You missed it folks. You can’t make mega payback by investing in Google (GOOG), Apple (AAPL), Amazon (AMZN), Yahoo (YHOO), Microsoft (MSFT), or Cisco (CSCO) anymore. Those trains left the station a long time ago. By the time you thought about investing in them, it was probably too late.
Investors wondering where the next Google will come from should think about the trends that will shape our lives for the next ten or twenty years.
If there is one sector you can count on, it will be alternative energy: clean energy, energy storage, energy conservation, and the smart grid. The world’s population will surpass 7 billion people this year. More importantly, the number of people considered to be middle class is growing at a rapid rate, mostly due to improving quality of living in China and South Asia. Those new middle class want motorized vehicles and air conditioning. The demand for energy will be ramping quickly.
At the same time it’s becoming more expensive to dig energy out of the ground. Dependence upon foreign supplies of oil is becoming more of concern. Coal is considered to be four letter word, and nuclear has many hurdles. Conventional solar panels and wind turbines are only expected to make a small impact in the next twenty years.
As if this isn’t enough, concern over CO2 production pressures us to limit coal burning, or at least clean up its emissions.
It’s a perfect storm. Energy demand growth + resource constraints + global warming/C02
Mankind has no option but to deal with this. This will consume our attention of many of our finest minds, not to mention our tax dollars. These issues will be important for the rest of our lives, and maybe the lives of our children. Companies that help solve the energy problems will be among the future Googles and Apples.
There are wide array of tools needed to win this game. It will require dozens of new technologies. We need to store energy in many new ways. We need to make our homes, offices more energy efficient. We need to generate power more efficiently, with less emissions, and with less fossil fuels. We need to create and use cleaner and more fuel efficient gasoline and diesel vehicles. At the same time we need to develop vehicles that run on renewable fuels.
We can expect many stock winners, but it will be hard to pick the long term mega winners. Few people knew that Google was going to be worth billions until they were already there. In the early days, several other search engine leaders looked very strong (remember Alta Vista, Lycos, AOL), but only Google has become… Google. It’s not good enough to just pick the general technology. You have to pick the winning company, and get the timing right too. Apple didn’t always look like a winner. There were a couple of near death experiences for Apple along there road to the current glory.
Perhaps the more realistic thing is do is pick a portfolio of up and coming alternative energy stocks, and hope that one or two will be big winners. That is the approach used by most venture capitalists. Clean energy funds exist for a easy approach, but we’ve found that these funds fill out their portfolio with a lot of companies that are really broad product companies with a small clean energy component to their business.
Some sectors to watch:
Conventional lead acid battery makers and ultra capacitor manufacturers will get a boost from the move to start stop car technology already ramping up in use in Europe and coming soon to the US. Stop start technology will provide a modest but important efficiency boost. Automotive battery makers will benefit because cars will need new more expensive batteries that start a car 100 times a day, and sustain a fast charge. Examples of companies that will benefit are Exide Technologies (XIDE), and Johnson Controls (JCI). Maxwell (MXWL) looks overvalued right now but is a pure play for ultra capacitors that can help a vehicle get a faster start. Axion Power (AXPW.OB) is a battery component maker that holds patents on a promising technology used in start stop capable batteries.
Temporary storage of power to balance out the electrical grid will become increasingly important over time. Some big ideas are required here. Possibilities include large mechanical flywheels, pumping compressed air underground, and new generation chemical batteries. Examples here are very early stage companies, tiny Beacon Power (BCON) and early stage ZBB Energy (ZB), a maker of flow batteries.
Solar energy stocks are going through a very tough year. Short term overcapacity led to a devastating drop in prices, however the long term trend for the industry is very positive. There are too many to list but you can invest in this segment by buying a solar ETF.
Companies that make Lithium batteries have had their stock prices crunched badly. These batteries are playing a starring role in electric vehicles and many other applications. Government incentives directly for these companies, and indirectly through subsidization of electric vehicles could help these companies. If you can pick the survivors out of the carnage, their prices now look more reasonable. Examples are A123 Systems (AONE), Valence (VLNC), and Altair Nanotechnologies (ALTI). Another play would be to buy into Lithium metal stocks. One way to do this is with the Global X Lithium ETF (LIT).
Fuel Cell companies offer a lot of possibilities. Fuel cells can generate electricity from hydrogen and renewable fuels. They are being used to power lift trucks and buses. They can generate electricity from industrial and municipal waste. They can be used for backup power in applications like cell phone towers. They can generate primary power for off grid applications like military equipment and again cell phone towers. Long term they may play a more important role in directly powering vehicles and homes. Notable examples are Ballard Power (BLDP), Plug Power (PLUG), Fuelcell Energy, (FCEL) and IdaTech PLC.
Cleaner burning natural gas in vehicles could provide some relief from dependence upon foreign oil reserves, and could be doing it soon. Westport (WPRT) is a product player in this market, and Clean Energy Fuels (CLNE) is investing in natural gas filling systems. A fund that invests in natural gas companies is First Trust Natural Gas Index ETF (FCG).
Wind power clearly has an important role, but hasn’t created many pure play stock market investments. It seems to be covered by large conglomerates. One Chinese company making turbines is China Ming Yang Wind Power Group (MY), American Superconductors (AMSC) makes products for wind and grid applications.
Electric Vehicles and Hybrid Electric vehicles are getting a lot of government support. By far Toyota is the leader here with the Prius, but most of the big car makers are getting into the act. The best known pure play manufacturer is Tesla Motors (TSLA) with their high end EV. At the other end of the spectrum, Kandi Technologies (KNDI) is a speculative play making noise by trying to morph, with the help of the Chinese government, from an ATV and go-cart maker to builder of $1,000 electric cars for the Chinese.
Advanced Battery Technologies (ABAT), a Chinese e-bike and lithium battery maker is notable as well. The e-bike market in China has exploded in the past ten years, and the e-bike market worldwide is just getting going. If energy gets really expensive this could be the last form of transit many of us will be able to afford.
Service companies that help governments and corporations to update their energy systems, reduce their consumption and exploit the latest technologies to reduce greenhouse gases are likely to be in demand for many years. Our favorite pure play example is Ameresco (AMRC).
There are several companies that make electrical components that could become part of wind, solar or other electrical infrastructure projects. Often only a portion of their products are for green projects. An example is International Rectifier (IRF).
The business of creating renewable energy fuels is a tiny blip on the radar screen today, but is bound to grow rapidly for decades. Caution is required in these investments as some of the economic models are downright silly. Governments (in their wisdom) are likely to prop up this segment through regulations and incentives in the short term. Solazyme (SZYM) is one company in the segment. Others are Cosan (CZZ), and Amyris (AMRS)
Although we like the sector, caution is advised with all these stocks. Some look like giant science fair projects, depending on government handouts for existence. There are many we wouldn’t touch until the management shows they have some clue as to how they will ever develop a profit.