Go Where the Growth Is

 
The Oil Spill Scares Off Snowbirds

Fantastic Growth Projections for Green Stocks

Our Track Record: Go Where the Performance Is

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My in-laws just returned from Florida, where they had been searching for a second home to be their base as they transition into being snowbirds during their soon-to-come retirement. The Gulf Coast town of Tarpon Springs served as their favored target. It’s a historic town founded by Greek sponge divers, and consequently has a good main street with more than one excellent Greek restaurant, making it one of my favorite Florida towns.  

While no oil from the Deepwater Horizon has hit its shores, the bed and breakfast they were staying at was empty but for them--the owner told them she had $10,000 lost in canceled reservations due to oil fears. And, in part, it’s that oil that made my in-laws decide their future home lay elsewhere: They’re not afraid of the oil, but of what fear of the oil may do to Tarpon Springs. So they just bid on a home outside Orlando, well away from the coast.

The economic hardship all along the Gulf is just one of the many things the gushing wellhead has me worried about. Certainly, BP’s ineptitude in running the well is one, and the federal government’s inaction is another. But the main fear is the environmental toll this disaster is only starting to wreak.

It is nearly assured this disaster will beat out the worst oil spill ever: The eight million gallons the Iraqi army dumped into the Persian Gulf while retreating from Kuwait.  It’s clear too that many Americans are worried about it, with a recent Gallup poll finding 55% of Americans now favor protecting the environment over limiting fossil fuel energy supplies, while 39% say the opposite.

Another, less publicized event happened again this month--the National Oceanic and Atmospheric Agency announced that the first five months of the year are the hottest on record. That beats out 2009, which was the hottest on record at the time according to NOAA, which tracks the average global temperature. Almost assuredly, this month will ensure the first six months of 2010 are the hottest on record too.

Scream and shout otherwise (as undoubtedly a few of you will in emails), but global warming is a fact. And, as the climate models have predicted, our weather is changing. It’s raining more--and more intensely--in the Northeast, raining less in the Southwest and Southeast, the polar ice cover is shrinking and the net result means significant changes in how we live our lives and power our economy. Yet there is still hope.

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While there are a number of challenges, it isn’t too late. There are a raft of new technologies coming that will help the world reverse its dependency on fossil fuels and undo at least some of the damage wrought on the planet. And this will offer significant opportunity for investors looking for elusive growth.

And growth is difficult to find: If you’re like most investors, you have, at best, broken even the past decade: The broad stock market is still below its levels of 10 years ago, the bond market looks fine, but a 30-year Treasury pays just 4.1%, and commodities and currencies are too volatile for individuals to play in successfully.

Yet the Green sector promises double-digit annual growth in six of its seven sectors through the next decade: Sustainable energy, like wind and solar, and smart grid applications, like smart meters and highly conductive transmission wire, are estimated to grow between 10% and 23% annually.

Energy efficient buildings and related products, like LED lights, are seen growing 29% to 31% each year. Recycling could grow between 11% and 21% year over year. Natural and organic food and related products are expected to grow at 18% annually. Electric and hybrid cars and lithium ion batteries should grow at 31% to 48% a year. Water, from purification to desalination to utility services, is projected to grow at 20% to 40% annually.

The one relative laggard is the highly regulated environmental services sector, and that is still seen growing around 8% a year and I contend because of the BP spill it will be much stronger in the months ahead. (Credit goes to Jackson Robinson, founder of the Winslow Management Company, for compiling these estimates from a number of statistics and studies circulating the Green industry.)

It’s not just some time down the line that we’ll see Green stocks take off--some are leading the market’s rebound right now. This year Cabot Green Investor locked in big profits on Maxwell Technologies (47%), American Superconductor (40%) and Telvent (29%), among others. Currently, our portfolio is led by Chipotle Mexican Grill, which we recommended to Cabot Green Investor subscribers in March, buying in at $114. It’s now at $147 and still looks great.

Recently, we recommended a company that will play a key role in cleaning up the Gulf oil spill and another that has been a below-the-radar outperformer in organic food. With the market just appearing to be coming off its recent retracement, we’re getting ready to use some money from our heavy cash position to get into some stocks on our Watch List, from a leading LED-related company enjoying great pricing leverage to a maker of a sophisticated component vital to lithium-ion batteries and more.

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We’ve also had some losers this year too, but we stick to a policy of cutting losses quickly to preserve capital, a policy that has resulted in us being largely in cash during the May correction as well as through the late 2008 economic crisis. Moving into cash by cutting losses and reading the market’s technical trends is the time-tested system Cabot has used since the early 1970s and may just be the best way to invest in the Green sector. I personally think it’s an excellent approach to growth stocks, which tend to be volatile, and a nascent industry like Green, where it’s not clear right now what stocks make sense to buy and hold for the long term.

But, as they say, don’t take my word for it. Consider my performance. The Cabot Green Investor has well outperformed the Green ETFs and mutual funds available to individual investors. So far in 2010, our portfolio is up 7%, including current positions. Pretty good considering the market. Even better when you consider our peers. The benchmark Green index--the WilderHill Clean Energy index, is down 20% year to date. The best half-dozen Green mutual funds available are a little better than the WilderHill, but still are down on average 12% this year with the best performer of the group up just 1%.

In fact, since we started Cabot Green Investor in 2008, we’ve outpaced the WilderHill by 59 percentage points (not percent, mind you, percentage points) and the average Green mutual fund (those few that have been opened since we started the newsletter and which survived the bear market), by eight percentage points.

With that in mind, I invite you to give Cabot Green Investor a try and gain access to our market-beating blend of fundamental research and technical analysis with each monthly issue, weekly and special updates, and anytime access to me by email. You may just help make the world Greener and make some green while doing it.

http://www.cabot.net/info/cgi/cgiki12.aspx?source=wc01

All the best,
Brendan Coffey
For Cabot Wealth Advisory

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