The U.S. Military Embraces Solar and Biofuels
The Market is Signaling Green Stock Opportunities Now
Most of you are reading this column on one of two mediums: either from your email inbox or a webpage you navigated to. What you may not realize is that we have the U.S. military to thank for both of them. Let me explain: In response to the launch 53 years ago this week of Sputnik, the Soviet Union’s satellite, the U.S. government launched a series of initiatives that led to the formation of NASA. Overlooked at the time was the concurrent creation of the Defense Advanced Research Projects Agency, or Darpa. Darpa worked with a few major research universities to create Arpanet, the first network that successfully figured out a way to send electronic information packets in a highly distributed fashion (the better for communications to survive a nuclear strike.) All of that led, decades later, to the Internet we know now.
Is the military again cutting the path for revolutionary technologies to work their way into our everyday lives? The cost of fuel in Afghanistan—in dollars, effort and most importantly, lives, makes it seem like another Sputnik moment—when the military realizes it needs to rethink strategies to better adapt to a changing world.
The New York Times had a fine article last week (U.S. Military Orders Less Dependence on Fossil Fuels) detailing the issues the military faces. In one report cited by the Times, the Army found that one in every 24 convoys results in a casualty. In the course of one year, 6,030 full convoys of fuel are needed to supply troops in the Iraq and Afghanistan wars, according to that Army report. That is, in cold math, over 251 American casualties a year that can be expected simply by hauling diesel fuel from one place to another.
Half of all convoy casualties in both wars result from transporting fuel (water and other supply convoys had significantly lower casualty rates, likely for the obvious reason water trucks are less flammable than fuel trucks). Cut the amount of fossil fuels needed and you save lives. You also save a tremendous amount of money. Getting fuel to a forward base in Afghanistan can cost upwards of $400 per gallon. As a whole, the U.S. military consumes more fuel than whole countries do in one year, including double that of Ireland and 20 times that of Iceland, according to Reuters.
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Recognizing that this is a chink in its armor, the Pentagon is field-testing a Marine company with solar technologies that may allow the military to shed much of its fossil fuel needs in the future. The military is testing low energy lights, such as LED lights, solar charging panels that fold up into boxes and portable solar chargers for computers and other equipment.
The Marines aren’t the only ones exploring renewable energy. The U.S. Navy is particularly keen on independent energy generation for its island bases. Among its many projects is a growing program to generate some of a base’s energy from wave power. This is done with a very large buoy positioned near their port, within which the undulation of the waves moves interior parts that work a generator, sending electricity to where it’s needed by underwater cable.
The Air Force is pushing to certify its jets to run on a 50/50 blend of biofuels and jet fuel. Last month, it test-flew its massive C-17 Globemaster transport plane on a mix of fossil-based aviation fuel and bio-fuel based aviation fuel successfully. Depending on where they are in the world, biofuels based on various plants can be grown and refined locally—even in the desert, where certain saltwater plants have been shown to be excellent candidates for aviation biofuel.
And what’s exciting is that these technologies, while still very young, aren’t experimental things being honed in laboratories—they are the basis for exciting new companies right now. I told Cabot Green Investor subscribers about wave-power technology two years ago: It’s being pioneered by Ocean Power Technologies (OPTT)—a New Jersey company that has supplied power buoys to the U.S. Naval base in Oahu, Hawaii, and is developing a buoy energy farm for the state of Victoria in Australia, among other projects.
Biofuel companies are lining up to offer their stock in IPOs. Among them are PetroAlgae, a Florida company that harvests microalgae to produce biofuels and Gevo, a Colorado firm that makes biobutenol, a blendstock that helps traditional fuels reach clean air standards. Two biofuel-related companies, Codexis (CDXS) and Amyris (AMRS), have just recently come to market.
All of those companies mentioned above I believe are worth watching for future investment. Right now, the recent IPOs need some time for the market to establish their value and develop some history for more accurate price forecasting with technical analysis, so I suggest watching and not investing. Ocean Power Technologies shows some promise, but is being weighed down by funding uncertainty over its Australia power project.
But that doesn’t mean there aren’t opportunities to invest in strong Green stocks right now. As editor of Cabot Green Investor, I’ve been watching the market closely, and just last week the Green sector experienced a convergence of technical factors that are giving a very strong buy signal—one we have seen only twice in the last three years, and neither of those was strong as we are witnessing now. In those prior occurrences, we saw a four-week 40% rally in Green and then, in the much weaker signal of the two, a still-welcome 10% two-week rally. What gives me more encouragement this bull move has stronger—and longer—legs under it is the fact the broad market is rallying too, which adds momentum to the excitement Green stocks are now enjoying.
My stock pick for this Cabot Wealth Advisory is Amtech Systems (ASYS), a leader in a particular niche in the solar cell production process. Specifically, it makes the equipment necessary for cell diffusion, the process by which phosphorous oxychloride is diffused on solar wafers (allowing the solar conversion mechanism to be laid on top). The Arizona-based company also competes in the subsequent two steps of the solar cell manufacturing process: etching and adding antireflective layers through plasma-enhanced chemical vapor deposition (PECVD for short).
In its most recently reported quarter, ended June 30, sales rocketed up 250% to $43 million while net income was 42-cents a share. For the full year, sales are expected to more than double to $112 million and likely even higher: The company just announced that it booked a record $187 million in orders for fiscal 2010 (which, because of how revenue is recognized, likely doesn’t equate to what full year 2010 sales will be. Full year results will be announced on November 22.)
What I particularly like about Amtech is that it’s an established company, having started in 1983 to focus on semiconductor fabrication equipment, growing with key acquisitions over the years. I also like that, while it makes its equipment in the U.S. and the Netherlands, 85% of its customers are top-tier Asian solar makers including Yingli Green Energy (YGE). That’s important because industry dynamics favor larger manufacturers, who are expected to consolidate and grab market share from lower tier solar makers.
Cabot Green Investor recommended ASYS in its September issue, when shares traded at 15. They are now at 19 and looked primed to surge higher, although orderly pullbacks are to be expected in its climb.
Click here to learn more about Amtech Systems and other leading Green stocks featured in Cabot Green Investor.
All the best,
For Cabot Wealth Advisory