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February 29, 2008

The Week in Cleantech (Feb. 24 to Mar. 1) - Solar: From Darling To Dog?

On Sunday, TraderMark at Fund My Mutual Fund opined that the solar sector was headed for a shakeout. Well, he didn't quite opine that...he reported the major points from Greentech Media's Solar Market Outlook event. The main conclusion is that it's not only 2008 that's going to be a tough year for solar, but rather the next 3 to 4 years as the industry matures and consolidates. TraderMark argues that the solar sector will follow a boom-bust-echo path; we're currently just exiting boom times (read: incredibly rich valuations times) and the whole think is about to go bust, but if you can pick up future winners on the cheap during this period echo will do great for you.

On Wednesday, Jim Fraser at The Energy Blog reported that the end might be in sight for silicon shortage in the solar industry. The timing will be unfortunate for many PV hopefuls. Just as solar PV manufacturers get a break on the cost side, the revenue end will likely give as too much supply forces prices down. Where should you look for good long-term investments? Low manufacturing costs and healthy balance sheets to come out ahead in the consolidation game.

On Thursday, The Economist discussed the transition process from geek to green. Do high-profile techies have what it takes to be good at running successful cleantech and alt energy firms? On the one hand, there is a decidedly 'tech' feel to a whole side of the business. On the other hand, the forces driving much of the momentum in cleantech and alt energy are vastly different from those driving the technology industry. Mind you, the internet sector did broadly follow a boom-bust-echo development path (see first item), so maybe experience navigating this sort of environment is what will really matter as the sector matures.

On Thursday, David M. Herszenhorn at the the NYT discussed the passing by the House of a bill to extend tax credits and other incentives to the alternative energy sector. Concerns about those credits are partly responsible for the current volatility experienced by alt energy stocks, most notably solar. It seems ridiculous to me to argue that Big Oil needs tax breaks to operate profitably. Alternative energy, on the other hand, still needs a push in the near term, although it holds tremendous promises in the long run from nearly any point of view. Given demands by industry actors to end political uncertainty soon so as to not stunt growth, separating the two issues would probably be a more pragmatic road to take at this point. After all, old pork-channeling habits die hard, so in its current form don't expect that bill to go down without a fight from the White House.

On Friday, Gerard Wynn at Reuters informed us that banks are in talks to shape U.S. climate policy. This news comes just a few weeks after a coalition of major US banks claimed they were going to place more weight on climate risks in lending. Are these two pieces of news coincidental? Not at all. As the entities that will be running the trading show in carbon markets, big banks have every incentive to ensure that the system is structured in a way that will maximize value for them and their shareholders. Of course there are those who are cynical about this and claim that carbon markets will be nothing but a big money grab by big finance. I'm in the camp of those who believe that you have to be real about it, and that if everyone loses it will be years before any real climate action is taken. After all, Gordon Gekko's famous "Greed is good" speech became famous for a reason.


February 28, 2008

Pick the Next Stocks I Research

I plan to write about a couple of the companies that readers asked about two weeks ago.  I'd like to research the ones of interest to as many readers as possible.  Let me know!

UPDATE: I'll publish articles on CPTC.OB and PSUD.PK soon. If the stock you want to know about is not in the poll, please leave a comment here, and I'll do another round at a future date. --Tom

February 25, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #2 National Grid (NGG)

Like Quanta Services, (#8 in this series), National Grid PLC (NYSE:NGG) allows investors to participate in the massive build out of electricity transmission and distribution infrastructure necessitated by years of neglect and the growing need to decarbonize our electric infrastructure.  See the article linked above for more detail on these two forces driving the sector.

National GridHaving its origins in British electricity deregulation in the 1990s, Nation Grid is a regulated utility in Britain and the United States, and operates high pressure gas pipelines and high voltage transmission in Britain, and electricity transmission and natural gas distribution in the Northeastern US.  The US operations were acquired with the purchase of Keyspan and the gas distribution network of Southern Company in 2007, as well as some smaller previous aquisitions.  They also own some electricity generation assets (mainly acquired as part of Keyspan)

Comparables

The only pure play publicly owned electricity transmission and distribution utility I'm aware of is ITC Holdings (NYSE:ITC), a company I recommended in my article on transmission stocks last April.   Since then, the stock has risen almost 30%, and I now think that it looks expensive, compared to NGG and Quanta Services, which is why it did not make it into this series.  In contrast, NGG trades at a forward P/E of around 13.3, below the utility industry average, with a dividend of 3.2%.

Environment

As a European company based in Britain, management understands dealing with regulators and customers who are far more concerned with Climate Change and renewable energy than those of it's recently acquired US operations.  I expect that the British experience will be a valuable asset to the US based operation as we see carbon regulations in the US (something I expect early in the next Presidential administration, considering that Congress and all the leading Presidential candidates support it), and as the United States begins to catch up with the Europeans in our level of environmental awareness and demand for lean energy sources.

