State of the Union 2007: Alt. Energy Opportunities Abound
Posted on Jan 23rd, 2007 with stocks: ALTI, AMAT, ANDE, MGPI, PBW,
PEIX, SPWR, STP, UQM, VSE, WFR
Tate Dwinnell submits: According to the weekend edition of Investors
Business Daily, the White House has threatened to veto a House-passed
bill that would scrap tax breaks for big oil and use the revenue to
promote renewable energy. But Bush may offer an alternative. White
House economic adviser Alan Hubbard recently said that Bush's speech
will "generate headlines above the fold that will knock your socks off
in terms of our commitment to energy independence."
After reading that I got to thinking about profit opportunities should
these headlines really knock my socks off. I remembered the run that
some of the alternative energy plays had after the the last State of
the Union address, particularly in the ethanol space and began to do a
bit of research. It didn't take long for me to see that someone beat me
to it. Himanshu Pandya of Financial Nirvana recently wrote up a nice
piece about these profit opportunities. Rather than abandoning my
article, hopefully I can add a bit to what Himanshu began.
One diversified way to potentially profit both in the short term and
longer term is through the PowerShares Clean Energy Fund (PBW). I first
wrote about investing in this fund with a March 2006 post at Seeking
Alpha entitled Deconstructing PowerShares' Clean Energy Portfolio. In
the 2 months following that post, the fund ran up more than 20% before
ultimately sliding into a lengthy correction right along with the rest
of the market in mid May. Following a 30% correction, a steep drop in
crude and a state of union speech tomorrow night expected to highlight
ways in which the government will continue to push for alternative
energies, I believe it's time to take another look at this fund,
particularly for the buy and hold investor looking out over the next
couple years. However, in the shorter term, the technical picture
indicates it needs to spend a few more weeks seeking a bottom.
Boiling it down to a lean, mean clean energy profit producing machine
The following is the current weighting of the PowerShares Clean Energy
Fund (PBW). I've taken this list (the original can be found here) and
rearranged each group so that the best companies (in terms of
technicals and fundamentals) are listed at the top. For example, in the
Renewable Energy Harvesting group, MEMC Electronics (WFR) is a highly
profitable company that recently broke out of a base while the last
company mentioned, Distributed Energy (DESC), has never been
profitable, isn't expected to be anytime soon and is mired in a long
term downtrend. Companies with an *** next to them are companies I
would include if I were putting together my own clean energy fund. Why
not have a more tightly focused fund comprised of just the best? I'll
put the companies I've asterisked into a watch list and compare the
performance of my fund versus the Powershares Fund and report back in 3
Renewable Energy Harvesting - 33% sector weight (11 stocks @2.95% each;
MEMC (WFR). Producer of the polysilicon needed in many crystalline
solar PV cells. ***
SunPower (SPWR). Solar, Efficient PV panels with all-rear-contact
SunTech Power (STP). Solar, fast-growing and major producer of PV is
based in China. ***
Applied Materials (AMAT). Semiconductor fabrication, growing solar PV
Cypress (CY). (Parent firm of SPWR above, and owns the major block of
their stock). ***
Zoltek (ZOLT). Wind, makes carbon fiber for wind blades and product
Kyocera (KYO). Solar PV, integrated manufacturer is doubling
Ormat (ORA). Geothermal, works as well in recovered energy, biofuels.
Emcore (EMKR). Solar, 28% ultra-efficient PV cells for satellites and
First Solar (FSLR). Maker of thin film, CdTe solar panels that reduce
Evergreen (ESLR). Unique string-ribbon solar PV with efficient
Distributed Energy (DESC). Part solar, wind; mainly in DG, some H2: an
Power Delivery and Conservation - 21% sector weight (7 stocks @2.93%
each; +1 banded)
Color Kinetics (CLRK). Light Emitting Diode [LED] lighting systems.
Itron (ITRI). Monitoring, designs energy measurement and management
International Rectifier (IRF). Efficiency-enabling electronics
Universal Display (PANL). Organic light emitting diode OLED panel
UQM Technologies (UQM). Hybrid vehicle electrics; motor & power
systems. *** (I'll throw UQM in the fund based on technicals alone)
American Superconductor (AMSC). Superconductors, 'no'-resistance 2G
Cree (CREE). LEDs, makes efficient lights, power-saving electronics.
Echelon (ELON). Networking, for management of whole energy systems.
Cleaner Fuels - 17% sector weight (7 stocks @2.43% each)
Praxair (PX). Hydrogen, a supplier of many industrial gases. ***
Air Products & Chemicals (APD). Hydrogen, a supplier of many industrial
Andersons (ANDE). Biofuels and ethanol; highly diversified across
MGP Ingredients (MGPI). Biofuels, ethanol and fuel alcohol. ***
Pacific Ethanol (PEIX). Aims to be a leading biofuels producer for
Western U.S. ***
VeraSun Energy (VSE). Biofuels, is the 2nd largest corn ethanol
producer in U.S.
Diversa (DVSA). Enzymes to convert biomass, cellulosic feedstocks into
Energy Storage - 13% sector weight (4 stocks @2.87% each; +3 banded)
Fuel Systems Solutions (FSYS). Gaseous fuels integrator for
OM Group (OMG). Producer of nickel and precursors in rechargeable
Ultralife Batteries (ULBI). Batteries, advanced lithium ion, polymer
Energy Conversion Devices (ENER). Very diversified: in batteries, solar
PV, also H2 FCs.***
Active Power (ACPW). Flywheel power storage, a firm power alternative
Maxwell (MXWL). Ultracapacitors, a battery alternative such as for
Quantum Fuel (QTWW). Hydrogen gas storage systems for cleaner-fuel
Energy Conversion - 11% sector weight (4 stocks @2.50% each; +2 banded)
All of these companies are years away from being profitable! I would
not include any of them in my clean energy fund.
