Seeking Alpha

GreenTechStocks'  Instablog

GreenTechStocks
Send Message
We cover a variety of green technology investments, ranging from solar to biofuels, with a focus on long-term investment.
My company:
GreenTechnologyInvestments
My blog:
GreenTechnologyInvestments
View GreenTechStocks' Instablogs on:
  • Solar Stocks Show Signs Of Recovery, But Will It Last?

    The solar industry has been beaten up over the past few years from a perfect storm of problems affecting both the supply side and demand side. Tickerspy's Solar Stocks Index, which includes 23 different publicly traded solar companies, is trading down some 84.8% since January 1, 2008. But recently, many of these green technology stocks rebounded significantly from their lows.

    The question for investors is whether this rebound is the beginning of a long-term trend or simply a fluke quarter. After all, the industry continues to face an oversupply of photovoltaic products, longer average selling prices, and ongoing concern over the future of European subsidies and falling crystalline solar prices.

    Second Quarter Shows Improvement

    The recent rally has been largely driven by positive second quarter financial results and bullish outlook from several large players. If these positive results continue, many investors see the sector's valuations as being far too low. Currently, Tickerspy's Solar Stocks Index shows an average P/E ratio of 10.1x and an average market capitalization of $292.7 million.

    For instance, last quarter, First Solar (FSLR) reported net sales that jumped nearly 50% versus its Q1 and year ago results. The company attributed the gains to an increase in the number and size of projects under construction that meet its revenue recognition criteria, including its Antelope Valley Solar Ranch 1 in California and the Silver State North project in Nevada.

    Second quarter net income for the company came in at $1.27 per share, compared to a $5.20 per share loss during the first quarter and net income of $0.70 during the year ago period. Moreover, the results were impacted by a pre-tax charge of $36 million related to restructuring and other one-time costs that reduced its earnings by $0.39 per share.

    Finally, the company offered strong guidance for the future, saying that it plans to achieve targets of 2.6 to 3.0 GW of sales in sustainable markets, earning a return on invested capital of 13% to 17% by 2016. As a result, the firm raised its revenue guidance by about $100 million and its earnings guidance by $0.20 per share for fiscal year 2012.

    Analysts Remain Mixed on the Sector

    Analysts remain very divided on the sector, which isn't surprising given the high level of uncertainty around the world. Falling photovoltaic prices have negatively impacted the supply side, while European subsidy cuts threaten to derail the demand side. Combined, these two factors have led to the dramatic decline in the sector over the past several years.

    For instance, Chiense solar makers are expected to be hit by U.S. and E.U. anti-dumping tariffs that could further depress their sales. According to Frank Haugwitz, a renewable energy consultant in Beijing, "the next one and a half years will be very challenging." Companies like Suntech Power (STP), Yingli Green Energy (YGE), and LDK Solar (LDK) have reported big losses.

    Despite this downturn in China, some analysts remain very bullish about U.S. solar prospects. Lazard Capital Markets reiterated its Buy rating on FSLR with a $50 price target, while ThinkEquity also raised its rating from Sell to Hold with a $16 per share price target. But importantly, many analysts also note the many risks remaining in the sector.

    The Best Ways to Invest in Solar

    Investors looking to capitalize on the rebound in solar should keep a few things in mind:

    1. Wait for a pullback to avoid buying at the top and use technical indicators to identify the best times to buy and sell - the sector is largely driven by technical right now.
    2. Utilize options to limit losses by writing covered calls against a long position, purchasing protective puts, or simply using call options to capitalize on the movements.
    Aug 22 10:41 AM | Link | Comment!
  • Potential Opportunities In Algae Biofuels

    The energy research firm SBI Energy recently projected that the market for algae biofuels would grow at a 43.1% annual compound growth rate (OTCPK:CAGR) to $1.6 billion in 2015. Driven by government grants, regulatory support and higher fuel prices, the growth could be great news for a number of small public players in the green technology space.

    Solazyme Inc. (NASDAQ: SZYM), OriginOil Inc. (OTCQB: OOIL) and several other companies focused on algae-based biofuels could benefit from these trends and may be worth a second look for green technology investors.

    Replacement for Crop Fuels

    Traditional biofuels are created using corn and soybeans, since they are already widely grown for human and animal feeds. The problem is that these crops require enormous amounts of water and effort to harvest and using them for biofuels means that there's less land available for human consumption or animal feed, thereby raising food prices.

    Algae-based biofuels offer many benefits in comparison. First, algae are far more efficient in converting solar energy into chemical energy than terrestrial crops. And second, algae can be grown in arid environments where terrestrial crops can't be normally grown, such as a desert, which means that it does not impact the price of food.

    Commercially Viable Technology

    Algae biofuels have not only attracted investment from large energy companies, but they've proven themselves in commercial applications. For instance, in late 2011, two U.S. airlines made flights powered by biofuels for the first time, including a Continental flight from Houston to Chicago made with a biofuel blend in part from algae.

    Meanwhile, investment in algae biofuels from major companies is on the rise:

    "Strategic partnerships from ExxonMobil (NYSE: XOM), Chevron (NYSE: CVE), BP (NYSE: BP), Dow Chemical (NYSE: DOW), Desmet Ballestra and many others will drive the investment needed to successfully commercialize algae biofuels," said Shelly Carr, publisher of the aforementioned SBI Energy report. "Private investment and venture capital will also provide funding through 2015."

