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Trendspotting: Investing in Green Tech


How to find opportunities in the new energy sector.

See if this rings any bells for you: A company called A123 Systems (AONE) launched its IPO in the fall of 2009. Its shares jumped by more than 50 percent on their first day, even though the company had never made a profit.

Oh, shades of! Oh, get me out of here in a Webvan! Is the next stock bubble going to be a nice shade of green, as in green technology?

Not quite. But that doesn't mean that green technology isn't going to be a major growth industry, with many different parts to it and with companies both new and old as participants.

You may never have heard of A123 Systems, but it's a developer and manufacturer of lithium-ion batteries. The company recently announced it will buy a stake in electric-car maker Fisker Automotive, and it has a deal with Navistar (NAV) to develop a battery for commercial electric vehicles. On its IPO day, the stock priced at $13.50 and shot up to $20.29. Lately it's traded in the $16 range.

It's one of many companies, some already public and some soon to be public, in the rapidly evolving green-technology space. There will be limitless opportunities for individual investors, and as many pitfalls.

But first a little background.

Green technology has been growing in fits and starts for at least 10 years. It's a favorite of venture capitalists with big names and deep pockets, including Bill Gates, Richard Branson, John Doerr, Steve Case, and of course, Al Gore.

Clean energy, which is a big part of green technology, has already had its first little bubble, and it popped in late 2008. You remember the climate: The stock market tanked. Venture capital dried up. Oil prices dropped. The cash just wasn't there to get big expensive wind or solar projects going. The WilderHill Clean Energy Index, which consists of 51 companies, fell 70 percent, compared with the 34 percent decline in the Dow Jones Industrial Average.

That was then. According to the Cleantech Group, a market research firm, clean technologies are now the dominant category in venture capital investing, topping software and biotech. The firm says solar energy startups get the biggest share of the money, followed by transportation, advanced battery makers, and energy-efficiency companies.

This next phase also comes with a whole new attitude in Washington. About $100 billion in grants, loans, and credits for green technology projects is built into the federal stimulus plan.

There's plenty of investor interest out there. You can track prices from day to day on three benchmark stock indexes created by research firm Clean Edge: the NASDAQ Clean Edge Green Energy Index (CELS); the NASDAQ OMX Clean Edge Global Wind Energy Index (QWND), and the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index (QGRD).

Green Stocks

If you're environmentally minded, some of these startups are worth a look.

There's Clean Energy Fuels (CLNE), a natural gas "filling station" company founded by billionaire T. Boone Pickens. Its stock as been rising steadily in the last year, from about $5 to more than $22, but the company still isn't making a profit.

Or EnerNOC (ENOC), a company that works with utilities and companies to improve their management of electrical demand. Its stock has gone from about $13 to about $30 in the past year. It isn't making a profit yet, either.

In green technology, the usual cautions about personal investing can't be overstated: Don't invest money you can't afford to lose. Don't invest unless your time horizon is way in the future.

But there's a third big caveat in green technology: Don't invest in something you don't understand. Sure, they all sound like great ideas, but are you prepared to evaluate the various advanced battery development projects and pick one? Me neither.

(If any further disclaimer is necessary, this writer has no idea whether any individual stock or investment vehicle mentioned in this story will go up or down. You may find them useful as a starting point for further research into this area of investing.)

Mutual Funds

If you stay away from individual stocks, there are plenty of mutual funds that invest in green technology. They're socially responsible funds that invest in the stocks of companies that are environmentally proactive, but they also are looking for companies that they believe will be prominent in green-technology development.

These might not be precisely what you're looking for in your retirement fund, as they tend to be volatile. Winslow Green Growth (WGGFX) was up 49.33 percent in 2009, after dropping 61 percent in 2008. Portfolio 21 (PORTX) was up 31.15 percent in 2009, after declining 35.52 percent in 2008. New Alternatives Fund (NALFX) grew 36.61 percent in 2009 after losing 44.85 percent in 2008.

Old Familiars

A less-risky way of betting on green technology is to invest in the established companies that can benefit from the boom. One big product area to look at is the hardware and software that will run the so-called "smart grid," designed to monitor and maximize energy flow for utilities and their customers.

For example, Panasonic (PC) may be best known in the US for its televisions, but it's now reportedly planning a billion-dollar investment in green home products like energy-use monitors. And General Electric (GE) has heavily funded and promoted its "Ecomagination" project to increase energy efficiency and reduce carbon emissions since 2005.

Barclays Capital estimates that smart-grid spending could grow to $40 billion a year by 2015, from less than $10 billion this year. Potential beneficiaries, according to a recent Barron's report, include the biggest names in software, including Microsoft (MSFT), Cisco (CSCO), Google (GOOG), and IBM (IBM).
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Positions in CSCO and MSFT.
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