By Timothy Lutts, Chiel Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory 3/1/10 Sign up for free Cabot Wealth Advisory e-newsletter
The real progress in the energy industry lies in solar and wind, where the best companies continue to grow at a rapid pace, despite the fact that the recession has curtailed government subsidies in Spain and Germany, two countries that were previously major supporters.
But that doesn't mean these companies are great investments. Consider
First Solar (FSLR).
Back in 2007, First Solar was our biggest winner and the company is still king of the hill in many ways. In 2009, its revenues grew 66% to top $2 billion. Earnings were $7.53 per share, up 78% from 2008.
And how did FSLR perform in 2009? The stock finished right where it started, at 135. Today it's still in the same neighborhood, and a stock that's going sideways is not attractive to me.
But why does a company growing this fast have a stock that's not going up?
In short, because investors previously expected even faster growth. First Solar's growth is actually decelerating at a rapid rate now. The company has gone from being a Formula One race car (sales grew 273% in 2007) to a BMW 3-Series, and the stock's price is still adjusting to the change. I recommend that you continue to avoid it until investors put the stock in an uptrend again.
And note this: It's not just because First Solar was the leader that it's being held down now. The vast majority of stocks in the solar power industry look even worse, because their businesses are doing less well and because money is leaving the sector.
On my survey of the alternative energy sector, I ran into old friend USEC, Inc. (USU), which operates the only uranium enrichment facility in the U.S. (in Paducah, Kentucky). It's the executive agent for Megatons to Megawatts, the U.S. government's program for converting uranium from Russian warheads into enriched uranium for electric utilities. And it's deploying the American Centrifuge, a next-generation enrichment technology.
But the business isn't growing, and the stock hasn't been in a real uptrend since early 2007. Even President Obama's mention of nuclear power in his State of the Union Address failed to strike a spark. To me, that's reason enough to ignore it.
So which alternative energy stocks do I like? None today. I had high hopes for EnerNOC (ENOC) recently, but the market told me I was wrong. Bottom line, most alternative energy stocks are not attractive today. (When they are, you'll read about it first in Cabot Green Investor, our earth-friendly but still profit-minded publication that is currently winning with some revolutionary new technology stocks.
Click here for more information.)
Timothy LuttsPresident, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.