy production. We’re seeing them become more cost parity with other production alternatives. And then, as we mentioned on the previous show when it came to the duck curve, the sun isn’t always out, and wind isn’t always blowing, so there’s going to be a need for something to come into the market to fill in that gap when those things aren’t working. That’s going to be battery storage technology over the long term, and it’s going to be LNG peaker plants to come in and fill in that demand when energy demand comes online. So, the places that I’m going to be looking for ideas in in energy right now are in that space. How are we going to bring LNG to market? How are we going to export it? What is in the value chain for these batteries that we’re going to use for energy storage? And what’s going on in all the different facets of wind and renewable energy like solar? What are your thoughts on that idea, Jason?

Hall: I think you’re pretty spot-on, with the caveat that here in the U.S., because we’re producing the gas here, it won’t even have to be liquefied natural gas. We have a huge pipeline infrastructure that already exists. The U.S. is going to be able to use natural gas coming right out of the oil fields and then go right into the pipeline, so it’s even cheaper. But certainly, in Europe and Asia, LNG is going to be a major source of energy, supplanting coal and also nuclear. We haven’t mentioned that. A lot of nuclear plants are getting super old, and they’re aging out, and they’re not being replaced with new nuclear plants. It’s going to be liquefied natural gas for that baseload, and then for some of the peaker demand, and then renewables and battery storage to help with it, as well, I think.

But, I think you’re spot-on, too, about the difficulty in predicting oil and gas prices. I did a little bit of research, and one of the things that I looked at before the shows is the S&P Producers Oil & Gas Exploration Index, going back to early 2016. These companies are pure-plays in oil and gas production. They’re U.S. companies mainly. You go back to February of 2016. Oil prices have basically bottomed. Oil was trading in the high 20s, low 30s. Since then, even after the decline since October, oil prices are still up like 60% from then. They’re up substantially. But that index is only up about 14% in total returns. As a comparison, the S&P 500 is up about 42% since then. That sector, even from the lowest oil prices that we’ve seen in like 20 years has vastly underperformed the rest of the market. 

I agree completely. These pure-play oil and gas producers, I definitely put them in the too-hard basket. They tend to follow oil prices. Even the low-cost guys, even the ones that have the strongest balance sheets and have the ability to reinvest their cash flows and live within their means and not have to take on more debt to fund capital expenditures and that kind of stuff, they follow oil prices. You can’t predict oil prices. I just think most investors would do better off investing somewhere where there’s more predictability. That’s the key thing. 

Sciple: Yeah. That’s not to say there’s not money to be made with these E&P players or folks tied to oil prices. It’s just, you have to pay a heck of a lot more attention, and you probably need a little bit of luck to get in and out when prices are favorable. If you take a long-term view of what you know is going to happen, there are better alternatives elsewhere in the market.

Hall: There are easier alternatives to get an acceptable rate of return. That’s the thing. People go into these E&Ps, a lot of time, looking to try and get that big, quick double because oil prices are going to go up. And then something nobody expects happens, and you end up losing 25% or 30% before you know it. That’s the thing. If you can just focus on capturing an acceptable rate of return in something that’s a little easier to predict, you could avoid these unexpected losses. 

Sciple: Yeah. It’s something to watch or keep in mind for investors when you’re making decisions on what you want to buy and sell. 

OK, Jason, let’s take some questions from our listeners that we got via Twitter. As a reminder to our listeners, if you want to send us in any questions, you can reach us on Twitter @MFIndustryFocus, or via email at industryfocus@fool.com

The first question we’ve got is from CamCain on Twitter. He says he liked the show on the American yieldcos. TerraForm Power (NASDAQ:TERP), Pattern Energy, NextEra Energy and Brookfield Renewable. What’s in store for them in 2019? What are the pros and cons of each? He’d also like us to dive a little bit into wind with Vestas.

