How to cash in on the renewable energy boom

[jreelawg]

I figure that a lot of wind turbines are going to be produced, and the company's who produce them will get funding from the government. Is it a good idea to buy stock in whoever gets the biggest renewable energy contracts? I guess right now, most wind turbine makers are foreign, but they won't qualify for subsidies. You could assume that American companies will reap a benefit for the subsidies and increased demand, and so their stocks will go up. Anyone have an eye on any potential renewable energy investments?

 

[CRGreathouse]

Ah, rent seeking.

 

[russ_watters]

GE makes wind turbines, but they are a huge company so I'm not sure how much that will actually affect them. In principle, your reasoning is sound, though.

 

[Ivan Seeking]

The nice thing about wind turbines is that it doesn't make economic sense to import them - the shipping costs are too high. [Note: This was claimed to be true in a fairly recent news report, I think on PBS, about various alternative technologies.]

As for automakers, unfortunately the Chinese company BYD appears to be a serious player. Not good news for the US or Japan.
http://www.businessweek.com/magazine/content/08_03/b4067064367712.htm

 

[The Dagda]

In UK companies yes definitely since we're looking to meet something like a 20% energy provided by wind farm quota. However like any business investment there's no such thing as a free lunch, unless you're insider dealing.

The UK is uniquely windy and surrounded by coastline and thus has ideal areas to plant wind farms. In general I suspect alternative energy companies stock will rise in most countries, but who knows? is it really wise to buy stock in a world recession, unless you're looking long term?

 

[russ_watters]

is it really wise to buy stock in a world recession, unless you're looking long term?

Well, that's kinda redundant: there are only really two reasons to buy stock (3 if you count becoming an owner of a company...), one is daytrading and the other is investing. Investing is, by definition, a long term thing, so the answer is yes: The middle of a recession is, of course, the best time to buy stock for any reason other than daytrading.

 

[Ivan Seeking]

Well, that's kinda redundant: there are only really two reasons to buy stock (3 if you count becoming an owner of a company...), one is daytrading and the other is investing. Investing is, by definition, a long term thing, so the answer is yes: The middle of a recession is, of course, the best time to buy stock for any reason other than daytrading.

The hard part is picking the winners and losers. The same is true of cutting-edge alternative energy technologies. Also, how much risk do you wish to take and at what level in the market? Investing in GE is probably a reasonably safe bet - it will return a respectable profit with a relatively low risk. But if we are talking about something like biodiesel, for example, would you invest in Sequential BioFuels - a relatively small company that could yield a high ROI as compared to a big player, like BP? You might well make your killing when someone like BP buys Sequential Biofuels! Would you invest in soybean dependent biofuels companies, those working on microbe/biomass solutions, or those trying to develop algae based system? If you chose biodiesel as the best option for a fuel source, and algae as the best prospect for a biodiesel source, then which algae company do you think has the greatest chance of success? There are at least dozens of different approaches to producing biodiesel from algae. And before you write the check... do you really want to invest in a company that has no history?

 

[Ivan Seeking]

Just FYI, I mention algae because that is an area of personal interest for me.

There is another aspect of this that seems worth mentioning. In the case of algae, one might look for the company that solves a particular problem in the process. For example, centrifuges are often used to separate the microalgae and water. Being that the algae can be as small as 5 microns, among other things, the centrifuges tend to plug. The company that solves this problem could essentially own that aspect of the algae to biodiesel process and sell $billions in centrifuges. Beyond that, there are about a half dozen other approaches used for separating the algae/water - each having its own problems. Another hot area of pursuit is the bioreactor design. And in the case of bioreactors we find many wild claims intended to attract investors, that simply can't be true.

 

[The Dagda]

Well, that's kinda redundant: there are only really two reasons to buy stock (3 if you count becoming an owner of a company...), one is daytrading and the other is investing. Investing is, by definition, a long term thing, so the answer is yes: The middle of a recession is, of course, the best time to buy stock for any reason other than daytrading.

Depends how long the recession is going to last, you might not see a return on any investment for 10 years. Just how long term is this investment?

 

[John Creighto]

I'd be hesitant to invest in bio fuels. Looking at the size of some of the dead zones in the ocean, farming to me seems to be one of the most polluting industries. Additionally, the current methods tend to use food for fuel which undesirably drives up the price of fuel.

 

[mheslep]

I'd be hesitant to invest in bio fuels. Looking at the size of some of the dead zones in the ocean, farming to me seems to be one of the most polluting industries. Additionally, the current methods tend to use food for fuel which undesirably drives up the price of fuel.

