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Recoup those Solar Losses with Cleantech’s Growth Engine

Nov. 16, 2011 10:34 AM ETFSLR, JASO, JCI, BIIB, LPL
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The cleantech sector has been suffering as of late. The difficulties started with a drop in venture financing for the sector in 2010 and have continued with one of its most high-profile industries, solar, taking headline-grabbing beatings on a regular basis. While the stocks of First Solar (NASDAQ: FSLR),SunTech Power (NYSE: STP), and JA Solar (NASDAQ: JASO) have collapsed as much as 80% from their peaks in the past year, and companies like Solyndra have fallen into bankruptcy, there remains high-growth opportunities for investors to profit in cleantech, and those opportunities are in energy efficiency.

The Lawrence Berkeley National Laboratory projects that U.S. spending on energy efficiency services will increase from $18 billion in 2008 to as much as $80 billion by 2020, and Forbes contributor William Pentland recently described the industry as “the sweet spot in cleantech investing.”

What is the driver behind this growth in energy efficiency services, and why will it continue? Simply put, companies are concerned about rising energy prices and are looking to cut costs.

According to a Deloitte white paper, Every Company is an Energy Company, energy use accounts for 5% to 20% of a typical company’s expenses. In a recent global survey of over 4,000 corporate executives, facility managers, and other decision-makers conducted by Johnson Controls (NYSE: JCI), respondents cited “energy cost savings” as the primary driver behind their organizations’ energy efficiency decisions. Over 80% of respondents expected energy prices to go up in the coming year.

The desire to boost the bottom line can provide a powerful incentive for businesses, schools, hospitals, and other organizations to implement energy-saving technology such as lighting retrofits and heating, ventilation and air conditioning (HVAC) system upgrades. While these and other energy efficiency initiatives require upfront investments, government incentives and utility rebate programs can defray a portion of the implementation cost, and the energy savings generated by efficiency upgrades often pay for themselves very quickly. With these considerations, energy efficiency is more accessible and more necessary than ever for businesses and other organizations.

One way for investors to profit from the growing demand for energy efficiency services is through shares of Blue Earth, Inc. (OTCBB: BBLU), a company employing a mergers and acquisition strategy to acquire, license, develop, market, install and monitor cleantech-related, innovative technologies and energy management systems. These technologies and systems are designed to enable BBLU’s customers, both commercial and residential, to reduce their energy consumption, lower their generating and maintenance costs and realize environmental benefits.

An important element of the Company’s M&A strategy is to acquire companies with established customer bases in each of its key categories: refrigeration, lighting and HVAC. Each of these customer bases presents BBLU the opportunity to cross-sell retrofits in the other categories. As an example, if a customer was originally a refrigeration customer, BBLU would be in an ideal position to offer energy management services for lighting and HVAC.

In January 2011, BBLU acquired substantially all the assets of Humitech and Castrovilla, which together manufactures, sells and installs commercial refrigeration and other energy efficiency products to a base of approximately 5,400 businesses in northern California. Additionally, Castrovilla currently has contracts with over a dozen municipal utilities throughout its operating region to provide ratepayer-funded rebate offerings and turnkey program administration and implementation.

More recently, in September 2011, BBLU acquired Xnergy, a California-based energy services company that has been rated the #1 Alternative Energy Provider by the San Diego Business Journal. Operating throughout the West Coast, Xnergy has a strong history of providing a broad range of comprehensive energy solutions to major customers, including Biogen Idec (NASDAQ: BIIB), Cox Communications, and LG Philips LCD America (NYSE: LPL). With $18 million in 2010 sales and a $500 million pipeline of projects for industrial, commercial and public sector clients, Xnergy is a strong addition to the BBLU portfolio of companies.

Under the guidance of Johnny Thomas, CEO, and John Francis, VP of Corporate Development, we believe BBLU presents a tremendous opportunity for investors. This is not the first M&A roll-up strategy successfully implemented by these veteran corporate operators. Prior to BBLU, Mr. Thomas and Mr. Francis together spearheaded such a strategy, acquiring 34 companies in approximately four years, growing revenues from $29,000 to more than $350 million, and increasing the market valuation of the company to $1.2 billion.

An experienced management team capitalizing on a fragmented market in a high-growth industry is a recipe for strong capital gains. To learn more about this exciting company, watch our video profile of BBLU and view the Company’s recent presentation at the August RedChip Virtual Conference.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit www.redchip.com/disclosures.asp?src=rcv.

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