10 Green Energy Gambles: A Q3 Update

I never thought 2009 would be a good year for risky stocks, but my readers asked for them anyway. The market's strong third quarter have paid off for risk-takers who gambled on my 10 Green Energy Gambles for 2009.

I started out the year by providing readers with a portfolio of ten relatively conservative plays on green energy. That portfolio was representative of how I planned to approach the market this year, and has produced stronger returns and less volatility when compared to both green energy stocks and the market as a whole. Many of my readers are looking for big gains on little stocks, so I also provided (but did not endorse) ten such green energy gambles.

I went into some detail on each, but I generally felt that most of those stocks would benefit disproportionately from an easing of the credit crunch. In Q1 and Q2, those gambles performed in-line with the green energy sector indexes, but the return of optimism in the third quarter has allowed these risky stocks to shoot ahead of the sector with the turbo-charged performance that I hoped they would provide. They've even managed to pull ahead of my extremely strong conservative portfolio (by 44% to 41%.)

If the fourth quarter is anything like the third, I'd expect the portfolio to end the year with a double. I don't expect that to happen, but I've been wrong about the length of this rally before.

The following table and graph show stock-by-stock performance for the first three quarters:

Ticker	1/9/09 close	4/9/09 close	7/13/09 close	10/8/09 close	Gains 1/9 to 10/8/09
BCON	$0.46	$0.47	$0.637	$0.686	49%
AXPW.OB	$1.20	$0.85	$1.34	$2.14	78%
VLNC	$1.77	$2.23	$1.51	$1.60	-10%
CPTC.OB	$0.30	$0.23	$0.245	$0.489	63%
EPG	$0.86	$0.34	$0.54	$0.44	-49%
EMKR	$1.43	$0.84	$1.07	$1.32	-8%
UQM	$1.72	$1.70	$2.46	$5.97	247%
CZZ	$4.18	$4.45	$5.00	$7.91	89%
RZ	$3.62	$4.13	$2.00	$1.46	-60%
ZOLT	$7.47	$7.98	$8.46	$10.62	42%
Portfolio	$1,000	$900.20	$986	$1443	44%
Benchmarks
ICLN	$21.93	$19.40	$21.01	$23.08	5%
PBW	$9.01	$8.55	$9.15	$10.81	20%

Benchmarks

The two benchmarks -- the iShares S&P Global Clean Energy Index ETF (ICLN) and the PowerShares Clean Energy Index ETF (PBW) -- most likely produced such different results because:

1. US-based clean energy companies received more of a boost from the ARRA or stimulus package than did global firms
2. The global firms in ICLN's portfolio tend to be better established and more profitable than those in PBW's portfolio, which means that ICLN will typically outperform PBW in down markets, and underperform in up markets. This is exactly what we have seen this year, with the best performance coming from ICLN in the dismal 1st quarter, but PBW gaining ground since then.

Compared to these two, the portfolio has done quite well. Even in the down first quarter the highly volatile companies in the portfolio managed to perform better than the slightly more stable companies in PBW, but they were able to take off much faster than PBW when the market turned around.

Individual Stocks

With the exception of Axion Power (AXPW.OB) and a small option position on Raser Technologies (RZ), I've sold my stake in all of these and no longer follow them.

That said, the best place to go for information on the three energy storage stocks -- (Axion Power International (AXPW.OB), Beacon Power Corporation (BCON), and Valence Technology Inc (VLNC) -- is John Petersen. He recently discussed how the stocks in the energy sector were performing.

The best performer so far has been UQM Technologies (UQM). In January, I said "an auto bail-out which forced the big three to produce many more hybrid and electric vehicles could prove a bonanza for UQM." We had such an auto-bailout, but UQM's success did not come solely from government stimulus. Rather, the stock began to take off when the company announced a deal to supply drive trains for an electric sedan from Coda Automotive, and then accelerated when they received a $45 million award of ARRA funds.

A similar story to UQM was my lone nod to biofuel, Brazilian ethanol producer Cosan, Ltd.(CZZ). I said: "Either a return to high oil prices, or a reduction in America's ethanol import duty could greatly help the stock." Since then, there has been a lot of talk that the administration is considering ending ethanol import tariffs. The recent rise in oil prices also seems to be helping the stock.

