Progressive Investor Sample Article
Market Commentary; Zongshen PEM Profile; Green Building Update
Issue 54: May 2008
Stock Market Corrections Are Like a Gift Basket
by Sam Jones
Stock market corrections are like a gift basket - a rich basket of temporary discounts and an opportunity to learn about the character of our investment focus. Renewable energy stock prices over the last 5 months have provided an education to say the least. In retrospect, we've been given an opportunity to understand which stocks and industry groups are our clear leaders, which should be kept on the "avoid" list, as well as identify a few candidates that might qualify as good bottom fishing.
As a reminder, I'm writing this column from an investor perspective. Too many blogs and feeds pump up this or that stock, but how much of that information is practical for people trying to make (and keep) money in the renewable energy/ clean tech world? As an investor and professional money manager, I want to generate a return in this sector in a relatively smooth, painless way. So how do we invest in this cyclone of a sector without experiencing our own Myanmar?
Remember, the Long Term Trend is Still Up
Although cleantech exchange traded funds (ETFs) have been around for only three years, I use them to identify overall sector trends. The trend in for renewable energy is still strongly up despite the recent first quarter carnage (down over 35% on average). As a whole, the sector has an annual return of 17% through the middle of May, 2008. In 2007, the PowerShares Clean Energy ETF (PBW) finished the year up 59% vs the S&P 500 3.53%.
Therefore, our job is to stay diligent in our objectives and our commitment to this sector by staying invested in the leading securities. Rather than attempting to time the sector by raising cash and guessing what will happen next, the smart money recognizes the long term uptrend and accepts volatility as a cost of participation.
Follow the Leaders
Unfortunately, leadership in green sectors is still fairly dynamic. Last year's winners are thus far this year's losers in many industry groups. Solar is a good example. Big names like Sun Power (SPWR), Evergreen Solar (ESLR), Suntech Power (STP) and Gaiam (GAIA) made 140-250% in 2007. They are the hardest hit this year, down 40-50%. Now that their stock prices have come down to earth, some are attractive again, but there's also a new list of leaders that deserve our attention.
Many of the new leaders can be categorized as industrials. They say - in a gold rush, sell shovels. In our field that points to companies like Capstone Turbine (CPST), Xide Technology (XIDE), Energy Conversion Devices (ENER), and even our old friend Fuel Cell (FCEL) - all showing excellent gains this year with heavy buying volumes. They provide the necessary technologies that facilitate the integration of renewable energy to the grid. In full disclosure, we own all of them in our "New Power" portfolio.
First Solar (FSLR) and several other solar companies are showing good leadership, but solar has become too popular for my liking since big media like CNBC started running stories on "Making Money in Solar". You can play solar with lower risk through the new Powershares Solar ETF (TAN). Recycling stocks like Schnitzer Steel (SCHN) and Sims Group (SMS) are also showing leadership. By the way, for those who had ethical objections to our Nuclear ETF (NLR) holding, you'll be happy to know I recently sold it - at a 23% gain.
Bottom Fishing
After persistent selling over the last two quarters, you might consider engaging in some bottom fishing. Sometimes, it's worth taking a chance on a lunker even before you see a new uptrend emerging. Keep bottom fishing positions very small - add to holdings only as the company rewards us on the upside.
I look for companies that are pure plays in their industries with relatively little competition for investor dollars and that trade at a deep discount. Gaiam (GAIA) is a risky buy at the moment but it is one of the few retail success stories. GAIAM is a solid company which has been artificially torn down because of its large stake in the failed Real Goods Solar (RSOL) IPO. Now that both stocks have been hammered in recent months, I look at buying GAIAM as a two for one opportunity.
It's also safe to start nibbling back into UltraLife Batteries (ULBI). They offer one of the few ways to invest in energy storage, which is and will be a big theme going forward. An alternative to ULBI, which is down 50% YTD, is Valence Technologies (VLNC), which is up 97% YTD. Since I believe in buying low and selling high, ULBI looks good at this level.
Finally, I like healthy living stock United Natural Foods (UNFI), whose price has fallen over 45% since its last major peak in 2006. Natural foods distributors are here to stay - I see this company as a long term player.
Shameless Cheerleading
NEW YORK (MarketWatch) -- Exxon Mobil Corp. cut funding to groups raising questions about climate change from human-generated carbon dioxide, May 28th, 2008.
I chuckled when I read this quote, which represents Exxon Mobile's feeble attempt to pretend they are pursuing alternative energy research. Its stock price - which has been stuck around $90 for almost 12 months, while the price of oil has risen 92% - speaks volumes to me. This is good news for the good guys (renewables). When oil prices finally give up this silly speculative frenzy and the prices of solar, wind, geothermal, and energy efficiency stocks continue to rise exponentially, we are going to witness a great awakening by Wall Street. They'll say, "My gosh, I guess this trend is real after all."
My message is to hold the line through volatility, dissent and despair. Renewable energy is a new and very profitable industry for the world, like technology was in the 80's. And like tech, there were many times when even the lion-hearted felt a bit weak but were ultimately rewarded for their bravery in 1000's of percent returns. Smile at the sun and feel the power of a bright future on your face.
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Sam Jones is Senior Portfolio Manager of the New Power Fund.
