A Global Push to Invest Billions in Green Technology
A Stock Pick for Solar, Wind and Hybrid Lovers
Oil and gasoline prices, as you likely have noticed, have been easing lately, even as we're in the midst of what energy industry hands call "the summer driving season," the period in which people tend to drive a lot for vacations and weekend visits and in general give energy traders reasons to bid the prices up. It's hard to believe that one year ago a gallon of gas averaged $4.06 nationally, according to the Energy Information Agency. That was the highest weekly average since 1990--the low being early March 1999, when gas cost a mere 89 cents. Last week, the average price was $2.56, down from the year's high of $2.60 a month earlier.
I bring up gas prices because as editor of the Cabot Green Investor, I have noticed that there is a fairly popular--and false--idea about the correlation between gas prices and Green stocks. The idea is that as the prices of oil products drop, there must be a decrease in interest in hybrid cars, solar panels and the like.
I contend it's false for one simple reason: the daily fluctuations of a commodity aren't going to affect whether someone chooses to go ahead with a capital intensive purchase of a geothermal heating system or an electric car, each of which has a much longer investment horizon than oil futures, which anticipate demand one month out. Yet some people (including more than a few professionals) trade Green stocks each day against the price of oil, surrendering longer-term gains.
I also assert it's a false correlation because buying habits of Green products aren't showing much signs of immediate influence by oil prices. This June, for instance, hybrid car sales were up 9% from June last year, when gasoline prices were 50% higher and the recession had barely begun. And as I mentioned in a prior column, sales of organic foods continue to rise each month, even as overall grocery sales have fallen ever so slightly this year. Another broader measure: Venture capitalist investment in Green companies surged 50% in the second quarter, to $1.2 billion.
There are two factors at play here making oil prices less influential in Green than many people think. For one, there is a recognition that oil's current lower price is a result of the economic crisis and this doesn't alter the long term reality that a rising China and India will further pressure tight world oil supplies.
The second is the more daunting fact that we are at a crucial point; the world must control carbon output or face dire consequences. Here is one telling tidbit from one of the many global warming reports I've read lately. The federal report "Global Climate Change Impacts in the U.S." notes that from 1960 through 1990, there was one day a year that averaged 90 degrees or higher in Boston. By 2040, there likely will be 39 days over 90 degrees and more than 60 days annually by 2070, of which 24 should average over 100 degrees.
Of course this implies more than just a few more sweltering days--with that comes rising sea levels (over three feet is now likely within the century, according to this month's New Scientist), more deadly hurricanes, water shortages and famine. Fortunately, we're seeing people around the world taking action.
In Japan, for instance, the Liberal Democratic Party, which has ruled nearly uninterrupted for 50 years, is looking at near certain defeat in its upcoming election thanks to an unpopular position on greenhouse gas emissions. As the Green blog at http://www.TNR.com points out, the LDP wants to slash Japan's emissions by 15% of 2005 levels by 2020. The people of Japan, the world's fifth most significant greenhouse gas emitter, want more drastic cuts, which the rival Democratic Party of Japan is offering. The DPJ wants a 30% cut as part of a "Green New Deal for Japan."
The term Green New Deal is being uttered in Korea too, coincidently--the South Korean government just announced a plan to invest $85 billion in Green technologies in the next five years. In China last month, the government raised its goal of how much wind energy it wants to generate by 2020 from 20 gigawatts to 120 GW. And I probably don't need to tell you that over $100 billion of February's stimulus package will go toward energy efficiency and Green technologies here in the U.S. The first tranche of that money is starting to make its way into the economy now.
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All of the movement toward renewable energy and slicing carbon output represents a profitable opportunity for investors. One Green stock I particularly like because it has a dominant position in a product that is used in solar and wind power systems as well as hybrid vehicles.
It's Maxwell Technologies, (MXWL) a San Diego company that has a long history of providing R&D services to the U.S. military and NASA.
The product is an ultracapacitor, a handy little electronic device that stores and releases electric energy. The difference between ultracapacitors and batteries is that batteries actually generate power through chemical reactions. Ultracapacitors simply store and release energy electrostatically and thus can be 10 times lighter than batteries and store and distribute energy 10 times more efficiently than batteries without the chemicals that present such as safety and disposal hazard with batteries.
Maxwell markets its ultracaps as Boostcaps, which are the fastest in the business thanks to the patented way they're pieced together.
Ultracaps are ideal for two applications, one of which is wind. Because wind speed varies, turbines have trouble maintaining a steady voltage flow. Ultracapacitors store and discharge energy and help send out more level electrical flows.
Since 2004, Maxwell has sold over two million units to the wind industry, but almost all to one customer, a German turbine company called InterCon. Recently, however, Maxwell purchased a license to InterCon's current-leveling patent so it can sell the ultracapacitors to other customers. Companies in the U.S. and China have since started using Maxwell's licensed offering.
The other application is in hybrid vehicles. Maxwell's Boostcaps are currently used in New York City, Chicago and Long Beach, California, on public buses, capturing energy from braking and then redistributing it to accelerate the buses up to 30 MPH without engaging the combustion engine. The end result is that buses have 90% fewer emissions and are 25% more fuel-efficient.
Companies in China and Germany are now starting to put Maxwell systems in their buses as well. In fact, on April 22, Maxwell received purchase orders from three of China's leading bus producers for Boostcap ultracapacitor modules; by the end of 2009, nearly 1,000 buses should be using Boostcaps. Maxwell has also inked a deal with hybrid truck maker ISE to provide ultracaps for future vehicles and the company is now looking to get into Detroit's next generation of electric and hybrid cars.
Boostcaps are powering Maxwell's results and its stock. Subscribers to Cabot Green Investor learned about Maxwell first, and are enjoying a 40% profit on the position since we added it to our model portfolio in May. We believe there is still plenty of upside to Maxwell and its current price is a good entry point.
Each month in Cabot Green Investor we feature two promising stocks like Maxwell, along with commentary on the outlook for Green stocks in general and access to our Green-Timer, a technical indicator we've developed to help us gauge when to buy into the market. Subscribers also receive weekly updates, special updates when needed, periodic special reports and email access to me for questions and further thoughts on stock picks. I hope you'll consider subscribing and learn to make a profit while improving our world.
For Cabot Wealth Advisory