National Grid's leadership can be seen in their initiatives, such as their inclusion the Dow Jones Sustainability indexes, and their award winning energy efficiency programs.

Valuation

As a regulated utility (with 95% of revenues from regulated businesses,) large price appreciation is unlikely, but given National Grid's position and expertise in transmission and distribution, a P/E below industry averages makes the stock seem a solid, safe bet, especially in uncertain economic times.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in NGG, ITC, PWR.

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 here.

February 24, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #3 Waste Management, Inc. (WMI)

In large part, the transition to clean energy will involve using our resources much more efficiently than we do now.  One large potential feedstock for biofuels (and arguably the only one which is truly sustainable) is our trash.  As the world economy grows, and the available stock of natural resources diminishes, society will have no choice but to use what we have more efficiently and throw less of it away.

In addition to the now familiar recycling of Aluminum, glass, cardboard, paper, and plastic, yard and construction waste will find its way to cellulosic ethanol plants, and used cooking oil will be transformed into biodiesel.  Formerly problematic hazardous waste such as electronics will be reused, and what can't be reused will be mined for increasingly valuable (and toxic) elements they contain.  

One company likely to be at the center of many of these trends is Waste Management, Inc. (NYSE: WMI.)  As the United States' largest trash hauler and recycler, they are in the enviable position of being paid to collect potentially valuable material. Growth in recycling need not be a drain on earnings, since in many cases, recycling programs simply allow them to enlist customers to help them segregate recyclables from other waste, or to offer higher value-added services such as single-stream recycling.  It's clear that management understands these trends, having adopted "Think Green" as the company slogan, and has put new emphasis on recycling and Waste-to-Energy divisions.  Even if the initial motivation was the urge to greenwash, the opportunity for profit has not been lost.

As the largest operator of landfills in the US, Waste Management is also in the enviable position of managing large, renewable sources of natural gas.  Landfill gas, unlike many other forms of renewable energy can provide baseload electricity, or, with the addition of gas storage, dispatchable power.  In addition to these advantages, the cost to produce electricity from landfill gas is price competitive with conventional electricity generation.  Waste Management has been aggressively collecting landfill gas at more landfills around the country, and has even developed technology to accelerate decomposition and methane production in bioreactor landfills.

Waste Management has seen decreasing trash volumes over the last two years, in large part due to the slowing economy, especially the construction sector.  Despite this, they have been able to use their pricing power and cost slimming to increase their profits per share over that same period.  The prices of recycled commodities, like all commodities have also been robust over the same period.  If waste volumes cease to decline, and the prices of recycled commodities continue to rise (which I expect, although they are predicting flat pricing for recycled commodities), they should see excellent profit improvement over the next few years.

Finally, WMI management feels that they have already seen most of the decline that they expect from a slowing economy, and they have been able to weather that decline well by aggressively cutting costs.  Any rise in volumes due to an uptick in economic activity should be multiplied in increased profits.   For the longer term, existing landfills may be the source of much more revenue than just landfill gas.  The first step in using resources more efficiently will be recycling rather than sending them to landfills.  Further in the future, we may see actual mining of old landfills, recovering the trash of yesteryear for the products of tomorrow. 

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in WMI.

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 here.

February 23, 2008

The Week in Cleantech (Feb. 17 to Feb. 23) - Does The Residential Real Estate Sector Hold The Climate Change Key?

On Monday, Richard T. Stuebi at the Cleantech Blog gave us the heads up on a McKinsey Global Institute study on energy 'productivity' (read efficiency). MGI makes an good case for policy-makers to pay more attention to energy efficiency, and the authors outline what investment commitments would have to made in different sectors for their ideal scenario to be realized. One interesting insight - the residential sector would be near the top at 25% of investment flows. Are retail energy efficiency solutions one piece of regulation away from taking off?

On Tuesday, Nick Hodge at Seeking Alpha told us about how to invest in BIPV companies. If one believes that the MGI's masterplan for energy productivity (discussed above) has a good chance of being implemented, than the BIPV sector would be a huge winner. Another funny coincidence: one the global leaders in this space just got smashed for margin, inventory and guidance hiccups. Can you guess who that is? This could be a good time to look at picking some up on the (relative) cheap.

On Wednesday, Energy Tech Stocks argued that the chance of a disastrous drought in the U.S. southwest presented a huge opportunity for utility-scale solar firms like Ted Turner’s. It's no mystery that the once mighty rivers of the US west aren't so mighty anymore - so could the lost hydroelectric potential be recouped through massive solar developments? That's certainly a possibility and I'd go further and argue that, given yet unresolved variability and storage issues with solar PV, CSP is what you should really be interested in if you think the west is going solar for its baseload needs.

