Green Investments: Lots of Alternatives, with Big Names for Safety

The financial fiasco has sidelined climate change and energy as hot topics, but the move to sustainability may do far more to shape our lives. Over time, trillions of dollars are likely to be channeled into solutions. For investors, clean and green offer a triple bottom line: Heal the planet, renew the economy and turn a profit.

Green investing is also a terrific way to damage your own bottom line if you make unwise, or unlucky, decisions. In emerging fields with great futures but skimpy track records, shares tend to climb high on faith and fall hard on despair. Crowds of contenders are brutally winnowed, leaving one or two standing and the rest forgotten.

In the aggregate, though, the green theme is widely expected to see vigorous growth.

"Sustainability has multiple drivers. Costs are coming down, and carbon is going to be regulated," said Jack Robinson, founder and president of Winslow Management, which runs eco-friendly mutual funds.

The American consumer wants to be involved in it, and big companies are increasingly interested because they desperately need growth themselves.

Indeed, the green zone has no easily definable borders. Weatherization specialist Apogee Inc. (APOG) resides there; so does Prius maker Toyota Motor Corp. (TM). The purest plays, however, are the companies that produce energy without spewing carbon or burning finite resources, names like First Solar Inc. (FSLR) and Vestas Wind Systems (VWDRY.PK). Wind and solar satisfy only a minuscule portion of the nation's vast appetite for electricity. But their output swelled well over 30% last year, according to their trade associations.

Nevertheless, in the second half of 2008, renewable energy shares took a more dramatic dive than Michael Phelps ever did, far outdoing even the S&P 500 banking index on the downside.The meltdown that sparked a recession and sent cash fleeing the stock market put a special curse on the sector. Wind and solar projects, with their hefty upfront costs, were frozen out by the credit freeze after a strong start to the year.

Prices at the filling station have become another dead weight. Investors typically peg renewables' value to the going rates of their fossil fuel rivals: oil, coal and natural gas. Although the downturn hasn't curbed consumption all that much, prices have collapsed, restoring conventional energy's status as the low-cost alternative.

As we enter 2009, pessimism still reigns, despite the recent bump in those capricious solar shares. But the incoming administration's agenda, and a potential rebound in fossil energy, could light a fire under the sector.

To bend one of Obama's slogans, climate change is change he can believe in. The president-elect has packed his Cabinet and advisory ranks with clean energy fans. Further, he intends to seek legislation that will favor green business and, in his words, "make dirty energy expensive." He's no friend of coal plants and could heap charges on the privilege of emitting carbon, for instance. If made law, policies like these can eventually alter the cost equation.

Conservation and renewables will get another push in the form of public works projects built into Obama's stimulus mega-package. China, a prolific polluter as well as a center for green tech, is doing the same thing on an even larger scale relative to GDP. If these investments show results, then everything in energy – conventional and otherwise – heats up.

What could add fuel to the fire is a surprise supply crunch. Just as the oil bubble put OPEC in high gear and spurred arduous digging in remote places, the slump is taking crude off the market and shutting down projects, in the Canadian tar sands, for instance. If demand rebounds, the spigot may be slow to reopen. The result: Prices climb higher, faster.

There's no telling when green stocks will be recharged, but fewer solar companies will be around to enjoy it. In 2005 and '06, they went public in droves, flashing an early warning to investors who remember the dot-com bust. Before going into free fall in '08, the shares had reached dizzying heights. Now some solar names look cheap relative to initial '09 forecasts. But forecasts are being cut and cash on the balance sheet can disappear.

"Companies that aren't fully capitalized will probably have to shut their doors in late 2009, and a handful of players will come out much stronger," said analyst Sanjay Shrestha, who covers renewable energy for Lazard Capital Markets.

Shrestha and Robinson both advise investing in companies with a clear competitive edge. SunPower Corp's (SPWRA) products are said to be the most efficient for turning light into electricity. Suntech Power Holdings (STP), based in China, claims leading market share among standalone providers. First Solar is the industry's best hope for bringing costs down to fossil fuel levels, and Energy Conversion Devices Inc. (ENER) boasts strong margins for its flexible, lightweight modules. To buy the sector, look into the Claymore/MAC Global Solar Energy exchange-traded fund (TAN).

Building wind turbines has proved to be a rich business for Denmark 's Vestas and Spain's Gamesa (GCTAF.PK). The U.S., on the other hand, has no major pure plays in wind, though it's seen as the industry's next great staging ground. General Electric Co.'s (GE) turbine unit is the flagship of its array of clean-tech businesses it calls ecomagination. Those ventures brought in an estimated $17 billion in 2008.

