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Is Green the New Gold?

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Evaluating the alternative energy sector.

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Unless you've been holed up in a cave somewhere, you're probably aware that oil prices have been going through the roof: A barrel of black gold closed north of $136 in Tuesday's trading. Not surprisingly, many investors have been flocking to alternative energy and solar stocks with the the expectation that businesses and consumers may soon be clamoring for all things green.

Some of the big winners of late include First Solar (FSLR), which sells solar power modules, and SunPower (SPWR), which manufactures solar cells, panels and the like. For those keeping score, First Solar's stock has soared from around $30 to around $250 since the beginning of 2007. SunPower's shares have moved from the mid-$30 level to the mid-$70 level in the same period.

But are these and other tree huggers really the best play right now?

First, consumers and companies (particularly large ones) aren't typically given to overnight change. Widespread acceptance of what is still by and large perceived as a newfangled technology could take some time.

Second, there's the initial outlay to acquire panels and other gadgetry necessary to harness the power of sunlight. Outfitting a home with all the bells and whistles can literally run well into the thousands. And given the high cost of food and gas (which we still need), many families don't seem to have that kind of dough to plunk down these days.

Third, it generally takes a while for the individual or business to break even on their investment, and frankly consumers in this country aren't known for their patience or ability to think long term.

Fourth, there's the issue of valuation. Some perspective: First Solar earned about $158.4 million in 2007, yet the company sports a market cap of almost $20.2 billion. Meanwhile, SunPower generated a whopping $9.2 million in net income in 2007 with a roughly $6.2 billion market cap. Seeing this, legendary value investor Ben Graham is no doubt turning in his grave right now.

On the flip side, one could make the case that automakers are a good play. After all, some have valuable assets on their balance sheets (cash and property) and expectations for the sector are low. They're also slowly but surely -- as opposed to full force -- going green.

General Motors (GM), for example, which has its share of gas guzzlers, has already worked a hybrid Tahoe and Yukon into its repertoire. And Toyota (TM) just announced plans to add two new hybrids (one Toyota, one Lexus) to its lineup.

Look, going green is a great idea, but it takes time and money to make it happen. And while consumers and companies may have plenty of the former, right now it's the latter they seem to be lacking. Coupled with the lofty valuations we're seeing in alternative energy stocks, it makes me wonder it it's too late to jump on the bandwagon.

For more on energy, check out Hoofy & Boo's always astute report:

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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