Ballard Power (BLDP). Mid-size fuel cells, makes mainly PEM FCs.
Capstone Turbines (CPST). Micro-turbines 30-60 kW, may be
FuelCell Energy (FCEL). Large fuel cells as stationary high-temp.
Hydrogenics (HYGS). Fuel cells and testing gear, H2 electrolysis,
Medis (MDTL). Micro fuel cells, designed for liquid-fuels and a unique
Plug Power (PLUG). Mid-sized fuel cells for distributed generation,
Greener Utilities - 5% sector weight (2 stocks @2.50% each)
Puget Energy (PSD). Wind, Utility. PSD is growing its wind power.
Idacorp (IDA). Hydroelectric, Utility, mainly hydro; also some fuel
Playing the Individual Securities
The Advanced Energy Initiative set a goal of replacing more than 75% of
our oil imports from the Middle East by 2025. Our national security
depends on it. not better armor, bigger tanks or missiles with greater
precision. I'll use an outline of the initiative here as a framework to
look into the alternative energy field and highlight investing
opportunities. Currently, the most profitable clean energy companies
(WFR, SPWR, STP and AMAT) hail from the the solar arena and this will
probably continue (see "Cleantech Industry Should Get Boost From
Wal-Mart Initiative" by Himanshu Pandya)... it's the place to be right
now. I'll take a closer look at the Solar industry in part II of this
report in a few days.In the meantime, I begin with a look at the first
part of the initiative - achieving greater fuel efficiency in
Changing the Way We Fuel Vehicles - develop advanced battery
technologies that allow a plug in hybrid-electric to have a 40 mile
range operating solely on a battery charge.
Beginning with the Toyota Prius in 2001, hybrid vehicles are quickly
gaining in popularity which can be seen in both the stock prices of
Toyota (TM) and Honda (HMC), the 2 big Japanese automakers leading the
hybrid gas/electric initiative. These cars are an important first step
and add significant fuel efficiencies, but their batteries are charged
by the gasoline engine and only play a minor role in powering the car.
The next step (and profit potential) will come in the form of a plug in
hybrid vehicle generating greater fuel efficiencies than current
hybrids due to the increased role of the battery.
I've tracked down a few speculative plays in the plug in hybrid space
that could move in the next few days. Both companies provide key
components of the soon to be released all electric Sport Utility Truck
[SUT] by Phoenix Motorcars, Inc. UQM Technologies (UQM) a part of the
Powershares Clean Energy Fund (PBW) develops an electric propulsion
system that will produce enough power to accelerate the vehicle from 0
to 60 in 10 seconds with a top speed of 100mph! Altair (ALTI) will
provide the NanoSafe battery pack which can be charged in 10 minutes
and travel 100 mph on a single charge (Phoenix is working on an upgrade
that is expected to increase that to 250 miles). Very impressive
indeed! Phoenix will have far exceeded that government goal of
developing a plug in hybrid that travels 40 miles on a single charge.
Phoenix is a private company but a way to play it is through a purchase
of Altair (ALTI), which now owns a 16.6% stake in the company as part
of their agreement (see more about ALTI below).
Of course much of this could be PR hot air so we'll have to wait and
see. They are expected to sell for about $5K initially but will drop
significantly if the government begins to purchase them. According to
the company it will cost $/per charge. Considering the average sport
utility vehicle needs somewhere around 13 gallons of $/gas to go 250
miles (as, it will be about 13x cheaper to run the electric vehicle...
If you assume the average miles traveled in a year is 15K miles, you
would save approximately $K/year in fuel. Compare a 25K Ford SUV to
the current price of the Phoenix SUV and it would take you 10 years to
make up the difference in fuel cost savings. OK, so clearly not
practical for the average household, but in 2 - 3 years it will begin
to offer huge cost advantages. It will be fun to watch how all this
UQM is seeing some buy interest as indicated by the chart below:
Foster the breakthrough technologies needed to make cellulosic
ethanol cost competitive with corn based ethanol by 2012.
I tend to agree with others that ethanol isn't going to be the long
term answer for decreasing our dependence on foreign oil, but it does
have strong support from both parties (hey it means votes in America's
heartland). In last year's state of the union, Bush targeted the use of
ethanol as an important strategy to decrease the use of oil and this
industry surged as a result. Companies like Pacific Ethanol (PEIX),
Andersons (ANDE), VeraSun (VSE) and MGP (MGPI) should do well again but
I wouldn't expect to see the same kind of run they had last year. This
industry certainly moved yesterday and could spike some more after the
State of the Union. Tonight, Bush is expected to call for a sharp
escalation in the federal mandate on the use of ethanol.
Accelerate progress towards the President's goal of enabling large
numbers of Americans to choose hydrogen fuel cells by 2020.
This technology still has a long ways to go and getting the
infrastructure in place to make it practical for many Americans will
take many years. As I mentioned above, I prefer opportunities in the
hybrid space which is much closer to reality. None of the fuel cell
stocks (see the PBW components above) are anywhere close to profitable
and their charts look awful. I'd stay away from this group for now.
The second part of the initiative focuses on changing the ways we power
our homes and businesses through the use of clean coal technologies,
nuclear energy as well as renewable solar and wind energy. I'll take a
closer look at these industries and the profit opportunities in them in
a future article (the solar plays were mentioned above).
Disclosure: of all the companies mentioned in this piece, I only own a
small position in VeraSun (VSE).