There are alternatives to food crop based biofuels.
slide 39:
http://www.lbl.gov/Publications/Director/assets/docs/AAAS_Keynote_B.pdf

 

[Ivan Seeking]

There are alternatives to food crop based biofuels.

I would go one step further and say that anyone in the know about alternative fuels realizes that food crops for fuel are already a dead proposition. The yields per acre-year are too low. But until we see some definitive options, food crops will be used.

Also, algae crops might actually be used to remediate some of the problems caused by food farmers.

 

[russ_watters]

Depends how long the recession is going to last, you might not see a return on any investment for 10 years. Just how long term is this investment?

In order for it to be considered a long term invextment (by definition in tax law), you have to hold it for at least a year, so that's the lower bound I put on it.

Anyway, you really misunderstand how the economic cycle works. The stock market is already down 40% since it's last mini peak in June of last year. It may not be at the absolute bottom right now, but the odds of it going much lower and taking more than a couple of years to see a major gain are exceedingly small (and by that I mean it's never happened before - not even in the great depression). The stock market is a leading indicator. It started to drop at the end of September in anticipation of a deep recession that really got going in Q4 of last year and is expected to be about the same in Q1 of this year (which is why the market has basically leveled off).

To put it more succinctly: if you look back in history, the beginning of a recession is almost always the very best buying opportunity. Given that this recession is likely to be the worst we've seen since the early 1980s recession, right now is the best time to buy stock that we've had in 25 years. Or, to your point, that we may see zero return for ten years, it has ever happened from this point in an economic downturn.

Have a look at google finance for some examples: http://finance.google.com/finance?q=INDEXSP:.INX
And compare it to the list of recessions: http://www.nber.org/cycles.html

Our last "real" recession (imo) was the 1990-1991 recession. The stock market had peaked in July of 1990, the month the recession was dated to start, hit a trough in October, as the recession started its 2nd quarter (exactly where we are now), and was up 25% over the next year. For 10 years...well...that puts us from one trough to the next peak, a rise of 550%.

We had back-to-back recessions starting in Jan of 1980 to November of 1982. The low point of the market was March of 1980, though the double-dip nature of the recession meant that the second dip was nearly as deep as the first - but it did not quite get down that level for the second dip in 1982 (it was close - only 3% higher).

The pattern also holds for the 1973-75 recession.

Rule #1 of investing is buy low, sell high. If the market has dropped a lot from it's peak, that means it is low...

 

[The Dagda]

I don't misunderstand how it works, but the definition of long term is appreciated.

If you ask me the tech itself is what's apt, not the stock market as a whole. But if you can predict it well, then please pm me with all the envirotech companies that are going to make me profit.

 

[Ivan Seeking]

If you ask me the tech itself is what's apt, not the stock market as a whole. But if you can predict it well, then please pm me with all the envirotech companies that are going to make me profit.

Correct. There is no way to get the protection of index funds in an emerging industry. What's more, one can assume that most renewable-energy companies will fail.

Something else to consider is that the credit crisis has still not been resolved and is in large part what's driving the recession. This isn't just an economic cycle; it is a failure of the national and global finance system. This can have a large impact of cash-needy emerging industries.

 

[russ_watters]

If you ask me the tech itself is what's apt, not the stock market as a whole. But if you can predict it well, then please pm me with all the envirotech companies that are going to make me profit.

I never said I could pick individual stocks. I just meant as a general principle, the middle of a recession is as good as it gets for buying. Right now, I don't own any individual stocks anyway - I only have an S&P index fund for my retirement accounts. That's really the recommended investment for anyone who isn't spending hours a day studying stocks.

 

[russ_watters]

Something else to consider is that the credit crisis has still not been resolved and is in large part what's driving the recession. This isn't just an economic cycle; it is a failure of the national and global finance system. This can have a large impact of cash-needy emerging industries.

True, but due to the stimulus package, alternate energy is going to get a direct influx of cash, so that kinda circumvents the recession for them.

 

[DrClapeyron]

It's a land grab and it works on both ends. If you are an oil company you say 'we need land to drill, we need land because we are too dependent on foreign oil' or if you are an alternatives entrepreneur you say 'we need land to build turbines/solar panels, we need land because we are too dependent on foreign oil'. Then what happens? The general public either looks the other way, does not care or does not know about the huge land grab in which these companies petition (lobby) congress to sell them federal land on the cheap! Cha-ching, now go out and get a huge loan from this aquisition by having it appraised at its true value, and all the meanwhile you pay minimum property tax and receive possible tax breaks! Stimulate the economy!

 

[Unknown_9999]

start up and compete with them.