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In 2007, investments in alternative energy stocks started to achieve mainstream status. Republicans and Democrats forged agreements on global warming legislation, and many clean energy stocks were seen outperforming their benchmarks. The following year, these trends began to change, as the recession-causing Credit Crisis drove investors away from risky assets in fledgling industries and into more conventional safe havens.

These declines continued into 2012, even as the broader indices showed strong recoveries. This extended downturn was based largely on reductions in clean energy subsidies. But total investments in clean energy project amounted to $268.7 billion in 2012 (the second best yearly performance on record), and this creates a strong scenario for a bullish rebound in 2013. For long-term investors, this creates some interesting opportunities for those looking to buy-in at these lower valuations. Here, we look at some of the potential ways investors can play the expected rebound and capitalize when gaining exposure to the alternative energy space.

Chinese Stock Choices

The constant environmental challenges of industrialization have led China to establish itself as a major player in the clean energy space. This includes some well-structured companies of its own, and one of the best choices can be found in Kandi Technologies (NASDAQ:KNDI). Kandi manufactures electrical vehicles and ATVs, and posted full-year revenues in 2012 that showed an increase of more than 60% from the previous year. Earnings for the same period also showed significant improvements (up 33.5% to 30 cents per share).

Kandi's 2012 electric vehicle sales came to 3,915 units, generating revenues of $19 million (an increase of more than 200% from the previous year). Government contracts are helping support forecasts for sales of electric vehicles, and Kandi's trailing P/E of 13 means that investors can still buy-in at very cheap values and gain exposure to a company that is experiencing rapid growth. Kandi recently announced plans to move into the mature phases in China's first full-scale electric vehicle production line, with annual output expected to manufacture 100,000 of its vehicles.

A Look at US Geothermal

Next, we look at US Geothermal (NYSE:HTM), which has had a string of positive headlines associated with its recent performance and contractual relationships. US Geothermal is a leading renewable energy company that places most of its attention on the development, production, and sale of geothermally-sourced electricity. The company recently announced substantial cash grants from the US Department of energy (in excess of $35 million) for the successful completion of its Neal Hot Springs operation. This extra cash is slated to be used to fund some of its future development programs.

In addition to this, the company has started posting profits in its earnings reports in what is likely to become a bullish trend going forward. Higher output levels in 2012 at most of its geothermal plants are coming in conjunction with improvements in commercial operations, and all of this points to consistent improvements in the stock price in 2013. For the year, earnings should improve 4 cents per share and this creates a solid entry area for investors with longer term time horizons.

ETFs vs. Small Caps

The declines we have seen recently in clean energy plays are clearly creating some great opportunities for growth investors. The simplest way to create exposure to the space is through funds dedicated to the sector. Some of the most widely discussed examples here include the PowerShares Cleantech ETF (NYSEARCA:PZD), the PowerShares Global Wind Energy ETF (NASDAQ:PWND), and the First Trust Global Wind Energy ETF (NYSEARCA:FAN). While there is some advantage here in their relative simplicity, it is not uncommon to find funds that have expense ratios of 2% and above, and these funds will also encounter further trading costs with high turnover ratios.

One strategy for dealing with this comes with identifying well-positioned small caps that are poised for growth relative to the wider industry. One option here is Arista Power (OTCBB: OTCQB:ASPW). Arista's well-diversified exposure to a large cross section of the clean energy market actually positions the company in the same light as some of the comparable ETF portfolios - but without the added investment costs. Arista Power has established innovative project to develop power management systems (custom designed), wind turbines, and solar energy systems.

Recent contracts with the US Army and a favorable cost environment (created by lower costs in solar panel production) helped Arista double its sales figures last year, and the company's earnings projections are calling for total sales to climb as high as $12 million in 2013. So, for investors looking to substantial growth prospects (while, at the same time, avoiding additional ETF costs) alternatives like Arista present some interesting opportunities as a portfolio addition. Given the recent price drops in clean energy stocks, contrarian investors should pay attention to this space as one of the best sector opportunities which has yet to see the full benefit of the wider global recovery. Here, we have some clear standouts in the industry, all of which as strongly positioned for a bullish performance in 2013.

Source: Clean Energy Stocks To Rebound In 2013