On Wednesday, Climateer at Climateer Investing told us about an interesting article that wonders whether massive railroad infrastructure will fundamentally change US transportation logistics. Railroads could be one of the great winners of tightening environmental standards, rising fuel costs and chronic traffic problems in most of North America's major urban areas. Of course, this isn't 1873 anymore and one doesn't build a railway where ever one feels like it. But because hardly any money has gone in the railroad network since 1873, upgrades alone could provide some interesting opportunities. Look for the suppliers.

On Thursday, Keith Johnson at the WSJ's Environmental Capital told us about a new carbon market. I've been keeping an eye on the little Massachusetts-based, Toronto-listed company discussed in this article for a couple of years now because of my interest in environmental markets. While I think that what these guys are doing is very innovative, I am a little concerned about crowding out. America's environmental markets (i.e. NOx/SOx, RECs, etc.) are neither especially large nor especially liquid. While the advent of carbon trading and the growth of the RECs markets could change that dramatically, it is unclear whether everyone will be able to play this game profitably. At the end of the day, in the exchange business, scale and reputation drive business which drives liquidity which drives efficient prices which drive more business, although the World Energy folks don't view exchange-based trading as an optimal solution (hmmmm...I wonder why that might be). At the other end of the spectrum, the more established brokers will drive a lot of the OTC business. While the entry of NYMEX into this sector boosted confidence that carbon trading is indeed be on the horizon for North America, it also made that whole space a lot less attractive for existing and potential competitors.


February 21, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: These Almost Made It

In the future, I plan to avoid doing lists of ten stocks. I've found the writing to be somewhat repetitious, and I suspect some readers feel the same way.  Look for more threes and fives.

That said, there are more than enough solid companies with strong clean energy arms.  These companies are my favorite investments right now, both because I think that now is a time to play it very safe in the stock market (I'm also increasing my cash reserve), and because these companies allow me to use Cash Covered Puts.

Since I do have several companies I nearly put in this list (I've been deciding which ones to write about as I go along... the list order doesn't mean much of anything.) I thought I'd share those with readers, but without extensive discussion of the pros and cons.  Also in no particular order:

General Cable (NYSE: BGC)

This was another transmission pick, but I chose not to include it because the I had two other transmission picks. Here are other articles where I mention it: Electric Transmission, Blue Chip Stocks, Transmission and Clean Transport.

Greenbrier (NYSE: GBX)

This is another rail pick.  I've also mentioned it here, and the price has fallen considerably since then, making it more attractive.

Owens Corning (NYSE: OC)

Another energy efficiency pick, this stock has been badly hurt by the housing bust.  I'm having trouble figuring out what a "good" price for this one is, so I decided to leave it out of the series.  I've also written about it as an Energy Star Summit pick, an efficient housing play, and as one of my  Blue Chip Stocks.

Honeywell International (NYSE: HON)

This stock didn't make it onto the list because I have not been following it.  Honeywell has historically looked rather expensive to me, although it seems to be getting cheaper.  I've mentioned it as a Performance Contracting stock, as an Energy Star Summit pick, and as one of my  Blue Chip Stocks.

Click here for other articles in this series.

REMINDER: I'm still collecting suggestions for companies to write about in a (shorter) series of articles which will appear in March.  I plan to select the companies from all suggestions submitted with a poll next week.

DISCLOSURE: Tom Konrad and/or his clients have long positions in BGC, GBX, and OC.

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 here.

February 19, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #4 Applied Materials (AMAT)

Like my #6 pick Sharp, Applied Materials provides investors a way to profit from the spectacular growth of the solar industry without the incredible volatility of the solar sector.  Unlike Sharp, however, AMAT is farter up the value chain, supplying technology and equipment to Solar manufacturers.  

Applied MaterialsTheir strategy is to "become the leading equipment supplier to the solar industry." I find their broad-based strategy of acquisitions in the solar supply sector attractive, because I feel that AMAT's size, financial strength, and reputation in the chip industry should give customers the confidence they need to spend billions of dollars on equipment from AMAT which they might not have if they were buying from the acquired firm.  In other words, the very fact of acquisition should add value to the technology of small acquired firms.  When I asked a lawyer who used to work at AMAT what her impression was, one of her comments was "From a legal negotiating perspective, I found it almost boring (i.e. without challenge) because suppliers and partners would typically cave to our terms given our leadership position in the market."  That probably has not hurt, either.

Thin Film

Recent acquisition in this area include Baccini ($334M, January 2008), HCT Shaping Systems ($483M, Aug 2007), and Applied Films ($464M, May 2006.)  These acquisitions have allowed AMAT to supply entire turnkey production lines for thin film solar, which they call their SunFab.  A 500MW facility was recently ordered by a new Chinese solar manufacturer.  Unlike solar manufacturers, AMAT stands to gain by increased Chinese competition, so long as they can continue to supply the fabs. 

Currently, AMAT is weathering a decline in demand for their core silicon manufacturing products.  This is good news for investors interested in their solar business, because it means that we do not need to pay as much for the non-green chip manufacturing.  