Shares of parts makers Kaydon Corp. (KDN) and Zoltek Cos. (ZOLT) may have a second wind when the industry turns around. To get in on the worldwide action, try the First Trust Global Wind Energy ETF (FAN). To purchase a piece of the terra firma where wind farms may sink roots, look into real estate investment trusts in the Plains states.

To bring renewable power from the open spaces to the cities, new long-distance lines are needed. Transmission is costly and doesn't do much for the landscape, so such projects often rouse protest. Consequently, the network isn't keeping up as utilities churn out more power. Experts call it congested, creaky and unprepared for long hauls.

A name that comes up often as key to a future buildout is Quanta Services Inc. (PWR), which designs and installs utility lines. Valmont Industries (VBI) sells building blocks such as poles and towers, and General Cable (BGC) provides the wires to carry the current. Their products have applications far beyond energy, though, and demand may rise during an infrastructure buildout. Kudos to the guys at Alt Energy Stocks for their work in this and other areas of clean tech.

All three stocks have been zapped, notwithstanding the firms' respectable fall-quarter results. General Cable has been especially volatile, ranging from $75 to under $7 in 2008.

According to the Environmental Protection Agency, California's drought won't seem so remarkable in five years. Climate change and aging facilities promise to spread water shortages through most of the nation, the agency says. In many places around the world, potable H₂O remains a rare commodity.

U.S. spending on water, now stagnant, may flow faster under Obama. Tetra Tech Inc. (TTEK), a water engineering firm, does almost half its business with the government, which explains its reliable revenue streams. Desalination is a theme that's attracted giant GE and Dow Chemical (DOW). Some believe, however, that little Energy Recovery Inc. (ERII) has the know-how to fix desalination's chief drawback: its thirst for electricity. Nalco Holding (NLC) conserves water by purifying it for industrial use — recycling it, essentially.

For the fund-minded, Invesco PowerShares has two. Its Water Resources ETF (PHO) is geared to the U.S., and the smaller Global Water Portfolio (PIO) sets its sights overseas.

Johnson Controls Inc. (JCI), founded in 1885, operates in some very modern niches. Its systems manage the way energy is meted out in buildings, which plays into conservation consciousness. It also makes lithium-ion batteries for hybrid vehicles — which leads you to wonder what the unfolding rescue of the automakers means for the green investor.

There are signs that Obama wants to see the automakers remodeled into standard - bearers of sustainability. During the campaign, he called for stricter tailpipe emission rules, more vehicles that run on either ethanol or gasoline, and tax breaks to drive purchases of hybrids.

Does that mean the suffering ethanol sector will flourish again? Will research subsidies bring fuel made from plant waste to market? Can you pick a winner among the pack of brainy battery start-ups? Until the situation gets a good deal clearer, these are areas for lovers of longshots. More broadly, though, if the car wreck leads to a green overhaul, new markets will open up to eco-oriented investors.

No one can map out where next-generation vehicles are going, and that's just the start of the riddles green investors face. Plenty of provocative but unproven ideas are out there. Equipment to bury coal emissions may one day be a big business, for instance, but that day is a long ways off. Money thrown at a hot concept may go up in smoke, so caution is advised.

Even established fields are full of unknowns. Outside forces like commodity prices and public policy can lead stocks around by the nose. Behind the scenes, technologies vie for advantage. In solar, for instance, the dominant silicon-based formula is challenged by "thin film" and solar thermal, which relies on steam. Add in the inevitable missteps of young firms and the way stock speculators pile onto trends and, well, buckle your seatbelts. Don't forget, though, that volatility can bestow profits, too.

But if you don't like roller coasters, consider owning a piece of a greening giant.

That's where GE, Johnson Controls and other companies in transition fit in. First Solar may flourish, but so will Japan's Sharp (SHCAY.PK), the world's No. 1 solar provider. IBM Corp. (IBM) consults on smartening up the electric grid, and chip-fab titan Applied Materials Inc. (AMAT) now sells solar manufacturing gear. Even Google Inc. (GOOG), which makes its living in cyberspace, views renewable energy as a potential growth market.

Doug Sandler, chief equity officer for Riverfront Investment Group, is waiting for household-name companies to sort the market out. He expects fledglings to give way to veterans with cash stockpiles, reliable manufacturing and global scale. "Some of these smaller companies will plow the field," he said, "but when it comes time to harvest, the big companies will be the beneficiaries."