Of course, we’ll need an entire show for us to dive into all these issues. But on some of these companies that he mentioned, No. 1, what’s your favorite out of this group? And No. 2, is there anything in particular you want to call out about these companies, knowing that we’re probably going to dive into these in a deeper fashion in a few weeks. 

Hall: Well, I jokingly replied on Twitter and told him just to buy them all. I’m only kind of joking because in general, I really am bullish on this entire sector. I think there’s a really predictable path for them to grow. This is the sector of renewables where you see consistent cash flows because they sell power on long-term contracts. I do like the space.

Looking at 2019 from where we are today, I’ll say TerraForm Power and Brookfield Renewables, which owns about two-thirds of TerraForm Power. They’re definitely at the top of my list. They pay really high yields right now because the market’s been relatively down on them. The entire Brookfield Asset Management umbrella of companies are really good at making money. They’re really good at investing in assets that provide really good returns. Their history of doing that is going to prove out over the long term. Right now, TerraForm and Brookfield Renewable both look like great values, they pay super high yields, and their ability to grow the payout over time I think is going to prove to be well above average. 

Sciple: Calling back to what you mentioned earlier, I think these yieldcos fall in that perfect bucket of a reasonable return relative to the risk that you’re taking into the investment for, in particular, these Brookfield-affiliated businesses. They have a long track record of successful, profitable investing. As we mentioned on the first half of the show, there are some significant signs of growth in these areas that are going to need more infrastructure investment, and that’s what they do, and they do it profitably. 

Hall: Yep, absolutely.

Sciple: All right, our next question is from … Twitter. If I say your name wrong, I apologize. It’s a two-parter. The first is, he wanted to talk a little bit about what’s going on in drone development applications in industrial and crops and weather-gathering areas. We have seen drones have some applications industrially. Avitas Systems is a subsidiary of GE (NYSE:GE). They use drones for inspecting industrial spaces, they even use them for underwater inspections. Then, we’re also starting to see some drones in the agriculture space. It’s just cheaper to have a little robot fly over your one field than to pay some guy to go fly a plane over your crops. It’s a little bit more cost-effective alternative.

From what I’ve seen, there’s not a lot of drone-specific plays available on the market. AeroVironment (NASDAQ:AVAV) is one. They make some military drones and have moved some into the commercial space. What are your thoughts on drones as an investment opportunity, Jason? Are there any companies that you think are interesting in the area?

Hall: The big challenge, you hit it on the head, is that, you think about Avitas. It’s part of GE. You think about some of the big defense megaconglomerates that have parts of their business that do drone work there. These are typically a small part of a much, much larger business. I don’t know that the drone business for those companies is necessarily meaningful enough that you would want to build a thesis around investing in that company just because of it. It might be worthwhile at some point later this year that we invest a little more time and dig in a little bit more to talk a little bit more about the specifics of that.

I will say this, I like AeroVironment. I do. It’s been a tough past few years. But the past year, the stock’s up pretty good. In terms of pure plays, yeah, AeroVironment is really about it. But it has a ton of competition from some really big, really well capitalized companies that do a lot of other things. I think we should really just punt and maybe talk a little bit more about it with a little more dedicated time. 

Sciple: Yeah. There just aren’t a lot of investable opportunities out there right now. As I mentioned, AeroVironment is one of the only ones available in the market. Drones are definitely going to be an interesting thing to watch going forward. They have a lot of applications, all across different use cases. But for right now, from an investment perspective, we’re really limited in what we can choose from. It’s definitely something to dig into later on. 

[The listener] also asked about, are we seeing any moves to use solar in more targeted environments? He mentions one where you could have your AC powered by a specific solar panel and different things linked up that way. Do you have any thoughts on this? I know, as prices come down, the ability to use solar for many more applications, of course, is going to open up over time. What kind of developments are you seeing here, if any?

Hall: For the most part, not really, especially for these stationary uses. Really, the power of solar is in scale. The more you’re able to deploy, the more efficient it is, the more power you capture, the lower the cost per unit of energy produced is, the cost per watt. That’s one of the challenges.

