Green Tech and Solar Stocks
If it wasn’t already, its official: green tech and solar stocks are going to be the next big thing for the US stock markets. With so much federal cash flowing into energy reduction/conservation, and key players hopping on board, the new wave in energy is looking like it may be the next investment bubble too.
Big Names on the Green Movement
Big names have already stepped up to the plate to push the green technology sector to becoming a household reality. Yesterday, George Soros, famed investor and political activist, announced the investment of as much as $1 Billion in green technology. With the announcement also came the pledge of $10 million for a not-for-profit initiative that would work to move government and society into green energy solutions.
The Typical Cycle of Business
New and innovative products do not come inexpensively. In the beginnings of a new technological shift, two things can happen. Either the system can be adopted at cost by emotionally invested consumers, or the early costs can be subsidized by government, giving the new product an economic advantage.
Think back to the first solar panel systems designed for home use. They were expensive, ugly, and not a single person bought them thinking they’d make money with it. The solar panel was a political product, not one of any meaning or cost benefit. However, as more and more activists placed their orders and installed the first panels, the price dropped, slowly making them more economical.
Though today solar panels are hardly economical (earning 3-4% per year on the investment) they are slightly advantageous from an economic perspective while extremely advantageous from a “social cost” standpoint.
Government Subsidies Will Drive Eco-Tech
New subsidies meant to make solar panels and eco-friendly products more economically sound will drive the business into the mainstream. Though most American households are still using coal, oil, and natural gas for their source of energy, many more would opt for green energy products IF the products were cost effective. To be cost effective, however, they shouldn’t pay for themselves in 10 years, they need to pay for themselves in 5 years. Tax credits and new taxes on coal use would do that.
Investing Wisely
The beauty of bubbles is that they don’t require any selection. Typically, the whole industry rises at nearly the same rate, however there are a few things we can be choosy about. I personally favor the PowerShares WilderHill Clean Energy Portfolio (PBW) as an attractive investment due to its large holdings of small cap stocks –those that are most likely to appreciate faster in a bubble. A PE ratio of 22 is especially rewarding, especially for an emerging technology, and I think there is room for growth even if earnings remain the same.