    Numerous Catalysts Moving Forward

    An October 2011 article in Algae Industry Magazine elaborates on three key catalysts that could help drive algae biofuel adoption over the coming years:

    1. The international standards certifying body ASTM approved its "BIO SPK Fuel Standard" for the use of hydrotreated renewable jet fuel in commercial aviation.
    2. The military has begun testing a number of different HRJ fuels, ranging from algae to jatropha and coconut oil, on civilian and military aircraft.
    3. The U.S. Sentate voted in June of 2011 to repeal its tax credits for ethanol production, leveling the field for biofuels based on things like algae.

    Two Ways to Capitalize on the Trends

    Solazyme Inc. and OriginOil Inc. are two companies that are well positioned to capitalize on the trends in algae biofuels. Solazyme is the 100-pound gorilla in the industry with a market capitalization of $800 million. The stock is trading up about 37% over the past three months and has seen its sales steadily grow over the past year, although it missed some analyst estimates.

    OriginOil is a much smaller player with a market capitalization of under $10 million. The stock is trading down more than 20% over the past three months, but its agreements with the Department of Defense and other commercial entities could eventually result in sales that would serve as a catalyst to move the stock higher - although it's certainly a riskier play.

    Aug 16 1:07 PM | Link | 1 Comment
  • 7 Green Technology ETFs To Invest In The Future

    There is little question that green technology is here to stay in the U.S. From cleaner power generation to environmental remediation, these technologies help reduce dependence on foreign oil, improve the environment, and even increase efficiency and productivity in many cases for companies, governments and other end users.

    These dynamics promise to drive the global market for green technology from $200 billion in 2010 to $312 billion in 2015, according to a report from BCC Research. Investors looking to capitalize on this strong 9.2% compound annual growth rate (OTCPK:CAGR) have many options. In this article, we'll take a look at some of the most popular green technology ETFs.

    Investing in Green Technology with ETFs

    Exchange traded funds (ETFs) offer one of the easiest ways to invest in green technology, since they offer instant diversification in a single security. While some of these ETFs are trading down due to subsidy cuts in green technology, they do provide great exposure to the industry and could therefore see a recovery when green technology rises again.

    Some of the most popular green technology ETFs include:

    • PowerShares Cleantech Portfolio ETF (NYSE: PZD)
    • PowerShares WilderHill Clean Energy ETF (NYSE: PBW)
    • PowerShares Global Clean Energy Portfolio ETF (NYSE: PBD)

    There are also many sector-specific ETFs including:

    • Solar - Claymore/MAC Global Solar Index ETF (NYSE: TAN)
    • Wind - First Trust Global Wind Energy ETF (NYSE: FAN)
    • Nuclear - Market Vectors Nuclear Energy ETF (NYSE: NLR)
    • Water - PowerShares Water Resources ETF (NYSE: PHO)

    Managing Risks with Green Technology

    Green technology investments have higher risk than most investments since they are dependent on subsidies in many cases. For instance, many solar companies experienced significant drops of 70% to 90% in share price from a combination of industry oversupply (led by too many subsidies) and falling demand (as subsidies were cut).

    Investors can manage these risks in a few different ways. First, investing in many different green technologies and companies can help reduce risk through diversification. ETFs make this process easier by investing in a basket of companies with just one security. And second, investors can explore many different options strategies to help tilt the odds in their favor.

    The most popular options strategy to reduce risk is writing covered calls. In this case, investors simply give investors the right to sell at a given price in exchange for an upfront premium. The worst case scenario is therefore selling the stock at a profit and leaving money on the table, while the other scenario involves collecting the option premium to reduce the breakeven point.

    Adding Green Technologies to a Portfolio

    Green technology stocks should rarely compose an entire portfolio, but instead be incorporated into a larger portfolio. When integrating green technology companies, it's important to take into account their risk and effect on the rest of a portfolio. The best way to do this is by comparing a stock's beta co-efficient to the portfolio's beta co-efficient.

    Higher beta co-efficient signifies greater volatility and therefore greater risk for investors. Many green technology companies have high beta co-efficient compared to the S&P 500 average of 1.0, since they tend to be very volatile for the aforementioned reasons. Balancing these high beta co-efficient with less risks stocks across a portfolio can help manage risk.

    One popular strategy is to purchase green technology stocks to pair with traditional stocks that are far less risky. For example, an investor may purchase Exxon Mobil (NYSE: XOM) - that has a 0.52 beta co-efficient - and a green technology company that has a 2.0 beta co-efficient in order to balance each other out to a more average figure of around 1.0.

    Key Takeaway Points

    • The green technology industry is poised to rapidly grow over the coming years at a 9%+ compound annual growth rate, according to BCC Research.
    • Investors can capitalize on this growth by purchasing many different ETFs, which offer great diversification and are very easy to trade.
    • Despite the promise, investors should carefully diversify their green technology investments in order to maximize risk-adjusted returns.
    Aug 15 5:00 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

  • Wind stocks like BWEN, JUHL and others could see upside from Obama's push for wind as it becomes a campaign issue.
    Aug 17, 2012
  • Solar stocks like FSLR, CSUN, LDK, SPWR and others should benefit from sharply higher U.S. building permits number today.
    Aug 17, 2012
More »

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.