Morningstar Offers Green Investors Dull Advice

It didn't take long. Just a few years into the "green" movement we're already hearing cries for a green economy.

With the expiration of Kyoto in 2012, the world is rapidly searching for substitute. That's why over 10,000 officials and scientists met in Bali last month. But nothing was really accomplished at that meeting, whose result was essentially laying a framework to lay a framework.

But emerging from all that bureaucratese was at least a worldwide buzz about what would happen when the Kyoto Protocol expired. And while there may eventually be a similar global successor, it's looking now as though the U.S. will enact some sort of separate legislation before 2012.

That notion has led to the reporting of what many are calling a "green economy"--the structure by which the economy would operate in a country where carbon emissions were regulated.

What we're seeing is the future of blue chip stocks being affected by what's going on today at Green Chip Stocks.

On 1/14, Morningstar Inc., the investment research juggernaut, put out an article describing what stocks would thrive in a greener economy. And while their picks may be a bit obvious, I can't say they're wrong.

Some of the winners, according to Morningstar, will be Sempra Energy (SRE), EOG Resources Inc. (EOG), Waste Management Inc. (WMI) and Genesee & Wyoming inc. (GWR).

The first three were selected for their exposure to natural gas or natural gas alternatives and the last for rail transportation. Those are all positions I agree with, albeit in different or nuanced ways.

While those stocks may flourish, say five or ten years down the road, it's possible to make even more money by investing in the green stocks that are serving as catalysts to get us to that point.

Follow the Green Brick Road

For example--and to butcher an already hackneyed analogy--if Sempra Energy and EOG Resources are the proverbial City of Oz, what are the stops along the way?

As I see it, those stops are small- to mid-cap companies operating in the renewable energy, water and nascent carbon markets. These are the companies the Green Chip services recommend. And these are the companies that pave the road to a green economy.

It's all well and good that natural gas, both liquid and compressed, will see increased usage. But what industries are going to use more gas? Who will make those conversion devices? Who will supply the gas economy on a local level?

Those are the questions Green Chip asks. And the companies that provide answers are the companies we like to invest in.

Of course, we know that rail will see increased use as a mode of transportation in the U.S. and elsewhere. But what companies will benefit from the lower cost of freight transport? What economies of scale will be created by the expansion of rail use?

Again, those are the questions we ask. And, so far, those are the questions we profit from.

We didn't make over 415% on WorldWater & Solar Technologies Corp. (WWAT.OB) by investing in utilities that would eventually sell electricity generated by solar power. And the same holds true for the 260% we've made on US Geothermal Inc (UGTH.OB).

Sure, you could follow the mundane advice of national publications like Morningstar, but then you'd miss all the fun and massive returns along the way.