The National Petroleum Council, a U.S. government advisory body, says existing supplies of oil and natural gas may not meet soaring global demand over the next 25 years. A shortfall could be a windfall for companies that can supply cheaper alternatives to fossil fuels.
||Five Green Up-And-Comers|
||Green Investing is the Next Big Thing|
Meanwhile, the focus on global warming promises to lead to greater regulation of greenhouse-gas emissions. Already, the European Union has instituted a quota for carbon emissions in response to the Kyoto Protocol, a global treaty that went into effect in 2005. The U.S. did not sign the treaty, but a number of states are acting on their own to limit these pollutants. In addition, Congress passed an energy bill in 2005 that offers subsidies for various new energy technologies, and it is considering another bill this year.
Clearly, these trends will produce stock-market winners and losers, but not all of them are obvious. Makers of wind turbines and biofuels will surely benefit. But so will makers of rail cars and auto-emissions controls.
We've sifted through the implications and put together the Kiplinger Green 25, a list of companies we believe will get a big boost from the growing focus on climate change and the move toward alternative fuels. Our picks vary widely in size, and four are based overseas. Some of the stocks may be expensive, and shares of some of the smaller companies may be volatile. But we think all will do well over the long term. In addition, check out our separate profiles of five up-and-comers -- small (with market values of less than $1 billion), more-speculative companies that someday could grow into green giants.
One obvious solution to the global energy crunch is simply to use less energy. Companies that can help us become more energy-efficient will find their products and services in great demand. Switzerland-based ABB is expected to produce annual earnings gains of 25% over the next few years, largely because of strong sales of power-transmission equipment that reduces energy losses between power plant and end-user, and industrial-automation equipment, such as high-efficiency motors and robotics. The power-transmission business, which accounts for half of ABB's sales, should be particularly strong as emerging countries add new infrastructure and as developed nations, such as the U.S., replace aging, outage-prone systems.
A dense thicket of environmental laws and regulations has grown to cover such obvious targets as producers of chemicals and hazardous wastes. The rules now also apply to businesses as varied as commercial real estate developers, biotechnology firms, utilities, railroads and even schools (which may store potentially hazardous materials on campus). AIG, the giant insurer, has been writing policies that protect businesses against environmental claims since the early 1980s. Such policies represented about 3% of the $31 billion in premiums from AIG's U.S. property-and-casualty business last year. But as efforts to curb greenhouse gases grow, businesses will need protection against new types of liabilities that will surely arise. AIG is also a leader in writing insurance that protects participants in the nascent global market for trading carbon credits.
This 78-year-old company is getting a makeover. American Standard spun off its vehicle-control division this summer and will finalize the sale of its bath-and-kitchen business this fall. That will allow the Piscataway, N.J., company to focus on its most lucrative division, which makes heating, ventilation and air-conditioning (HVAC) systems. Selling principally under the Trane brand, American Standard is a leader in energy-efficient air-conditioning and climate-control systems. This will be a hot industry because buildings account for one-third of global energy demand. Any solution to greenhouse-gas emissions must include drastic reductions in energy demand from office buildings, residential towers and other large structures. Warren Buffett appears to like what he sees in the new American Standard; his Berkshire Hathaway has become one of the company's biggest shareholders.
First, this important Silicon Valley technology company overcame stiff Japanese competition to emerge as the world's largest producer of capital equipment for makers of semiconductors, with $10 billion in annual revenues. Then it applied that prowess to make equipment used to manufacture LCD flat-panel displays, a process that requires similar technology. Now, Applied, based in Santa Clara, Cal., is making a strong bid to be the leading manufacturer of equipment needed to produce photovoltaic cells and film -- another process technically akin to making semiconductors. With 85% of revenues generated outside the U.S., Applied, which also makes the tools to fabricate energy-efficient glass, has the world covered.