My least successful bet has been Raser Technologies, Inc. (RZ). I began to think the stock had fallen far enough in my six month review of these stocks, and soon after called Raser "too cheap to ignore" with the idea that an announcement or government loan guarantees or other funding might cause the stock to take off, just as it did to UQM. A month later, the DOE denied the loan guarantees, and I sold my stake except for a few $5 calls (one of their ships may still come in.) I'm now even more bearish on Raser with the revelation that they were a bit overoptimistic about delivering power from low temperature geothermal sources. Fortunately, I got out with only a small loss.

I have not been watching Composite Technology Corp (CPTC.OB), Environmental Power Corp. (EPG), Zoltek (ZOLT), or Emcore Corp. (EMKR) since I sold them.

Disclosure: Tom Konrad and/or his client have positions in AXPW and RZ.

Comments

[tc1:]

Thanks for all this, Tom.

Composite Tech (CPTC.OB) has had an upside breakout, marked by a dramatic spike up to more than double its trading range for much of this year (the $0.20 to $0.30 level). The spike is evidently due to news that CPTC had sold off its DeWind wind turbine segment, which, while promising in an ordinary economic era, was an albatross around CPTC's neck during this credit-crisis era. Furthermore, the company seems to be getting more domestic attention (along with continuing attention abroad in several countries) for its state-of-the-art cable line, which is such an easy way for power utilities to save energy.

After predictably correcting from its recent $0.73 spike-high, CPTC seems to have found a new, higher support level in the $0.40 range.

Meanwhile, Raser Tech (RZ) still has several financing opportunities and, according to Zacks.com, looks to be moving forward with exploiting its several considerable geothermal resources via power-purchasing-agree... (PPAs) etc.
RZ evidently has some political support in the general strong favor of geothermal by Obama and Energy Secretary S. Chu, and also support from the Utah political hierarchy (Gov., congressional senators, et al.).

As others have written (such as a few folks at CAPS community), RZ could turn out to be the "ugly duckling" that turns into a beautiful swan with all the support for geothermal sector as a baseline power source for the utilities. RZ is obviously well-positioned here as one of the best junior geothermal companies (albeit financially strapped) along with giant Ormat Technologies (ORA), the big gorilla in the sector.

At a recent price of $1.50 (up from $1.38 on the Zacks.com piece on RZ), RZ would seem to be a fun gamble with expendable "play money" on getting a double or triple gainer over the coming 1-2 years. Some observers think its NAV is up around $6 - $7.

Oct 10 04:12 PM

[tc1:]

Disclosure: i recently sold out of a long position in CPTC.OB for a double gainer, and i also recently added to a long position in RZ at its "new lower price" :-)

Oct 10 04:15 PM

[Tom Konrad:]

tc1-
I did my playing with RZ at $2, which was now clearly too soon. I agree it could turn around, but even at $1.50, I'm very happy to have gotten out at $1.78.

I think your information about CPTC is very interesting, and I'll have to give this stock another look. I first became interested in the company in 2007 when researching transmission stocks, and I would alway have preferred if they had been a pure-play transmission company. The fact that they finally are makes them much more interesting.

Oct 10 08:09 PM

[jp17622:]

Tom - what is preventing you from taking a stake in BCON?

Oct 12 04:40 PM

[fwallace55:]

CZZ is on the uprise.... hmmmm what to think of this upward action?

Oct 13 10:05 PM

[wind4me:]

hey TOM, How come U are not covering/following/OWNING (APWR), if U are going to profit in this space, U must own APWR for end of 2011


On Oct 10 08:09 PM Tom Konrad wrote:

> tc1-
> I did my playing with RZ at $2, which was now clearly too soon. I
> agree it could turn around, but even at $1.50, I'm very happy to
> have gotten out at $1.78.
>
> I think your information about CPTC is very interesting, and I'll
> have to give this stock another look. I first became interested in
> the company in 2007 when researching transmission stocks, and I would
> alway have preferred if they had been a pure-play transmission company.
> The fact that they finally are makes them much more interesting.

Nov 25 06:04 PM