How to Trade 'Cap & Trade' Policies - Barron's

|
Includes: AMSC, ENER, ENOC, FSLR, GRN, IBM, INTC, ITRI, MON, ORA
by: Rachael Granby

Obama has given environmental initiatives a central role in his agenda, and one of the most important advances could be 'cap and trade,' a market-based system designed to cut emissions of greenhouse gases. Barron's highlights several ways to cash in on the effort to limit these gases.

There's plenty of positive movement in the direction of cap and trade: Obama's administration strongly supports the practice; new proposals could soon emerge from both the House and the Senate; the Chicago Climate Exchange has attracted around 400 participants, including Monsanto (NYSE:MON), IBM (NYSE:IBM) and Intel (NASDAQ:INTC), as well as the city of Chicago, to sign on to a voluntary emissions cap program; and at least three different regional U.S. groups are developing cap and trade programs. A federal program isn't out of the question either.

Last month, the first ETF geared to this market was launched, called AirShares (ASO). It holds futures contracts on the EU Allowances and tries to copy their performance. There's also the ETN iShares Global Carbon (NYSEARCA:GRN). Several other indices, especially in Europe, will likely lead to more ETFs.

Jackson Robinson, president of Winslow Management, which oversees $325M in 'green' funds, believes cap and trade will help several companies that have been hurt by lower oil prices, and says their shares could double over the next 12-18 months. Among Robinson's picks:

1) EnerNOC (NASDAQ:ENOC), a virtual utility. It has a market cap of $184M and Robinson sees losses of $1.07/share in 2009. Still, it plays a vital role in making deals between utilities and big power consumers.

2) American Superconductor (NASDAQ:AMSC) moves electricity quickly and with little loss of energy over long distances. This means cities like New York could economically import clean energy (like windmill power) over long distances. The stock is expected to lose $0.34/share for 2008, and has a market cap of $721M.

3) Ormat Technologies (NYSE:ORA) drills deep to produce geothermal power. The company is expected to earn $1.51/share this year, and has a market cap of $1.3B.

4) First Solar (NASDAQ:FSLR) is well positioned to reach price parity with nuclear or coal within the next two years or so. Robinson estimates 2009 earnings of $7.13/share, and the firm has a market cap of $12B.

5) Energy Conversion Devices (NASDAQ:ENER) makes flexible film for solar power. Robinson expects earnings of $1.59/share in 2009.

6) Itron (NASDAQ:ITRI) sells meters that regulate power consumption and holds vast potential, according to Robinson. Its market cap is around $2B, and 2009 EPS are estimated at $3.78.