Investing in Renewable Energy Stocks seldom fails to be exciting, although it
can lead to crushing losses as well as mouthwatering gains (Think Ethanol stocks
and Thin Film Solar in 2007.) With this in mind, I usually emphasize that
the majority of most investors portfolios should be targeted towards larger,
profitable companies, especially those focused on Energy
Efficiency rather than the more sexy Renewable Energy technologies.
This is the philosophy behind Alternative
Energy Stocks' Blue Chip Portfolio: companies which aren't sexy, but which
still are well positioned to take advantage of rising oil prices and increasing
efforts to reduce and regulation
of Greenhouse Gas Emissions.
That said, a small exposure to even extremely volatile stocks can, if
kept small, improve the risk-return profile of a portfolios, so long as those
stocks are not overly correlated to the portfolio as a whole.
Other people just like to gamble. Given the vertiginous returns
we have seen in the alternative energy sector recently (First
is up by a factor of ten in 2007,) it's a safe bet that this Alternative Energy
has drawn more than our share of gamblers.
This article is for the gamblers (and a little bit for the cautious
diversifiers.) If you're a gambler,
these are the gambles I would be taking. If you're a
cautious diversifier, you can consider using a few of these bets as a way
to diversify your portfolio of bonds and energy efficiency companies, just keep
it small (no more than a few percent your portfolio.)
In either case, be prepared to have any of these bets go wildly wrong, or succeed
well beyond your expectations.
Some Educated Hunches
Many people who see themselves as cautious diversifiers like to set aside a
small part of their portfolio as "play money," which they can use
without their normal portfolio discipline, to invest in something that makes
them feel good. I feel this is the wrong approach. Emotional
investing is a sure-fire way to stack the odds against yourself. Even in
risky assets, there are good bets and bad ones.
Especially when it comes to highly risky and emotive companies, I'm a great
believer in Behavioral Finance, the theory that investors make the same mistakes
over and over again because of the way our emotions are wired. Roughly,
this means that we all tend to invest in the same stocks at the same time
because it feels good to do so (which means we buy precisely when the price is
irrationally high) and sell the same stocks precisely when they're screaming
My favorite gambles therefore are stocks I think have the potential to be
tomorrows feel-good fad, that is currently being ignored. I call this
gambling because it has very little or nothing to do with the underlying
fundamentals, an a lot more to do with wild emotional swings of the retail
investor. While it is gambling, it has more in common with card-counting,
than with slot machines.
Ten Gambles for 2008
I personally am more a cautious diversifier than a gambler, but I do have
some gambler in me. All the speculations below are ones I am taking with
my own money, and some of them are also positions in client
portfolios. I don't see this as play money, but at the same time, I know
that any of these gambles cold turn against us unexpectedly, and I keep the
positions accordingly small. In reverse order of my guess at their
riskiness, here is the first installment detailing ten bets I'm currently
making, and which I expect to pay off as a whole in 2008 (although individual
stocks will undoubtedly be losers.)
#10 and #9: Cree, Inc. (NasdaqGS:CREE)
and Lighting Science Group (LSGP.OB)
[Note: Ticker has been changed to LSCG.OB with a 20 for 1 reverse stock split.]
I've been invested in both of these for a long time, and last
wrote about these LED stocks in June. I sold half the holdings of many of my managed accounts
soon after that article when CREE was around $27-$30, about double the price at
which I'd bought them. Smaller positions in Lighting Science Group have
followed a similar pattern, mostly due to buyout speculation in LED stocks, with
only modest gains over the last year as speculation has died down.
Yet the fundamental reasons to be bullish about LEDs are stronger than
ever. This Christmas season was the Season
of LEDs in more ways than one. In my personal experience, I went to Target
on December 15 to get another string to add to the ones I'd bought last spring,
and found that they were totally sold out (although conventional lights were
well in stock.) I left empty handed, but I expect that Philips
(NYSE:PHG - another holding),
will report LED sales well above expectations this quarter.
Also, while solar stocks may
suffer with tax incentives removed from the recently signed Energy Bill, the
bill did contain a "Ban the Bulb" provision, phasing
out incandescent lights by 2014. Lighting Science saw a 20% jump the day it
was signed, but it's still way down from its highs last summer, and Cree didn't
budge. It's true that most incandescent bulbs will probably be replaced
with CFLs, but LEDs work better in several sorts of applications: they are
dimmable, work better at low temperatures (such
as in freezers), and are more tolerant
of vibration. Thus, the new law provides a practically guaranteed,
I'll be surprised if both these stocks don't see significant run-ups sometime
in 2008, and Lighting Science could easily see one soon after the New Year, due
to the publicity
they'll be getting in Time Square on New Year's Eve. Most likely,
we'll have to wait a little longer than that, but even without a run-up or
buyout, I see these two as good long-term bets.
For hard-core speculators, one LED penny stock that you might look at is Cyberlux
was brought to my attention by a reader the last time I wrote about LEDs.
I looked into it again last week, but decided not to invest because of the large
overhang of convertible debt. In my analysis, it will be virtually
impossible for long-term shareholders to profit because of the expected dilution
due to the convertibles. That does not mean that
short term traders might not make a killing (or lose their shirts.) For more
go to this message board (run by the reader who brought the stock to my
attention.) There's a lot of information there, although I don't know if
#8 Maxwell Technologies (NasdaqGM: MXWL)
Maxwell is a developer of ultracapacitors, which are currently used in wind
turbines, utility power quality applications, and other industrial
should continue to see strong growth throughout the world, which should
continue to help turbine
They also have the potential to be an
important component for energy storage in Hybrid Electric and Electric
vehicles. Maxwell has recently
announced a partnership with China's Tianjin Lishen Battery to manufacture
hybrid powerpacks, which will combine the speed, long cycle life, and low
temperature performance of ultracapacitors with the large energy storage
capacity of lithium-ion batteries. Readers and anyone who has seen one
of my presentations already knows that I see energy storage as the best way
to take advantage of the adoption of hybrid, plug-in-hybrid and electric
The downside here is that Maxwell is currently in a large patent-infringement
suit with private ultracapacitor company NessCap. I find
patent-infringement suits to be very unpredictable. Maxwell filed the
initial complaint in October 2006, and NessCap countersued in December. A
large negative earnings surprise last June and subsequent analyst downgrades
further depressed the stock, possibly aggravated by tax-loss selling. I
see a good chance of a quick rebound in 2008, especially if the courts start
favor of Maxwell, or the two companies reach a settlement. While negative ruling
would hurt, they would be unlikely to destroy the company.
Maxwell's top-line revenue has been flat for over a year, so a large part of
the recent price drop has likely been due to investor fatigue.
Nevertheless, insiders have been buying the stock on the open market, which I
find reassuring with regard to internal confidence at the company. Any
significant uptick in sales volumes would likely bring with it a strong increase
in the stock price.
Picks 4-7 are here, and Picks #1-3 are available here.
I decided to split this article into parts because the stocks I'm picking
seem to be rising even as I write... I was clearly not the only person who has
been thinking along these lines over Christmas...
Here's what has already happened to picks #8,9, and 10 on December 26, as I
jumps on American Technology Research Comments (up 10.7%); Lighting Science
up 25%; Maxwell Technologies up 6%.
DISCLOSURE: Tom Konrad and/or his clients have long positions
in CREE, LSGP, PHG, MXWL, and a short position in FSLR.
DISCLAIMER: The information and trades provided here are for informational
purposes only and are not a solicitation to buy or sell any of these securities.
Investing involves substantial risk and you should evaluate your own risk levels
before you make any investment. Past results are not an indication of future
performance. Please take the time to read the full disclaimer