Alternative Energy: Stocks In Motion

by: David Kugelman

Have alternative-energy stocks run their course, or are they simply taking a breather before making their next run? The recent glut of natural gas has made it a more affordable option, but alternative energy stocks trade in cycles, just like other sectors. They're also here to stay. Clean, green, renewable energy made up close to 13% of the electricity generated in the US in 2011, according to the Energy Information Administration (NYSEMKT:EIA).

In our ever-expanding quest for stocks to buy, we decided to look at some of the stocks in the alternative energy sector that could have the potential to be market leaders. Let's start with BioFuel stocks.

BioFuel stocks could be the best bang for the buck since U.S. demand for biofuel exceeds availability. Many ethanol plants in the US are shutting down or curbing production as the drought in the Midwest drives corn prices higher. According to the revised U.S. Federal Renewable Fuel Standard, the requirement for bio fuel production in the U.S. has been increased to one billion gallons of bio fuel that need to be produced domestically in 2012. The U.S. Department of Energy shows the current U.S. bio fuel production is approximately 700 million to 800 million gallons annually.

Codexis (NASDAQ: CDXS) Biofuels and biochemicals maker Codexis Inc said it was in talks with Royal Dutch Shell (NYSE:RDS.A) that would allow Codexis to sell its biofuels enzymes to other companies outside Brazil. Codexis currently has a partnership with Shell that expires in October and provided about half Codexis' 2011 revenues of $123.9 million.

FutureFuel Corp. (NYSE: FF) reported its first quarter 2012 results on May 9, 2012. Revenue increased as a result of increased biodiesel sales. FF had pretax income of $12.0 million and adjusted EBITDA of $16.6 million as compared to $4.0 million and $8.9 million in 1Q11. Cash, cash equivalents and marketable securities increased to $157 million.

Eco Ventures Group, Inc. [OTCQB: EVGID] Newcomer EVGI announced Wednesday that it has signed a Definitive Agreement to acquire a majority stake in Germany-based Energiepark Suptitz, GmbH ("EPS"). EPS is a diversified alternative energy feedstock, transportation, heat & solar power production company whose primary business is the production, processing and brokering of alternative energy feedstocks including rapeseed, palm oil and wood. EGVI encompasses biofuel, solar, and wind, while exhibiting one of the only positive cash flow business models.

According to its preliminary (unaudited) 2011 financial results for the year ended Dec. 31, EPS generated 2011 EBITDA of $2.7 million on $30 million in revenue (using a 1: 1.29 dollar/euro conversion rate), for a 2008-2011 average annual revenue growth rate of approximately 42 percent. EVGI recently stated it is on track for fourth quarter completion of its 3.6 million gallon bio fuel plant at its Groveland, Florida headquarters. The facility will process biofuels from oil-rich plants and recovered cooking oils. At its full capacity, EVGI believes this facility can generate annual gross revenues of approximately $16 million with gross margins of about 30 percent.

Amyris, Inc. (NASDAQ: AMRS) uses its industrial synthetic biology platform to modify microorganisms, primarily yeast, to convert plant-sourced sugars into a variety of hydrocarbon molecules. AMRS also sells ethanol and ethanol blended gasoline to wholesale customers. A recent successful demonstration flight using the advanced renewable jet fuel produced from Brazilian sugarcane by Amyris got everyone's attention.

Solazyme (NASDAQ: SZYM) makes various cosmetic, nutritional, chemical, and fuel oils by feeding plant-based sugars to patented microalgae. SZYM has a fairly large contract with U.S. government agencies, but higher corn prices may be the reason investors have suddenly gained more interest in the stock.

KiOR (NASDAQ: KIOR) has moved higher recently on news that it was granted Part 79 registration for its Renewable Gasoline Blendstock 5 by the U.S. Environmental Protection Agency. The registration, required by manufacturers of motor vehicle fuels by the EPA, must be completed prior to the sale of the product.

Solar energy is an area where many experts claim the U.S. has a lot of catching up to do to get close to the global leaders. The Solar Energy Industries Association (SEIA), the U.S. trade association for the solar energy industry, recently stated that in fiscal 2011 the U.S. solar energy industry grew 109% year over year to reach 1,855 MW. Don't forget that Berkshire Hathaway together with the biggest Internet search company, the private equity company and insurers MetLife (NYSE:MET) and John Hancock poured more than $500 million into renewable energy in the last year. In Europe, the European Union's goal of a 20% share of renewable sources in the energy basket by 2020 certainly levels the field for companies operating in Europe.

Ascent Solar Technologies Inc. (NASDAQ: ASTI) recently announced it received an order for 50,000 of its newly introduced EnerPlex cases for Apple Inc.'s iPhone that charges the phone using a thin solar panel. On June 19, 2012, ASTI filed an 8-K that the NASDAQ Listings Qualifications Panel is providing the Company until October 8, 2012 to regain compliance with the $1.00 bid price requirement for continued listing on The NASDAQ Stock Market.

Suntech Power (NYSE:STP) along with LDK Solar Co., Ltd. (NYSE:LDK), the two top polysilicon makers in China was in the news recently for asking the country's Commerce Ministry to look into possible solar equipment subsidies by the United States and South Korea, and their effects on Chinese manufacturers. This move, which will exacerbate trade disputes, comes at a time of oversupply and of declining demand for solar power equipment.

First Solar Inc. (NASDAQ:FSLR) was in the news recently since Cowen reduced their earnings estimates prior to Q2 earnings. Cowen said its reduction was due to margin compression from new business. Cowen additionally supplied scenarios based on long-term implications of the solar industry, such as declining backlog, low margins and plant closings.

SunPower (NASDAQ: SPWR) has a lower price-to-sales ratio than First Solar and a comparable price-to-book ratio. It has been profitable in the last twelve months, which makes a price-to-earnings ratio calculation possible. With a lower debt-to-equity ratio than competitors, SPWR is also domiciled in the United States.

LDK Solar is said to be blessed by the city of Xinyu, in the Jangxi province, agreeing to repay its loans from Huarong International Trust and Investment Corp. LDK posted a heavy loss in Q1 2012 because of high production costs and the continuing weakness in the solar panel market. The company is expected to survive the downturn despite its heavy debt load because of government support.

Wind-power stocks definitely have investors' attention. Wired says wind energy can potentially meet US total consumption needs 12 times over. The natural-gas boom and a weak economy has driven traditional wholesale power prices lower, which has taken some of the wind out the sails of wind energy. Getting approval for a wind farm in the U.S. is often difficult, since many communities are skeptical of their aesthetics. Lower cost wind turbines are lowering costs and the wind sector is predicted to meet close to one-third of America's energy demands over the next several decades. Pinpointing investment opportunities in the wind industry is difficult, since there are very few wind companies trading on the big boards. For companies like General Electric (NYSE:GE) and Siemens (NYSE:SI), wind is only a small portion of their business.

Guinness Atkinson Alternative Energy Fund [MFD: GAAEX] invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of alternative energy companies (both U.S. and non-U.S.). GAAEX is now at $2.26 from $15 in the past 12 months.

Vestas Wind Systems (OTCPK:VWSYF) delivered its first wind turbines in 1979, has been losing money in recent quarters in the face of tougher competition. In October 2010, it announced plans to let go of around 3,000 employees and shut five business units in Europe. Once a high-flyer, VWSYF has lost most of its momentum.

Broadwind Energy (NASDAQ:BWEN) recently got investors excited when it announced that the Chinese wind energy company Goldwind chooses it to provide 14 wind turbine towers for its Musselshell project in Montana, which is scheduled for installation during the second half of this year.

Aerovironment (NASDAQ:AVAV) has gotten more active since Jim Cramer ranked this stock a Buy. The stock closed at $25.10, its 52-week high is $34.28, and its 52-week low is $21.14.

Once again, higher natural gas prices or favorable legislation could easily spark a rally in alternative energy stocks. If you agree the best time to buy a boat is in the winner, perhaps you can see the value.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.