Maybe in certain areas, where you look at remote power, you think about maybe a military application for getting really remote, a backpacker that’s looking to have some source of power while they’re getting into the backcountry. The efficiency gains are going to help make the technology better there. But in general, yeah, you will, but — it’s kind of like drones. There’s going to be a little bit of a commoditization happening there, and there’s going to be a few small specialists, maybe they make one or two little things that catch the eye of a certain kind of vertical market. But in general, for stationary applications, especially in urban environments and grid-connected environments, there’s not necessarily going to be a ton of value for these specific application things like powering a window unit kind of thing. 

Sciple: Yeah. In the near term, we’re probably going to stick with those old solar powered calculators. But as we get more efficiency over time, hopefully we can get to where everything has one of those little things up in the top corner that’ll run everything. The technology is not quite there yet, but it’s definitely an exciting opportunity looking forward. 

Our next question comes from Warren Kiesel on Twitter. He’s a big fan, enjoys the show. He wants us to discuss Kinder Morgan and its prospects for the coming years. The stock has been a dog, but is the company in good condition? 

Hall: Oh, where is where is Tyler Crowe when you need him? [laughs] For the uninitiated, Tyler Crowe, one of our fellow writers is not a fan of Kinder Morgan. On the other hand, Matt Dilallo, another one of our top energy contributors, he’s a big fan of Kinder Morgan. I know he owns a pretty substantial amount of it. He definitely has the skin in the game behind whenever he writes and talks relatively positively about it. 

Let’s go back a little ways. If we look at Kinder Morgan from the time that it went public to now, the stock’s lost about half of its value. It has not been a good investment. Even when you add dividends in, it’s still down 28%. A lot of that goes back to the oil crash from 2014 to early 2016, when oil prices fell like 70%. There was a freeze in investment in the area. The company had to halt its dividend like two months after saying that they could continue to pay the dividend. They just stopped it because their creditors said, “You have to clean up your balance sheet and you need to have more cash flows or we’re not going to extend you any more money to fund these projects that you’re talking about.” And that just cratered the stock price. It really did. 

The stock price has slowly recovered. If you look back since the old price bottom, Kinder Morgan’s stock has generated about 24% in total returns. That’s not too bad for a couple of years. That’s good. The past year hasn’t been great. Some of the things that Matt talks about that are important is, the company has spent the past year and a half, two years, de-leveraging, signing more joint partnerships for development of projects instead of going on its own on these massive projects. It’s sold off a big pipeline in Canada, the Trans Mountain pipeline, that’s its Canadian subsidiary held. It’s been getting its house in order.

The dividend is up like 60% over the past year since they reinstated it. I think they’re going to increase it another 25% each of the next two years. If you take everything that’s happened in the past and park it in its own little place, and you look at the go-forward picture, it looks good. It looks like Kinder Morgan should be predictable, high-yielding. Based on the dividend increase later this year, it’s yielding like 7%. Again, on a forward yield. So, there are definitely things to like about it. 

But what I always go back to, and the reason that I sold no longer hold any shares, and I don’t want to speak for Tyler but in past conversations, he’s intimated the same thing, is that this is a company that has tended to get more aggressive over time, take on more leverage, take on more risk. If I were to invest in it again, and I don’t think I will, but if I were, if I were an investor, I would watch really closely how management acts in terms of adding additional leverage over time. If it starts to lever up and add more debt, I would probably move on relatively quickly. Again, it gets back to the unpredictability of the oil markets and how that can affect a company that might be investing in a future project, and then the bottom falls out of the oil market and it has problems capitalizing that major investment that it’s made. So, I would put it in that penalty box and watch it really closely. If the balance sheet starts to get a little bit levered, and starts to squeeze on cash flows, I would probably move on pretty quickly.

