Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Clean Energy May Have Finally Bottomed, Putting It on the Verge of Outperformance

By

After a tough three years, recent changes to government policy could turn the sector around and provide a big opportunity ahead.

PrintPRINT
Difficulties mastered are opportunities won.
-- Winston Churchill

Alternative energy has been a heartbreaking industry to invest in over the years despite some incredible breakthroughs. The fundamental problem has to do with high costs to produce such energy, coupled with oil prices which, though high, are not at levels which make solar, wind, biofuels, etc., comparatively competitive.

Many companies in this space are heavily reliant on government subsidies. As solar producers know in Europe, that can be both a blessing and a curse depending on whether the period is one of growth or austerity.

Here in the US, subsidies for many forms of alternative energy are in the process of being phased out and replaced. Proposals are now coming out to restructure how to best get the industry to stand on its own two feet, centered around providing more targeted approaches to incentivize companies to be more cost competitive. The timing of this is interesting given that it looks like a bottom may be forming in alternative energy.

Take a look below at the price ratio of the PowerShares WilderHill Clean Energy Portfolio ETF (PBW) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/PowerShares WilderHill Clean Energy Portfolio ETF is outperforming (up more/down less) the denominator/S&P 500.



Weakness has been both long and severe relative to the broader stock market over the past three years; however, notice the far right of the chart. It does appear that a ratio bottom may be forming, coinciding with changes to government policy towards the sector. Could alternative energy now be on the verge of a true cyclical period of outperformance? There is an argument to be made that the combination of changes to policy here in the US and cuts in subsidies by Europe to solar and wind companies may cause the weak to falter and force more competitiveness into the industry, which in turn would make prices cheaper and more attractive to oil itself. Time will tell, of course, but I do think a big opportunity could present itself in the space sooner rather than later.

Twitter: @pensionpartners
< Previous
  • 1
Next >
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE