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In This Issue...
By Nancy Zambell, Staff Writer, Big Idea Investor
In last week?s issue of Big Idea Investor, we discussed the current state of the alternative energy industry, including the recent increase in investments by venture capitalists (VC?s), as well as future projections for the growth of individual alternative energy sectors. We also talked about new federal and state legislative efforts to lessen our dependence on traditional energy products which promise to boost industry expansion.
In this week?s issue, I want to focus on the exciting new developments on the corporate front, in which businesses and organizations ? profit and non-profit ? are jumping into the fray, not only with their voiced support, but also with their pocketbooks.
While green energy has been a sexy investment sector for several years, it has mostly been relegated to an orphan category, not yet embraced by main street investors. However, as I wrote last week, I believe that this new commitment to big dollars by the VC?s, as well as the tremendous corporate interest now being expressed, that the time is right for individual investors to embrace the idea. It may just be the opportunity to get in on the ground floor of what could turn out to be the next Microsoft(s) of investing.
Most of the media attention on alternative energy has been devoted to greener automobiles. That focus is beginning to pay off, with even American auto companies GM and Ford beginning to invest more dollars in hybrid and fuel cell vehicles to attempt to compete with the foreign carmaker?s success. Honda and Toyota have indeed made a splash with their various hybrids, with Toyota?s Prius now on back-order. I am now a big fan, since I purchased a Toyota Hybrid Highlander a few months ago, sort of by accident.
I think I am like most Americans. I am concerned about the environment, recycle my bottles, cans and cardboard every week, purchased low water flow toilets, keep my house cool in the winter and warm in the summer, and try to run errands all at the same time to conserve fuel. However, I hadn?t really considered a hybrid vehicle until my Ford Explorer began having problems. I guess I just thought hybrids still had to be plugged in to an electrical outlet and were a bunch of ugly cars. But I had never really spent any time investigating them and had no idea of the range of hybrid vehicles actually available.
I accidentally spotted the Highlander when I was considering a Toyota 4Runner. Once the salesman started pointing out the features, especially the fuel economy, I was interested. Then, after I took it for a long test drive on my winding Tennessee roads, I became so enthusiastic that I ordered a car that night! So far, I love it; I am averaging 28 mpg, compared to the 17.5 in the Explorer. The car has all the bells and whistles I could want, drives like a car ? not a truck ? but gives me the benefits of an SUV. I love it!
As an aside, I did find a good web site for comparison of green energy vehicles:
http://www.fueleconomy.gov/feg/hybrid_sbs.shtml
I shared that story because I believe that I am a typical consumer, have some knowledge of green products, but overall, am fairly unaware of many of the benefits of going green. My point is simply this: if the alternative energy marketers can jump the hurdle of educating consumers (like me), the products will sell themselves, and the green market will soar. And I believe that time is approaching, especially in light of the VC money pouring into the industry, some of which will be spent on marketing. Additionally, corporate America is doing more than paying lip service to encouraging industry growth. Just look at these recent developments:
Richard Branson, founder and chairman of the British conglomerate, Virgin Group, launched a new virgin Fuels business, which intends to invest up to $400 million in green energy projects like biofuels. In addition, he just announced ? at former President Clinton?s recent Clinton Global Initiative conference ? that for the next ten years, he is committing all of the profits (estimated at $3 billion) from his travel firms, to the cause. In particular, his investments will focus on clean technologies, including wind turbines and cleaner-burning aviation fuel, especially targeting the development of the biofuels, cellulosic ethanol, which comes from agricultural waste and rapid- growing crops like switch grass.
Google.org, the new for-profit philanthropic arm of the Internet giant has stated its goal is to reduce global warming, poverty and disease ? while making money, too. This is one of the first major philanthropic organizations to take for-profit status. But it may just be the wave of the future. Although the organization will be subject to taxes on earnings, its for-profit status will offer fewer limitations than those of non-profit companies. For instance, it will have the ability to fund start-ups, form partnerships with VC?s and lobby Congress for legislative changes that will favor its aim. Rumors have it that one of its initial endeavors is the development of a flexible fuel, plug-in hybrid automobile that could be run by electricity, gas or biofuels. Toyota and GM are both working hard on similar products.
General Electric, last year, announced that a new initiative to make goods that minimize damage to the environment. These products are sold under the Ecomagination brand name. Like Richard Branson, the company is not just going green as an altruistic effort, but GE sees the ?green? in the green. In May the company reported that revenues from Ecomagination were $10.1 billion in 2005.
Retail behemoth Wal-Mart has vowed to invest $500 million in sustainability projects, to cut its energy consumption in is stores by 30%, reduce solid waste by 25%, and double the efficiency of its vehicle fleet over the next decade.
Xerox announced that it has decreased the energy required to make toner cartridges, which reduced costs by 22%, and will save 30 million kwh by 2008.
Public pension funds CalPERS and CalSTRS committed a combined $1 billion+ to green investments.
JP Morgan Chase & Co. invested in 17 wind farms with the goal of also participating in solar and geothermal plants some time soon.
Both GE and Xerox have demonstrated a facet that many consumers don?t yet understand. There are two sides to going green: Reducing energy in the end product, but also reducing the energy needed to manufacture products. Consequently, the market may be much larger than originally hoped.
Some pundits portend that green investing should be likened to technology investing back in 1976 ? the baby years of Silicon Valley. That may well be true, and I am certainly more-than-enamored of the industry, but I also think a cautious approach is wise for the following reasons:
- Similar to the heyday of the tech industry, technology is swiftly changing, and ideas that have been collecting dust for yeas are now finding monetary support. Consequently, the existing technology may rapidly lose out to the new, and those who have invested in the old horse will be sitting on investments like Beta VCRs. Therefore, it would be prudent to make a concerted effort to gain a clear understanding of the companies in which you invest.
- As more investors jump on board, valuations are zooming higher. Since the end of 2003, the stocks contained in Cleantech Capital Group?s Cleantech Index have jumped 65%. Several solar and ethanol company IPO?s have returned an average 31% since going public. The market capitalization of solar companies worldwide has soared thirty-eight-fold in the past year. I caution you not to get caught up in the moment. An investment with a lofty P/E is generally going to take you years to make your money back.
It would be easy for green investing to take on the mantra of the technology boom days. And while that was a heady, exciting time, we all know why it ended: Speculation, speculation, speculation!
That?s why I would suggest that you begin your green investing a little conservatively. There are plenty of mutual funds and exchange-traded funds that invest in just about every aspect of alternative energy. Take the time to understand the companies in which these funds invest. Learn about the industries and the individual products ? both current and those on the drawing board. Find out if a market already exists, or has to be developed. After all, you may discover a company with the most wonderful technology, but if it doesn?t have ready buyers, you could be sitting on your investment for quite a while. Then, once you are comfortable with the industry, you can branch out to individual investments.
Here are a few funds that may be of interest to you:
Powershares Wilderhill Clean Energy ETF (PBW: AMEX), currently trading at $17.04, focuses on highly experimental technology companies. Its holdings include: SunPower, Kyocera ADR (KYO: NYSE), Cypress Semiconductor (CY: NYSE), Ormat (ORA: NYSE), and Zoltek (ZOLT: NASDAQ).
New Alternatives (NALFX), currently trading at $40.46. Holdings include: Ormat Technologies (ORA: NYSE), South Jersey Industries (SJI: NYSE), Vestas Wind Systems, Conergy AG, and Gamesa.
Guinness Atkinson Alternative (GAAEX), currently trading at $10.35, got its start in March, 2006 and invests in specialty natural resource companies. This fund?s holdings include: VeraSun Energy (VSE: NYSE), Medis Technologies Ltd (MDTL: NASDAQ), and Clipper Windpower (UK CWP).
As always, knowledge is power, so I encourage you to get your feet wet in the alternative energy industry, by learning as much as you can and investing a little ? to start. Once you are comfortable with your level of understanding, you will find many opportunities awaiting.
Happy Investing!
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