Sciple: It’s definitely a management question. I saw the stats, they move about 40% of all the natural gas consumed in the U.S. They’re really tied to the whole natural gas growth story, which we laid out in the front half of the show. They’re investing in an LNG export facility in Georgia. If management can avoid taking excessive risk, they do look like they have some opportunities in natural gas. But their track record has not inspired confidence that that’s going to be the way that plays out. You have to ride the cycles with these businesses. That’s an important factor to watch. 

Hall: Yeah, absolutely. Another good thing right now, another bullish signal, is that even with this dividend increase that’s coming up, the company’s only going to pay out about half of its cash flows this year to cover the dividend. That’s a substantial amount of cash it’s retaining. That’s something it has not done in the past. So, that’s definitely a good signal. But again, watch it closely. 

Sciple: Sure. Jason, our last question is from me. Back in October, you picked TerraForm Power as your safe pick for 2019 and SunPower as a high upside pick. Are they still your picks today? Is there anything else that’s on your radar that you want to tell folks about?

Hall: I think it still is, with the one caveat that, as I mentioned earlier when we were talking about the yieldcos, I would wrap Brookfield Renewable in with TerraForm Power because the market has given up so much on it. It’s pushed the yield up and created a really solid value. The reason is, the past year or so, management at one point had sold off substantially more dollar value in assets than it had acquired. It’s taking the time to recycle that capital into new projects and new assets. But the key is, it’s sold these old assets that were going at 2%-3% a year and at a lower cash flow yield, and it’s reinvested that capital and it’s working on closing a few of those deals and projects that are going to generate mid-single-digit to high-single-digit yields. They have double to triple the organic growth potential. It’s going to take time, but the market’s given us a great opportunity, selling the stock off like 15% over the past year, to buy these higher-yield assets at a lower price and get rewarded with growth in the coming years.

Sciple: Great thesis, Jason. I mentioned earlier in the show, stuff we’re going to continue covering going forward, what investors need to watch, is natural gas, renewables, storage. Those are probably the most important things to watch. We’re going to continue covering those this year. TerraForm Power covers that in a significant way. That Brookfield connection, as I mentioned earlier, you know that they’re going to make money no matter what the cycle does. And when you’re seeing an inflection point in the pricing, it seems to be a compelling position for somebody like Brookfield to come in and start making some investments and profiting off of where the market’s going. I definitely think that’s a company to watch. It could probably fit into a lot of investors’ portfolios.

Hall: Absolutely!

Sciple: All right, folks. Next Tuesday, I’ll be back, I’ll be discussing casino stocks with Asit Sharma on Consumer Goods. Also, next Thursday, we’ll be discussing the latest news in the auto industry. If anybody has questions about that, you can reach out to us on Twitter @MFIndustryFocus or via email at industryfocus@fool.com. Look forward to talking to you again soon. Thanks for coming on, Jason! Always fun to talk to you about what’s going on in these energy markets. I know we’ll have you on soon to break everything down. 

Hall: Sounds great! I’m always game to come on!

Sciple: As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don’t buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass. For Jason Hall, I’m Nick Sciple. Thanks for listening and Fool on!

All right, Jason, we actually did have one more question. Our resident Motley Fool fool.com tech expert, Brian Tighe, had to ask us about what happened in the National Championship game on Monday night. The last time I had you on the show in December, we previewed what was going on in the college football playoff. I figured we would come back and revisit what happened for folks who didn’t see. The Alabama Crimson Tide were pretty well throttled by Clemson. I believe the final score was 44 to 16, a 28-point victory. What’d you see out there, Jason?

Hall: If you go back to the last time you and I chatted before, I did say that I thought that the gap between Clemson and Alabama was probably a lot narrower than a lot of prognosticators were expecting that it would be. Coming into that game, there was a lot of talk about this being the best Alabama team ever, historically great. And it was a historically great team, especially on offense. But still, a very talented defensive team, especially on that line. Anyway, I said, if Clemson can get pressure and containment on Tua Tagovailoa, the Alabama quarterback, it would have a good shot in the game. 