Too Many TVs

However, considerable revenues and profits come from LCD manufacture, an industry also of little interest to clean energy investors (except in the sense that LCD TVs are much more energy efficient that Plasma displays.)  After Philips and Sharp, investors following this series will note that this is now the third company with considerable exposure to the LCD Television market.  LCDs have seen spectacular growth in recent years, but much of that growth has doubtless been driven by a booming world economy.  As a luxury item, sales of new giant flat panel TVs will be quick to suffer from any global slowdown, and this concentration of companies involved in LCD manufacture lessens the protection from diversification investors can get buy buying companies like those in this series, with large clean energy operations as part of a diversified portfolio of businesses.

Investors might choose to ameliorate this risk by waiting for a slump in the market for LCD TVs before buying all three of these companies, or at least buying them slowly over time.  

Other Clean Energy Technologies

AMAT also provides some exposure to other interesting clean energy technologies.  Their Glass Coating Products are used to deposit the special layers used to reduce heat gain or loss through low-e windows.  They are also working to apply their manufacturing prowess to the emerging Organic LED technology, an exciting but emerging sector of energy efficient lighting.  As AMAT says on their website, potential uses of OLEDs are not completely defined.  In that sort of situation, I prefer to get exposure to the technology through a company I can feel confident will be able to apply its expertise no matter what the final uses turn out to be.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in AMAT, PHG, and SHCAY.

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 here.

February 17, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #5 Trinity Industries Inc. (TRN)

Peak oil is likely to have everyone re-examining their transportation options over the next few years.  Rail will likely be one of those options given special attention because rail transportation is inherently much more fuel efficient than road based transport.

Trinity IndustriesI first mentioned Trinity Industries (NYSE:TRN) in November as a rail transit related stock.  I didn't give it an in-depth look because rail transit is only a tiny part of its business, but investors interested in the broader rail sector will be very interested.

Not only is Trinity focused on the most energy efficient form of land transport, its fundamentals should appeal to the value investor.  A forward and trailing P/E of around 8.5, and a price to book ratio of less than 1.5 are so low they make you wonder if something is seriously wrong with the company.  The company has been investing aggressively over the last few years (something I consider prudent given the prospects of the rail industry.)  The aggressive investment program has resulted in consistently negative free cash flow, and has been primarily financed by new debt.  However, their debt to equity ratio is still a comfortable 0.86.

Trinity's businesses include railcar manufacture, railcar leasing, inland barge manufacture, construction materials (mostly concrete and highway crash cushions), liquefied gas canister manufacture, and Wind tower manufacture.  Investors interested in efficient transport and clean energy will be keenly interested in all these businesses with the exception of construction materials and LPG canisters, which constitute[.pdf] less than 30% of revenues and less than 20% of operating profits.  Interestingly, the manufacture of LPG canisters and wind towers share facilities, which allows them to buffer the wild swings in wind tower demand driven by changes in the production tax credit by shifting manufacturing between these products.

Trinity is a group of related growth businesses, mostly focused on efficient modes of transport, priced like a value company.  To me, the company seems too good to be true, so I went looking for dirt in their SEC Filings.  Their corporate governance seems comprehensive and robust.

The firm shows a talent for financial engineering, but only to an extent that seems appropriate to a rapidly growing company in several capital-intensive industries.  This talent seems to have allowed them to secure a large quantity of low cost debt.  Company insiders have been net buyers of the stock since it dropped below $40 last July, a factor which enhances my confidence of a lack of skeletons in the closet.

Trinity will release 4th quarter earnings after the close on February 20.  I expect a positive earnings surprise, although given the current mood of the market, that's not a guarantee of a jump in the stock price.  The 13.7% positive earnings surprise in November lead to a price drop, since the surprise wasn't as big as in previous quarters.  I don't see any reason to chase this one.  $29 seems like a good price to me, but the economic slowdown and a slowdown in Trinity's earning growth may provide opportunities to pick up this solid company at even lower prices.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in TRN.

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 here.

February 14, 2008

Readers' Choice

I often get questions from readers asking me what I think about this alternative energy company or that one.  Much of the time, I simply have to say "I haven't researched it."  What can I say, I'm not Jim Cramer.  Even when I do have an opinion, and the question is left in the comments (my rule is, if you want free advice, you have to be willing to share,) it's probably not researched in the depth that the person was hoping for.

For all of you wondering about my take on a specific stock, please let me know by leaving a comment on this article.  I'll write articles with the same depth of research I'm doing in the current 10 Solid Clean Energy Companies to Buy on the Cheap series on at least some of them.  The Ten Solid Companies series will resume this Sunday with a company focused on efficient transportation.  

When that series is over, we'll have a look at some of our Readers' requests.

DISCLAIMER: The information and trades provided here and in the comments 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 here.

