Renewable Energy Investments

3 Stocks to Play in a Down Market

Written by Brian Hicks
Posted March 3, 2009

The snow fell hard yesterday, but not as hard as the Dow.

We finally broke below 7,000, and even more panic set in.

But let's be honest. Did we really think it was over?

Looking back on yesterday, did anyone really expect AIG not to post record-breaking losses? And better yet, did we really think another government bailout (this time to the tune of $30 billion) wasn't inevitable?

And how many more are going to get bailed out throughout the course of this year?

It's too painful to even guess.

And have we hit bottom? Are we close?

Who the hell knows?

Data is so difficult to measure at this point. Especially when you throw government actions into the mix.

Now, I'm not necessarily taking a side on the government's response, but as my colleague Steve Christ pointed out the other day, government actions aren't providing any near-term stability. Essentially, Wall Street can't price the future actions of the current government. And the market does not like these types of unknowns.

But one thing we do know is there are now a number of stocks that are simply not valued appropriately.

Yes, overall market conditions must be taken into consideration here. But when it comes to renewable energy, you simply cannot dismiss...

  • The $43 billion for renewable energy and energy efficiency in the stimulus package.

  • The $150 billion that's about to get pumped into renewable energy and infrastructure development

  • The inevitable cap and trade legislation that's going to add even more value to clean energy generation.

Right now, the market cannot possibly value this stuff, as most of it only exists on paper. This is why you didn't see solar and wind stocks soar after the stimulus was passed.

Truth is, the market can only accurately assess the impact of the stimulus spending, as well as the additional subsidies and legislation coming down the pike, after it happens.


Renewable Energy Investments: Accumulating Cheap Shares

The $150 billion promised by the Obama administration will not come in one lump sum, but rather spread out over time. And we may not see cap and trade actually kick in until late 2010.

That $43 billion, however - well, we should start to see the impact of that around summertime. And likely, by Q3 and Q4, earnings will begin to tell the story so many renewable energy investors have been waiting to hear.

So now, while renewables stumble along like everything else, we're accumulating cheap shares of the solid players in anticipation of a steady climb later in the year. It's almost as if we're now able to go back to 2004, when no one was paying attention to renewables, and begin to load up.

The first time around, we pulled in double and triple-baggers left and right.

And now we're going to do it again with 3 specific stocks we believe will be able to weather the storm in the near-term and deliver those big gains over the long-term.

The first is Itron, Inc. (NASDAQ:ITRI). Itron is an infrastructure play that takes advantage of smart grid momentum.

Over the next five years, U.S. utilities will spend as much as $75 billion on automated metering infrastructure (AMI). While Itron maintains a diversified portfolio of products and services for both the water and energy industries, the company is a well-recognized leader in AMI.

Now it should be noted Itron has indicated weak Q1 revenue, though we believe, at current levels, this is already figured into the price. The stock currently trades around $42 a share. Our 12-month price target is $81.50.

The second is SunPower Corporation (NASDAQ:SPWRA). Certainly, plenty of investors are skeptical of solar right now, as tight credit has severely impacted operations in this sector. Moreover, Q1 is not expected to deliver robust results.

However, as the solar sector begins to pick up steam later in the year (as a direct result of stimulus spending), SunPower is likely the best positioned to reap the benefits.

The company is the manufacturer of choice for most installers, its utility-scale projects are still on track, and the company has about 1 GW in the pipeline. It's also important to note that the company's systems still boast the highest efficiencies in the marketplace, giving the company a significant competitive advantage.

The stock currently trades around $25 a share. Our 12-month price target is $43.

The third is Ormat Technologies (NYSE:ORA). Ormat Technologies is one of the biggest geothermal players in the market. Vertically-integrated, the company designs, owns and operates a number of geothermal power plants and recovered energy systems across the globe.

Ormat recently announced revenues increased 35.2% in Q4 and 16.5% for fiscal 2008. Net income also increased 31.3% for the quarter and 82% for the year.

The stock currently trades around $23 a share. Our 12-month price target is $41.

There's also another geothermal stock we're extremely bullish on right now. It's not as big as Ormat, so the risk is certainly greater. But as far as geothermal stocks go, this one could certainly give you more bang for your buck.

You can read more about that one here.

To a new way of life, and a new generation of wealth...

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