When he's not winning Nobels and Oscars, green hero Al Gore is a prominent investor. Strategists at his London-based firm, Generation Investment Management, largely follow that big-tent logic, buying stakes in proven companies that are moving in the right direction.

Gradually, the thinking goes, their sustainable ventures will enjoy much healthier growth than the old operations, changing the nature of the company. That strategy requires patience, however. As we learned in 2008, it takes time for brown to turn to green.

Comments

[keithpiccir...:]

Thanks for the homework assignment, though I am somewhat familiar with the lesson and yes the answers to the test just seem to keep changing.
I use GEX for my solar exposure and Vestas instead of FAN.
Vestas has performed very well, and from the first week of December until just recently it kept moving as oil went down - which broke the pattern of trading together and surprised me.

Jan 06 09:39 PM

[Socialism c...:]

Climate change? There is no "global warming" ala Al Gore:

www.worldnetdaily.com/...

Anti-pollution and progress towards sustainability are nonetheless necessary goals. But let's quit the fear tactics and lies ("...the debate is over...").

Jan 07 02:41 AM

[gebby:]

i think the investment community has to start focusing on man made global climate change and how we are all going to die unless man addresses this reality aggressively. it is not the price of oil or coal. how much is the planets survival worth? what is that economic value? really.

whomever berates al gore and global warming is incredibly short sighted.

Jan 07 10:22 AM

[jmmx:]

I think the question is not whether we will make investments in clean energy, but rather if the Bush administration squandered the last chance we had to save the planet from an extreme climate change. Let's face it, if the current warming trend is due (in major part) to human caused greenhouse gas emissions, then even if we all were to leave the planet tomorrow, the earth would continue to warm up for another 10-20 years before the excess CO2 was eliminated. The CO2 existing in the atmosphere is the thermostat NOT the amount we emit in 1 year. So the last eight years of inactivity will have a cumulative effect.

To be honest, I fear we are already too late.

Jan 07 12:12 PM

[jmmx:]

@Socialism cannot compete!

Interesting what you have posted. But none of that article gives evidence against global warming per se, only that there are many who are not convinced.

It should also be noted that some of the quotes are misleading and taken completely out of context. I looked at just one and it was clearly misleading. Anyone who will deliberately misquote like this is not to be trusted.

Note that the title of the article is "Scientists abandon global warming 'lie'" As evidence there very second quote is the following:

"Since I am no longer affiliated with any organization nor receiving any funding, I can speak quite frankly ... . As a scientist I remain skeptical." -- Atmospheric Scientist Dr. Joanne Simpson, the first woman in the world to receive a Ph.D. in meteorology and formerly of NASA who has authored more than 190 studies and has been called "among the most pre-eminent scientists of the last 100 years."

Let us look at her comment: "...As a scientist I remain skeptical."

What is in that ellipsis? There is the crux. What the article most DISHONESTLY ELIMINATED was really rather important, and totally controverted the point of this deceptive article. Let us see the full quote from
climatesci.org/2008/02.../

First, earlier she states: "There is no doubt that atmospheric greenhouse gases are rising rapidly and little doubt that some warming and bad ecological events are occurring."

But the real misrepresentation by the article you quote is in the section containing the sentence printed in your article:

"What should we as a nation do? Decisions have to be made on incomplete information. In this case, we must act on the recommendations of Gore and the IPCC because if we do not reduce emissions of greenhouse gases and the climate models are right, the planet as we know it will in this century become unsustainable. But as a scientist I remain skeptical."

Notice "...WE MUST ACT..."

It seems to me that the article you referenced is the lie.

This is typical of the messianic anti-global-warming crowd who are lead by well-paid think tanks that use the same kind of propaganda that the cigarette companies used to say that there was no "proof" that "tobacco causes cancer." They took the fact that science frequently does not have definitive FORMAL proof, into an unrealistic doubt of the findings.

This is why I gave a "thumbs-down" to your post - NOT because I disagreed with you (I don't do that" but because your referenced article is bad journalism.

One thing IS clear: glaciers and polar ice caps are melting, birds are migrating sooner, permafrost is melting, and much of this is happening at a rate much faster than scientists had expected. If this IS do to human production of greenhouse gases, then we had better start doing something now.