February 12, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #6: Sharp Corporation (SHCAY.PK)

I don't write frequently about solar stocks, especially photovoltaic (PV) manufacturers.  While the industry is almost certain to be a spectacular growth story, it's also a story that everyone already seems to know about.  Trader Mark put it well: "these stocks are too driven by retail hands."  The PV story clicks with people, and when that happens, they often buy stocks with little regard to what they are worth.  PV stocks are so psychological, we'd all do well to lie down on a couch before buying.

As the IRS is unlikely to allow psychotherapy as an "investing expense," I have looked to other, less popular sectors of renewable energy, and to energy efficiency in this series.  I sidestep the issue by investing in conglomerates and related industries such as electricity transmission and distribution, or agriculture which are less exciting, but will benefit from the same trends.  That is why I'm halfway through this series, and only now talking about the most popular form of renewable energy, solar photovoltaics.

SHARPSince Sharp (SHCAY (ADR), TSE:6753) is a conglomerate, its PV manufacturing is often overlooked by solar investors, despite the fact that it's the world's largest manufacturer of solar cells (according to Sharp, independent industry statistics are hard to come by.)  Admittedly, PV accounts for considerably less than 10% of their sales: PV falls under "other Electronic components" in their sales breakdown, and that category was only 9.6% of total sales in 2007.  In the last nine months of 2007, solar sales declined, most likely due to limited supplies of crystalline silicon.  They have taken steps to assure future crystalline silicon supplies, and are aggressively expanding their thin film production.

Thin Film Solar

Sharp is also rapidly expanding their production of amorphous Silicon (a-Si) thin film PV.  I find this particularly interesting, because unlike the other thin film technologies, there is no practical limitation on the quantity of a-Si production due to raw materials, unlike the non-silicon CIGS and CdTe technologies.  (You can read my discussion of the impact of possibly limited Tellurium supplies on First Solar (Nasdaq:FSLR) here by scrolling down to the bottom of the linked page.)

While some a-Si manufacturers have given the technology a reputation for low quality, many manufacturers produce high quality panels.  Amorphous Silicon, like other thin film technologies, tends to have a lower conversion efficiency than traditional crystalline silicon modules, but I was surprised to hear in Sharp's New Year Address that because their thin film more thermally robust in hot climates, their thin film panels actually operate at higher efficiency than their crystalline silicon panels in places like Spain.  For this reason, they are targeting large scale PV installations in Southern Europe with their thin film modules, while their crystalline PV modules are targeted at smaller installations in cooler areas.  I had previously thought that thin film was primarily useful for the same things as conventional PV, and also for Building Integrated Photovoltaics (BIPV.)  I had not expected thin film to have higher efficiency in any context.

Energy Efficiency

PV is less than 10% of Sharp's business, but many of their other products should also be of interest to Alternative Energy investors.  Japan is one of the most environmentally and socially aware countries, and as someone more accustomed to listening to investor presentations from North American companies, Sharp's presentations are a culture shock.  Profit numbers play second fiddle to environmental and social responsibility, the reverse of what I'm normally used to.  

Most of Sharp's other products are already familiar.  They include LCD screens and other components for a wide variety devices, as well as televisions and information equipment.  This is where the company's environmental awareness pays off, with Sharp's LCD televisions often near or at the top of energy saving rankings.  This is in contrast to Philips, which is profiled in this series for their efficient lighting business, not for their televisions.

Historically, United States government ratings only accounted for energy use of televisions in standby mode, a problem which will soon be rectified.  As of November 2008, Energy Star 3.0 specifications (see chart) will come into effect in the United States which will also take into account energy use when the television is on, and will make it easier for consumers to compare the true energy usage of televisions.  This should benefit energy-conscious Sharp relative to competitors, and LCDs relative to Plasma displays.

 EStar Spec.PNG

Perhaps even more than Europeans, the Japanese have been thinking about energy for a long time (no doubt in large part because they have to import most of it and therefore pay more for it than North Americans.)  Since most North Americans are only now waking up to the need to save energy, a Japanese company which has long known how to please energy-conscious consumers should be able to use those skills as more consumers become aware of the life-cycle costs of their electronic purchases.

Since a large portion of Sharp's revenues come from consumer products, lower consumer spending and a possible recession in the United States could easily lead to a sharp drop in the stock price.  If that happens, clean energy investors should take that opportunity to acquire one of the world's top solar and energy efficiency companies on the cheap.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in SHCAY.

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 here.

February 10, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #7 Deere & Co. (DE)

The first and last word in any discussion of biofuels should always be "Feedstock."  Feedstock is the "Bio" out of which biofuels will eventually be made, whether it be corn, sugar, jatropha, algae, palm oil, switchgrass, forestry waste, or municipal solid waste.  

Before the era of peak oil, we lived in a world of plenty, which meant that we could squander energy, not only by driving Hummers, but by feeding energy intensive products such as corn crops to livestock, and by dumping "free" sources of energy such as garden waste and used cooking oil into landfills.