While I was partly right — they got a little pressure on Tua — what I completely didn’t expect was how good that freshman quarterback looked. By the way, he grew up about 45 minutes from where I did, so I should have known about this guy! What an incredible performance by that offense. Honestly, was expecting Bama to win by 10 points. Talking about shocking the world, wow!They beat the crap out of your Crimson Tide. They really did.

Sciple: Yeah. What I thought going into the game, we talked about how great Clemson’s front was, and they’re all incredible players. I thought, if Alabama could run the ball, they would have a good chance to win. They would open up, they wouldn’t be able to keep a bunch of guys deep, and Tua would pick them apart. And Alabama was able to run the ball pretty effectively. But, Tua made a few mistakes. That pick six early in the game hurt him. And then, they stalled a lot in the red zone many times during the game. There was some questioning what happened with the fake field goal in the second half.

But I think the real story of the game was that Alabama’s defensive front was pretty well stymied by Clemson. They had no sacks the entire game. And then Clemson really dominated on third down. They had three or four third down plays that were 20 yards or more. The big thing is, too, you mentioned how close together these teams are when it comes to talent. If you’re a team like Alabama, who more often than not has a big talent advantage vs. your competition, when you play a team like Clemson and you make mistakes, they’re going to punish you for them. And we saw that. The quarterback fell down on one play and they took it to the house. That was the story of the game. When Clemson needed to make plays on third down, they did. When Alabama needed to make plays, they didn’t.

All that to say, I think Alabama will be back strong again next year. Nick Saban likes to focus on the process, doing what you have to do to improve and get better every day, and not focus on your results. That’s a good way that investors should probably try to look at their own portfolios. You’re going to get your lumps every now and again. Some unexpected things are going to happen that make parts of your portfolio tank. But if you can just focus on the process of getting better every day over time, and focus on the long term, what you need to do to achieve your goals, sooner or later, you will be rewarded.

Hall: I think for us mortals, that’s really good advice. My question, though, is: is it possible that Nick Saban has just run out of souls to sell? That’s a possibility. You have to consider it.

Sciple: Maybe? I just think he’s the hardest working man in the game. 

Hall: Yeah.

Sciple: We’ll see. It was a great season! And it wasn’t a totally bad week for Alabama Crimson Tide football, folks. You had Freddie Kitchens, former quarterback for the Tide, named the head coach of the Browns. You had Bruce Arians, former Alabama offensive coordinator, now the head coach in Tampa. And let’s not forget, Dabo Swinney was part of the 1992 Alabama national championship team when he played there. He’s only coached two places, Alabama and Clemson. 

It was a tough game. If we just focus on the long term, Alabama will be back. There’s always positives that come out of situations like this, whether it’s in sports or investing.

Hall: That’s right. I’m going to make a prediction. Here’s the way-too-early prediction: Georgia and Alabama will both play, and they’ll play in the SEC championship game again next year. Georgia will be undefeated. Alabama will have one loss. They will have lost to LSU. It’ll be in Alabama, in Tuscaloosa. It’s a home game for Alabama next year. Georgia will make the playoff, and Alabama will not. That’s my way-too-early prediction for next season. 

Sciple: Austin, I want you to clip that and we’ll come back to it this time next year.

Hall: [laughs] Write this down!

Sciple: All right, Jason, I really enjoyed having you on. Good to wrap up the college football season. I’m sure next season, we’ll talk about it some more. We’ll have a little break for a month until national signing day, and then always more news. I hope our listeners enjoyed this little discussion. We’ll see you again soon!

Hall: Pitchers and catchers report in two months, folks.

Sciple: There you go. Roll Tide.

Jason Hall owns shares of Pattern Energy Group, SunPower, and TerraForm Power and has the following options: long January 2019 $15 calls on General Electric. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan and Twitter. The Motley Fool recommends AeroVironment. The Motley Fool has a disclosure policy.