When you invest in a renewable-energy stock nowadays, the company's prospects are almost a secondary consideration. More so than for any other sector, you have to think first about the big picture. Which way are energy prices headed? (Rising prices: good. Falling prices: bad.) What's in store for U.S. energy policy? Will states ramp up renewable-energy requirements? Will China continue to throw money at green projects like a drunken sailor on shore leave? Will Western Europe renew its green-investing spree?
The uncertainty that triggers those questions may account for the alternative-energy sector's poor performance this year. Year-to-date the WilderHill Clean Energy index, which tracks 54 companies around the world, plunged 18% (figures in this story are as of September 10).
The dismal performance disguises some good news in the sector. Many green companies continue to book higher sales and profits, and their stocks will likely blossom once the financial and regulatory pictures become clearer.
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WATERFURNACE RENEWABLE ENERGY
$25 (WFI.TO)
Business: WaterFurnace, which is based in Indiana but trades on the Toronto Stock Exchange, makes geothermal systems that take advantage of steady temperatures below ground to provide heating and cooling.advantages: Jack Robinson, manager of Winslow Green Growth fund, says the systems are reliable and pay for themselves in a reasonable amount of time, even without the federal government chipping in to pick up 30% of the cost.
Growth story: In the second quarter, WaterFurnace's sales rose 15.5% from the same period a year earlier, although profits fell from 30 cents per share to 27 cents. Earnings should rise from $1.23 per share in 2010 to $1.66 per share in 2011, and sales from $144 million to $165 million. The company pays a quarterly dividend of 22 cents a share (figures in U.S. dollars).
Market value: $300 million
Expected long-term annualized earnings growth: 25%
P/E: 16
CREE
$49 (CREE)
Business: Cree's main product is light-emitting diodes that are used in everything from flashlights to lamps to recessed lighting.
Advantages: LEDs will shine continuously for six years before burning out, and they use 85% less power than incandescent bulbs and half as much as fluorescent bulbs. A 40-watt-equivalent LED bulb costs $20, but with normal use it should last for 46 years.
Growth story: The boom in LEDs is lighting up Cree's results. In Cree's fourth fiscal quarter, which ended June 27, sales rose 79%, to $265 million, from the same quarter a year earlier, and profits zoomed 445%, to $52.8 million. Analysts estimate that Cree will earn $2.41 a share in the fiscal year that ends June 2011, up 41% from the previous year. They expect sales of $1.2 billion.
Market value: $5.3 billion
Expected long-term annualized earnings growth: 25%
P/E: 20
FIRST SOLAR
$138 (FSLR)
Business: First Solar leads the world in the manufacture of solar photovoltaic modules, which are used to turn sunlight into electricity.advantages: Its thin-film modules aren't as efficient as some other solar technologies, but they're cheap and versatile. As demand for PV cells booms, First Solar is expanding its business in Europe and is even opening a plant in China.
Growth story: Analysts had predicted earnings of $1.60 per share and revenues of about $543 million for the second quarter -- estimates that First Solar trounced, with earnings of $1.84 per share and sales of $588 million. Analysts expect annual revenues of $2.6 billion in 2010, jumping to $3.6 billion in 2011, and they expect earnings to rise from $7.38 per share in 2010 to $8.17 in 2011.
Market value: $11.8 billion
Expected long-term annualized earnings growth: 25%
P/E: 20
AMERICAN SUPERCONDUCTOR
$29 (AMSC)
Business: American Superconductor makes electrical systems for wind farms and turbines, as well as wires that transport electricity over long distances with little loss of power.
Advantages: Building massive wind farms comes with a big problem: You lose a lot of electricity transporting that power to population centers. American Superconductor's superconducting wire helps reduce the amount of loss. The company could reap enormous revenues by supplying its products to Chinese, South Korean and U.S. grid projects.
Growth story: Analysts are looking for revenues to rise 36%, to $431 million for the fiscal year that ends next March. They expect earnings to climb 553%, to $1.24 per share, in the current fiscal year and to $1.64 per share in the March 2012 year.
Market value: $1.3 billion
Expected long-term annualized earnings growth: 20%
P/E: 22
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