The era of cheap energy is over.  The signs are all around, and even peak oil deniers point to expensive-to-extract reserves such as deep water drilling, Canadian tar sands, and even Colorado's Oil Shale.   These sources of oil are not only more expensive to extract, they are are also more carbon-intensive, meaning that regulation of greenhouse gas emissions will raise their price further.

Commodity Squeezes

In terms of biofuels, I've long argued that there is simply not enough feedstock available, and that even if there were enough feedstock to replace all the oil products we use today, there are many other potential uses which will compete for the output of scarce land and water, such as a replacement for coal in electrical generation, and fodder for livestock.  Biodiesel producers may find that the best quality oil is bought up by refineries to make green diesel instead.  In fact, it seems that almost any form of biomass can be converted to Bio-crude and processed in a conventional refinery.  We'll even have to decide if municipal waste should be recycled, burned for electricity, or turned into cellulosic ethanol.

I'm unconvinced that anyone knows exactly how the limited feedstocks we have available will be used, or what process will be most efficient in converting them into their final form.  This makes it difficult to find a biofuel investment that I can be confident will succeed.  One biofuel technology after another has been caught by a commodity squeeze, first corn ethanol and now biodiesel makersPolyannaish investors expecting limitless supplies of feedstock for cellulosic ethanol should take note.  Higher commodity prices do not always lead to more supply.  Sometimes higher prices lead to lower demand, and the next boom could easily become the next bust.

The Sure Winner

John DeereThe only sure winners from limited and increasingly valuable biomass will be the people who produce it: farmers, foresters, and (perhaps) trash haulers and recyclers.  What do farmers do when they have spare cash?  They buy farm equipment, quite often from Deere & Co. (NYSE:DE)  Few stock have ridden the biofuel boom as well as Deere, with the stock rising 400% in the last four years in a nearly uninterrupted uptrend, without the thrills and spills that have turned so many investors off of corn ethanol.  

The beauty of Deere as a biofuel investment is that there is no need to know what the biomass will be used for, or what form it will come in.  In nearly every scenario I can envision, Deere is likely to be a major supplier to the industry which grows it.  From algae to Jatropha, if Deere does not yet sell equipment to plant, tend, and harvest it, it seems a good bet that they will design one.  This technology agnosticism, combined with their wide dealer network in agricultural areas, makes the company seem to me the safest way to bet on biofuels as a trend.

Deere's close relationship with farmers also gives them an opportunity to profit from another up-and-coming crop: Wind.

Even with a 9-year run up, the stock currently trades at a trailing P/E of 22, and despite its construction arm, has not yet been hit hard by the turbulence in the housing market.  Since I expect the housing situation to only get worse over the coming months, a sharp decline in construction income or a continued broad market decline may be just what prospective investors need to pick up this solid biofuel play on the cheap.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in DE.

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 here.

February 09, 2008

The Week in Cleantech (Feb. 3 to Feb. 9) - Happy Year Of The Rat!

On Monday, Lisa Lee at Reuters informed us that banks were to weigh CO2 emissions in power lending. This is, without a doubt, the story of the week. However, anybody who has been following this space knew that the writing was on the wall. Cai Steger at The Invisible Green Hand put together a comprehensive list of coal power projects that have either been canceled or put on hold due to environmental concerns in the recent past. Somewhat paradoxically, the same week, a major US coal export terminal announced that it was boosting capacity. Don't be fooled, although coal may have suffered a small setback in America, it continues to do very well globally as a fuel source for power gen.

On Tuesday, Julian Murdoch at Hard Assets Investor gave us an overview of the latest Bush budget from an alternative energy perspective. This is an interesting read and I don't have too much to say about it, other than that the Bush Administration definitely did not throw alt energy any bones to make up for ground lost elsewhere.

On Wednesday, Ryan Stanton at Mlive.com told us that methane from landfills was seen as a viable, renewable source of energy. Landfill methane, old story right? Well I'm not so sure. While the technology and the concept have been with us for the better part of the past 20 years, the economics of these projects could be significantly altered in the years ahead for two main reasons: (a) the proliferation of incentive programs for clean power generation across North America, and (b) my favorite, carbon credits. It will be interesting to see what happens with firms heavily involved with this, which at the moment would be your large-cap waste management companies. Could they be in a position to build nice portfolios of carbon offsets for eventual re-sale in a North American carbon market...a la Blue Source?

On Wednesday, Massie Santos Ballon at Cleantech.com met with someone who is challenging silicon's grip on solar. Despite rough times in equity markets and uncertainty around federal incentives and the price of oil, solar remains a pretty exciting space because such innovations promise to bring down costs significantly in the next few years. However, although it is fair to say that an economic slowdown will not ravage the industry, hefty valuations across the sector as recently as last month suggest that a little more pain may be on the way if equity markets continue to soften. Watch for good bargains!

On Friday, Michael Kanellos at CNet News.com gave us some scary stats about greening the grid. What are two of the biggest issues facing the grid according to these two utilities executives? Grid expansion/upgrade and storage - two of our favorite sectors. The numbers given early on in the article provide you an idea of the scale of expenditures required over the next few decades. Check out Tom's article for a selection of transmission stocks.

Finally, the AltEnergyStocks.com team would like to wish all of our Chinese readers Happy New Year. This year is the year of the Rat. We put year of the Rabbit earlier - that was a mistake. Apologies.

February 07, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #8 Quanta Services, Inc. (PWR)

It may be a stretch to call a company with a P/E ratio in the high 30s "cheap," but in the case of Quanta Services (NYSE:PWR), it's a bargain.  

I won't repeat myself about why electric transmission and distribution (T&D) investments are a good bet.  Put simply, the grid has been long neglected, and improved long distance transmission is essential to bringing large scale renewables such as solar and wind onto the grid.

How does Quanta fit in?  They build transmission line for utilities.  When I ask industry insiders what company is best placed to actually string the wires or lay the cable, the answer is Quanta Services (the answer used to be InfraSource, until that company was acquired by Quanta.)

According to a recent article in the January/February issue of EnergyBiz (this particular article, on p.56 of the print version, does not seem to be online), Northeast Utilities (NU) signed a 6 year contract with Quanta in order to assure themselves access to T&D contracting services which they expect to be in short supply.  According to Jim Muntz, a Senior Vice President at NU, "There are only a few contractors who have the capability to do contracts on this scale, so we determined that before it's taken away from us, we would have to lock up their services for a number of years."

Another reason to expect growth in the industry comes from the same article.  According to Tim Hope, a vice president of operations at ABB (another excellent transmission investment), "While other parts of the utility's operations... looked to outsourcing solutions, T&D seems to be one of the last departments to embrace the concept."  This means that the market for outsourced T&D can not only grow as utilities invest more, but also as they increasingly turn to outsourcing, either due to regulatory pressure or because of insufficient internal resources.

While I might have preferred the pure-play electric T&D opportunity of Infrasource before the merger, Quanta's strategy of becoming a one-stop shop for infrastructure in natural gas, telecommunication, and broadband cable as well as power should serve it well if these industries continue to converge.  The strategy may also allow the power division to draw on additional workers with similar skills from telecoms and cable, if or when the skills shortage outlined above takes hold.

Doesn't that make a high-thirties P/E start to sound cheap?  It does to Cramer and an analyst at Morgan Stanley. I'm hoping the current market decline will make even cheaper.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in PWR, ABB.

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 here.

February 05, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #9 Koninklijke Philips Electronics NV (PHG)

Readers of this blog are well aware that I'm a fan for energy efficiency in general and efficient lighting in particular as good investments as more and more people and companies reduce their energy use in order to lower costs and green their image.  With the exception of niche players such as Cree and Lighting Science, efficient lighting is dominated by General Electric (GE), Osram Sylvania (a division of Siemens (SI)), and Koninklijke Philips (PHG.)   I'm a fan of all three of these companies, and both GE and Siemens are honorable mentions in this series.Philips

While Siemens and GE are broad industrial conglomerates, smaller Philips is comparatively focused on electronics, with lighting being one of just four divisions.  Last June, I told readers about my hunch that Philips was "the most serious [of the] lighting manufacturers about pursuing LEDs."  That hunch was quickly confirmed when Philips' announced the acquisition of LED company Color Kinetics a couple weeks later.  That acquisition was followed in November by Philips' announced acquisition of Genlyte, with the apparent intention of using this lighting fixture manufacturer to increase their US market penetration.

These two acquisitions allowed the much smaller Philips (market cap $42B) to surpass the more diversified GE ($363B market cap) as the leading lighting manufacturer in both North America and the world as a whole.  For investors who worry that a possible US recession might turn consumers' and companies' attention away from clean energy, energy efficient lighting is the perfect choice in a more budget conscious green era.  Commercial lighting retrofits often have payback periods of less than a year, and so are likely to appeal to companies seeking to reduce costs.

Philips' other businesses include medical devices and consumer products.  Not much about them seems particularly green, although they recently announced an LED-backlit "Eco-TV," which may appeal to the green aspiring couch potato.  It received faint praise from the green technorati, since a big new TV (even a relatively energy efficient one) is likely to be a lot more wasteful than the smaller TV you already have.  On the other hand, the Eco-TV may be the start of a strategy within Philips to leverage their lighting expertise to their consumer electronics business.

In any case, the lighting business is worth having in your portfolio, especially if a market collapse provides an opportunity to buy it on the cheap.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in PHG, GE, SI.

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 here.

February 03, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #10 United Technologies

Like most conglomerates, United Technologies Corporation (UTC), (NYSE:UTX) won't be found in any of the Clean Energy indices, but its growing portfolio of clean energy businesses makes it fit well into a diversified portfolio with a clean energy tilt.  A conservative capital structure and solid earnings and cash flow, and a decades long history of constantly increasing dividends make this a company that I'm comfortable holding for the long term.  