IMHO

jmmx, Portland Oregon

Jan 07 12:38 PM

[frflyer:]

The funny thing is, that Socialism Can't Compete probably doesn't consider himself an extremist, yet people like him have no problem branding the entire world scientific community as in some vast dark conspiracy to bring about world socialism. Get real.

They'll trot out their lists of hundreds or thousands of skeptical scientists, (which lists are all phony, every one of them), thinking this is evidence of a lack of consensus on climate change.
It might help if they went to the websites of actual climate scientists like realclimate, skepticalscience,logic... science, grist,climate progress etc. The only reason they ever go to these sites is to repeat arguments, in the comments section, that have long been disproven, some as long as 20 years ago. But they repeat this drivel endlessly. Some still cling to some wacko theory that the whole greenhouse effect is wrong because of a law of thermodynamics, even though real scientists have pointed out endlessly that this is a wrong application of that law.
Many of the deniers are just blinded by their ideology and are largely beyond hope.

Next he'll tell us about the Oregon Petition with it's supposed 19,000 skeptic scientists. It was a hoax perpetrated by a group in Oregon that contains ZERO climate scientists. They basically forged National Academy of Science stationary to make it seem it was a document from NAS that fooled some scienitsts into signing.
Their founder believes that the industrial revolution has brought increased biodiverstiy to earth and the more CO2 we pump into the atmoshphere, the more lush and eden like earth will become.
OK right.

www.sourcewatch.org/in...

Here's Sen Inhofe's list of 413 "prominent scientists" who disagree with the IPCC.
20 economists
44 television weathermen
70 scientists with no expertise in climate study
84 scientists who are either connected with the oil industry or are paid by it.
Scientists who were included against their will, and who agree with the IPCC

Inhofe and Morano misinterpreted a paper published in Geophysical Research Letters.
They claimed that it showed proof that the sun was responsible for the warming that's been observed in the last 100 years. The paper they quote says exactly the opposite from what they claim. This has been verified by the author of the paper.

climateprogress.org/20...

There have been several instances of deniers misusing or using out of context the words of climate scientists to make it seem they are disagreeing with the IPCC.

Heartland Institute, a leading oil funded denier propaganda mill, issued their list of skeptical scientists in Texas. There are dozens if not hundreds of climate scientists in Texas. Are you ready? Here's the list.
Robert Bradley, energy expert.
H.Sterling Burnett, policy analyst
Dr. John Dale Dunn, emergency physician
Michael Economides, petroleum engineer

NOT ONE CLIMATE SCIENTIST

These are not isolated cases. All their lists and their gatherings of skeptics which are advertised as scientific conferences(which they are not) are like this. It's all complete BS
These conferences are the ones where they basically offer bribes to give speeches ($1,000) or write papers ($10,000) denying man made global warming, all paid for by the oil and coal industries.
These are all expense paid propaganda events and nothing more.

And this is what they hang their hat on as proof against the overwhelming body of evidence and overwhelming scientific consensus.

They offer up these totally implausible conspiracy theories about the world scientific community scamming us or hoaxing us to raise taxes, create a one world socialist govt., take away your SUV, make you buy green products, and on and on. And then they call the scientists alarmists.
Is the dumbing down of America ever going to stop? I sure hope so.

Jan 08 04:42 PM

[pope lutefisk:]

I'm glad to see global warming denier propoganda exposed. That effort will rank with last centuries' holocost denier propogandists as the global warming trends move us toward a full blown ecological crisis point. What is tragic is that we likely will (or have) moved beyond the tipping points that escalate warming and melting beyond what the current human population can be sustained. Having this conversation with global warming deniers is akin to playing poker on the deck of the Titanic as though winning the poker game has anything to do with one's fate.

It's time to listen to the evidence as it comes in and to mobolize actions that have a chance to slow and reverse some of the damage. Calling this "scare tactics" is a sham. the human race has every reason to have heightened concern over what damage our way of life has done to the ecosystem by burning oil and coal for over a hundred years. Bush said "we are adicted to oil" and he should know. He's an expert in being adicted. Addicts acting out their additctive behavior never leave the world better than they found it. Our great great grand children may very well curse us and our generation. And for good reason.

Feb 01 12:08 AM

[Nub2:]

This is pretty humorous. JMMX is that you Al?
Anyone that opposes the global warming myth has to be attacked and ridiculed. What are you afraid of?

Just in case you weren't in the loop the term is now 'climate change' since it was determined the average global temperatures have been in decline over the last decade. Come on! Get with it guys.

Jun 25 09:59 AM