 |
'Green'
Investing for Non-Speculators |
|
About
three years ago, the Micro Cap Press began covering the growth opportunities
in a handful of green-energy industries. Though speculative, the demand
was indeed there for companies that could meet it (1) quickly, and (2)
cost-effectively. Company size wasn't a factor - technological know-how
was
the determinant of success.
 Of
course, when the economy implodes and capital funding dries up, then size
DOES
become an issue, and the ugly side of 'speculative' rears its head.
That reality
in 2008 and 2009 didn't take long to expose how so many green-energy corporations
- most of them small or tiny - were either under-funded, or not
self-sustaining. Some are no longer around, but even many of the ones that
are appear to be coin tosses to investors.
Funny thing
though.... the idea that investing in green energy trends has to be a risky
speculation is more of a psychological construct than a market reality.
Oh, the cutting edge stuff still means risk, but there are tons of these
companies that are not only low-risk, but even profitable.
Not that it's
a complete list, but here are some names of low-risk, profitable companies
for a few of the major green-energy arenas. We'll look at winners from
other green-energy initiatives at a later date.
A smart grid
isn't an alternative energy source in itself, but rather is a way of better
managing current energy resources.
 A
power grid is simply a way of rerouting or lowering electricity transmissions
to use only what's needed. The term 'grid' has a fairly wide scope though,
meaning anything that controls power for something as large as a city,
or as small as a building. And, the need for better conservation of power
has made this arena a big business.
PowerSecure
International (POWR)
isn't exactly a household name, but the company may be managing your household's
power consumption sooner than later. While small in size, PowerSecure International
builds grid solutions for big entities....as big as utility companies and
power producers.
Though the $133
million market-cap company only earned $2.1 million over the last twelve
months - about 12 cents per share - it only took a loss in one quarter.
The company is expected to earn $0.39 per share in 2010, translating into
a projected P/E of 19.8. And, considering PowerSecure International has
topped estimates in each of its prior four quarters, that forecasted EPS
may still be too low.
Yes, solar power
was largely founded on subsidies, and those subsidies are slowly drying
up (particularly in Germany and Spain). That will hurt to be sure.
But, knowing the market seems to 'find a way', with or without subsidies,
at least some of these companies - mostly photovoltaic and thin-film/CIGS
cell manufacturers - will be able to offer a product that's still cost-effective.
 Point
being, merely being profitable in the solar industry isn't enough to be
investment-worthy right now. A company needs to be profitable enough to
stand on its own, which in many ways rests on the cost-effectiveness
and unsubsidized demand of its equipment or product.
With that in
mind, one of the lower-risk ways to play solar power isn't by diving
into a panel maker, but rather, a supplier to the panel makers.
STR
Holdings (STRI)
is
one such company; it designs and now sells an encapsulate that protects
a solar cell of any kind from the harmful effects of weather.
As a recent
IPO (it went public in December), there's not always a lot of readily-available
fiscal history to be found for STR Holdings. Having dug deeper though,
you'll find the company is on pace to earn $0.77 per share for all of 2009,
thanks to an expected EPS of $0.22 for Q4 of 2009. Analysts foresee an
EPS of $0.92 in 2010.... which is more than plausible.
The coolest
part about STR Holdings, however, is that its encapsulate works for
traditional photovoltaic cells as well as thin-film panels. Investors
can win with STRI no matter which side wins the PV/CIGS war.
A couple of
years ago, 'biofuels' was almost synonymous with 'corn-based ethanol'.
Now - thanks to serious advances in enzyme and other technologies -
ethanol can be made from lots of plants and algae, and can be converted
into several kinds of liquid fuel, including diesel.
 On
the flipside, being one of the newest and most-undeveloped green energy
efforts, biofuels is also one of the least profitable green energy arenas.
They're out there though.... if you know where to look.
As STR Holdings
was to the solar power industry, Fuel Systems Solutions Inc. (FSYS)
is
to the biofuels industry. The company manufactures and sells alternative
energy engines and power-generation components. And, it seems to be a profitable
industry to be in (more profitable than alternative energy fuel processing
is, anyway), as incentives, tax breaks, and cheaper operating costs
all push us away from petroleum usage..
Fuel Systems
Solutions boasts a trailing-twelve-month P/E of 14.7, and a forward-looking
(2010) P/E of 11.5. The company has been profitable for a while, and topped
estimates in each of its last four quarters too... proof that demand is
starting to outpace supply. Why so much of the focus to date has been in
how to create ethanol as opposed to how to use it more (and better),
we'll never know. That's not this company's problem though - Fuel Systems
Solutions is just filling a need that few other players seem interested
in filling.
Yes, eventually
the biofuel hardware market will be saturated, but that could be years
if
not decades down the road. In the meantime, the growth opportunity
of biofuels is also a growth opportunity for equipment and engine makers
like FSYS - 2010's expected EPS is $2.06, and 2011's is $2.37. The stock's
been beaten down pretty badly too, so now may be an ideal entry level.
Those clearly
aren't the only green energy arenas, but it'll be enough for today....
enough to demonstrate that 'green' investing doesn't have to mean ridiculous
risk. In fact, the green investing craze is totally legitimate;
you just have to decide where on the risk/reward scale you want to play.
Ironically though, so far, the lower-risk holdings have served up
the bigger rewards.
Next time, we'll
look at profitable companies from the wind power, recycling, and electric
car industries.
|
Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