In terms of sustainability, the company has been recognized by Dow Jones as in the top 10% of the world's most sustainable companies.  Long before it became fashionable for companies to greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce their power and water usage by 25%, and they have met these goals while growing their business.  Their long track record of reducing their energy usage gives them a significant head start against rivals who have only recently jumped on the climate change bandwagon.

Of the company's eight major business units,  UTC Power and Carrier are both crucial to how we generate electricity and how we use it.  Carrier has a history of pushing for more stringent energy efficiency and environmental standards for air conditioning, a strategy which helps their business strategy since UTC's scale and research allow them to remain on the technological forefront.

UTC Power has a large portfolio of products which will help modernize our energy infrastructure.  They supply microturbines and Solid Oxide fuel cells, as well as integrated combined cooling, heating, and power products, which I feel are likely to become much more popular as more companies seek ways to lessen their environmental impact and energy bills at the same time.

With their PureCycle binary cycle turbine, UTC introduced the benefits of volume production to geothermal power by making slight modifications to an existing line of Carrier's industrial chillers which allow them to operate in reverse.  Raser Technologies (RZ) plans to use this technology in their aggressive plans to develop a large number of lower temperature geothermal resources throughout the Southwest.  According to a personal conversation I had with a Raser employee. UTC's ability to deliver the turbines quickly, and willingness to guarantee performance was key to Raser's selection of that technology in preference to rival products.

One other technology likely to be of great interest to clean energy investors is their molten salt storage technology, which provides a rare opportunity for a US-based public investor to participate in what I consider to be one of the most promising solar technologies: Concentrating Solar Thermal Power (CSP).  The thermal storage provided by molten salt gives CSP the potential to provide power on a dispatchable basis, allowing it to compete directly with expensive electricity from natural gas turbines.

Other divisions of UTC, such as the Sikorsky helicopter division, are major military suppliers, so traditional socially conscious investors may wish to avoid UTC.  On the other hand, the short supply of helicopters needed in modern warfare (as well a a large backlog in their Otis elevator division) have propelled strong earnings growth, while even relatively efficient air conditioners could not prevent Carrier from being hurt by the housing slowdown.  Such are the benefits of diversification.

At roughly $74, and a 17.3 P/E, UTX is not currently cheap.  I currently have only some out-of the money short puts on the company, but it's one that I intend to continue writing puts on until the stock falls and I'm assigned shares.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in UTX, RZ.

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 here.

February 02, 2008

The Week in Cleantech (Jan 27. 30 to Feb. 5) - Renewable Fuel Credit Trading Goes Live

A few weeks ago, I argued that signs were pointing toward an imminent return of diesel powertrain technology in North America. On Monday, however, Mike Millikin at Green Car Congress informed us that US new-car shoppers did not see diesels as a likely mainstream powertrain. Instead, hybrids really seem to have captured the imagination of US car shoppers. The respondents' perception of diesel seems rooted in stereotypes dating back to the 1980s, which I suppose is normal given that that is when US drivers last experienced diesel engines to any significant degree. It will be interesting to see whether the car makers that are banking on diesel making a comeback in North America manage to change that perception.

On Wednesday, Keith Johnson at the WSJ's Environmental Capital discussed rate cuts and renewable energy. Well...not quite. His post focuses mostly on what would happen to solar stocks should OPEC turn on the taps. Should OPEC nations find the capacity to increase their collective output, this would be yet one more item solar bears would have on their side for 2008. But the question is, can OPEC even find that capacity?

On Wednesday, Bioenergy Business told us that a new US renewable fuel standard trading exchange had gone live. Regular readers know that I'm a big fan of all things market-based for regulatory compliance, be it carbon credits, SOx emissions or RECs. This new kid on the environmental exchange bloc promises to be interesting, especially given that, unlike CO2 or RECs in certain states, the Renewable Fuel Standard (RFS) is mandatory.

On Thursday, Climateer at Climateer Investing gave us the heads up on an article that argues that China could soon be the world's top wind turbine manufacturer. There are two interesting angles for investors here. First, current tightness in wind turbine supply should ease by 2009 as new capacity continues to be added, which will lead to price decline and potential top-line impacts for the current turbine majors. Second, after a plethora of Chinese solar IPOs on US exchanges over the past 3 years, could Chinese turbine makers be next? Keep in mind, however, that quality will continue to be a key issue and that the incumbents have a serious advantage here.

On Friday, Renewable Energy Access informed us that the Senate Finance Committee had added renewable energy tax credits to the White House's proposed Stimulus Bill. Not quite sure what to think of that. For one thing, that package really isn't where these support schemes belong, and the fact that Senators resorted to trying to squeeze this in there highlights Congress' complete lack of leadership on this issue more generally. Second, like many others, I happen to think that this 'stimulus' effort is nothing but a knee-jerk reaction to a problem that demands more fundamental and long-term action.


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