Fighting Pollution And Cleaning Up, TooKate Murphy
Scientists have long warned about the dire consequences of greenhouse gases. The threat they pose helped prompt the recent signing of an agreement in Kyoto, Japan, to reduce worldwide emissions of carbon dioxide and other pollutants thought to be responsible for overheating the earth's atmosphere. This is good news for the environment--as well as for investors in companies dedicated to clean, renewable sources of energy.
To comply with the long-term emissions reductions called for in the treaty, countries will have to turn away from oil and coal, and rely more on the sun and wind for energy. Allan Hoffman, deputy assistant secretary for utility technologies at the Energy Dept., expects demand for clean energy to go up dramatically, boosting worldwide annual sales of energy from renewable sources way beyond the current figure of more than $30 billion.
WIND BUSINESS. The new demand should benefit major oil and gas companies with large commitments to alternative fuels, as well as small energy specialists. For example, Houston-based Enron, a large natural-gas marketer, established a division in 1994 to enter the solar and wind businesses. Enron now holds three of the world's largest wind-energy contracts--two in Minnesota and one in Iowa--and is the leading maker of modules that produce solar power. Carol Coale, senior natural-gas analyst at Prudential Securities, likes Enron for its "forward-looking strategies" and expects the stock to outperform its industry group with total returns of at least 15% a year.
If you're looking for smaller companies that concentrate more exclusively on renewable energy, consider Spire. The Bedford (Mass.) company is the world's leading producer of equipment used to manufacture solar panels, also called photovoltaic modules. The company reported a profit of almost $1.6 million for the nine months ending Sept. 30, vs. a $712,000 loss for the same period in 1996, as net sales jumped 36%. The good news sent its stock price from a low of 2 1/4 last February to 14 on Jan. 5. With worldwide demand for photovoltaic modules projected to grow 25% to 50% a year through 2002, Spire's prospects look sunny. The market is especially hot in developing countries such as China.
Sun and wind aren't the only renewable power sources. Geothermal energy producers tap layers of hot rock between the earth's crust and core to produce electricity. The leader in the field is CalEnergy, based in Omaha. For the nine months ended Sept. 30, CalEnergy's revenue increased 326%, and net income climbed 47%--or $1.59 per share--from the same period last year. The company attributes its performance to strong existing plant operations and earnings from geothermal projects in the Philippines, among other factors.
In addition to promoting cleaner electric power, the global-warming accord should boost development of electric cars. If you have an appetite for risk, check out Energy Conversion Devices. The Troy (Mich.) company makes rechargeable nickel-metal-hydride batteries for electric vehicles that offer about twice the driving range from a charge as conventional lead-acid cells. It boasts General Motors, Hyundai, and Honda as customers or licensees. ECD also manufactures solar panels incorporated into everything from roofing shingles to space stations.
But high research and development costs, plus legal fees from defending patents, pushed the company to a loss of $4.3 million for its fiscal first quarter ended Sept. 30. J. Peter Lynch, a solar energy specialist with the Salem Financial consulting firm in South Salem, N.Y., thinks "it's a company to watch because of its interesting technologies." But, he adds, "proceed with caution."
DAIMLER DEAL. Some companies are looking at fuel cells for powering autos. Fuel cells chemically rearrange gasoline molecules without combustion to produce electricity. A leader in this emission-free process is Ballard Power Systems in Canada. Ballard sealed a $325 million deal with Daimler Benz last August to develop fuel cell systems. The stock has performed well on the promise of future earnings, even though Ballard hasn't made a profit in its 17 years in business. Its share price increased 280% in 1997 to 76 1/8. The company says it expects to be in the black by 2001.
Although the financial impact of the Kyoto accord has yet to be determined, "global warming means the market for renewables and clean energy can only go up," says Paul Hesse, senior technical specialist with the Energy Efficiency & Renewable Energy Clearinghouse in McLean, Va. If so, you may be well off with stocks that can heat up as the global warming fight intensifies.