I received an e-mail from a reader that had questions about holding DSTI.
I had some concerns about DSTI. I was wondering if you still believe investment in this company or alternative energy stocks is worth it. If crude oil drops further (let say mid 50s) do you think it will have negative impact on alternative energy stocks particularly ENER and DSTI. I was very happy with the holding a couple days ago, but the performance of DSTI in last 2 days without any news has got me concerned.
Let me answer your question with first a question. What is your investment time horizon? If you are thinking in terms of less than a year, then I would say most of the Alternative Energy stocks are currently over priced and the short term trading profits are going to be harder to come by. If you have a longer term time horizon of say 3-5 years, then I feel many of these stocks will make excellent investments. The key is to buy them with as low of a cost basis as possible. I have owned DSTI in the past and sold it recently before I started tracking all my portfolio purchases. The lack of news tells me there is nothing fundamentally wrong with the company. With such great gains over the last year, It maybe as simple as profit taking. You also have to keep in mind that the entire market has been in a funk the last couple of weeks. So it could also be acting in sympathy with the general market. A quick look of the chart confirms that it topped out in early August and has been building a base around the $13 level. It has recently broken down below this base and now currently sits at a minor support level around $11. The technical side of me is also thinking it could fill the gap that was created in June and we could very easily see $6. However, a move like this would have to be caused by something fundamentally wrong in the company (i.e. bad news or possibly loosing a contract.) My plans for DSTI are to hold tight here. I still think it is a good long term investment. The RSI is also starting to show a slight oversold indication so we may have seen the end of the selling. If this $11 level turns out to be some good support, I will probably add more of the stock to the mutual fund. If we see $6 with no news, I will seriously consider averaging down at this level since this is a point of major support. Keep in mind a move $6 is a greater than 50% loss on the initial investment. Most people would not be willing to stomach that type of a loss on a single investment. I am willing to take that loss in the short term if the company stays fundamentally strong. I would be a seller of the stock if they are not able to meet the goals that management has detailed in the most recent operational update. As to the question about $50 dollar oil (or even $40), I still feel the alternative energy sector is going to do well in the next 3-5 years. We WILL see $50 dollar oil again (maybe even this year) but this is fighting the long term trend in oil and alternative energy sources are here to stay.