Chasing
Windmills: The Quest to Invest in Wind and Solar Companies
by Kiersten Marek
I went searching for a few good investments in wind and solar, and came up empty-handed. Well, not exactly empty-handed. I learned about diversified energy giants, marginalized pure players, and the complexities of international investing. I found several companies that are expanding their market share and making important contributions to wind and solar power, but none that made me want to run right out and buy stock. This may be largely due to the overall market scene these past few months, with the shaky drop below 8000 in July that looked like it might go even lower. Plus, let's face it -- it's been a year since September 11, and some of us are chickens, waiting out the one-year anniversary effect. As of the final revision of this story on September 19, 2002, the Dow had again dipped below 8000. Given this state of affairs, I'd like to begin with the great Louis Rukeyser's frequent refrain of absolution: "No endorsements from the management."
Another thing to think about -- another way to "invest" in wind and solar companies because you want to reduce pollution (and here is where this becomes more a social work story than a finance story) -- is by purchasing a wind or solar product. In this way, you can begin your investment by supporting green power development in your region. In Southeastern New England, for example, you can purchase your green-powered electricity via online subscription through Sunpower Electric. The amount of electricity you purchase displaces the same amount in the power grid that is currently generated by fossil fuels, coal, and nukes. We have just done this, and it is a good feeling to be supporting green energy in our vicinity. Given the difficulties of the economy, this is perhaps the best way for us to invest in green energy right now.
I have chosen to report on one "pure play" wind company, Vestas, and one "pure play" solar company, Astropower, and then give links to diversified companies that do wind and solar.
First, some rules of thumb for the novice investor:
1. A Good Company Does Not Always Equal A Good Investment
This rule seems to apply to a lot of companies at the moment.
2. The Giants and The Jacks-of-all-trade Have an Advantage Over the Little Guys and the Puritans.
Much of the expansion in wind and solar is happening with larger companies that are further diversifying into these areas, companies like BP (British Petroleum, which is also calling itself Beyond Petroleum in New Yorker ads), GE, Shell, Kyocera, Sharp, and Mitsubishi.
2a. For Children and Investors the World Over, Cash-Generating Parents are a Good Thing.
Have you ever noticed how people who have money, their parents also usually have money? Funny how that works. And it works the same way for cash-generating corporate parents like Mitsubishi. These companies have the economic muscle to put behind wind and solar expansion.
3. Investing Internationally is Complicated by a Number of Factors.
These include but are not limited to: the political/economic instability of the host nation; the fluctuation of currency exchange rates, the inability to get information quickly in terms of corporate news and other business information (although this is changing, and getting better, with the internet), the need to become familiar with trading with "pink sheets," also know as OTC trades (over-the-counter trades which are made in the currency of the host nation). You can also buy stock through American Depository Receipts (ADR).
Rule number one seems to apply to Astropower at the moment. This company has done an impressive job of acquiring market share, with 5 new solar projects announced in the last few months:
- Sacramento -- a 2.3 million dollar project to optimize residential solar electric power
- June 24, 2002 -- began working with Clarum homes to make solar electric home power standard in this California development
- Home Depot in Delaware, New York and New Jersey, to sell Astropower solar products at their stores
- A contract with Habitat for Humanity on an Urban Renewal project in Cleveland, Ohio
- Senegal -- Astropower is selected to supply solar electric power to 227 rural Senegalese villages.
But when their earnings fell short this quarter, the market punished them into near oblivion, reducing their current price to under $7.00, when a mere 3 months ago (June 2002) they were trading in the $20 to $25 range, and in the Fall of 2000 they traded over $40.00 (October 17, 2000 -- APWR closed at $40.02). And as to whether or not Astropower has hit bottom? As of the 4th of September, our IBD Stock Checkup rated Astropower a resounding D-. What gives?
Well, a number of things. Even though Astropower has good technology and a photovoltaic product that can be mass-produced, according to sources at The Motley Fool, there is nothing to stop their stock from going lower. Their competitors are the big guys -- Sharp, Kyocera, Siemens, Sanyo, Mitsubishi. They have cash-generating parents, which brings us to the above rule about the positive influence of rich parents on their diversified progeny. Let's face it -- if you have an overarching business, like an oil or electronics business say, with loads of money, you can compete better, staying afloat in tough times, and you will already have important things like name recognition and customer loyalty. Unless, of course, you're Enron Wind -- whose stockholders' dollars are now blowing in the wind somewhere off the coast of Texas. So even though cash-generating parents are a good thing, remember that in the current world of duplicitous corporations and accounting firms, they are certainly no guarantee.
Vestas is a pure play wind company that trades on the Copenhagen Stock Exchange. Over the past year, Vestas has been trading between 298,000 and 91,000. You can download their interim financial statement for the first half of 2002 here. What I am able to decipher from this financial report is that Vestas did not make their earnings estimates, which might be one of the reasons why they are currently trading close to their 52-week low.
The news from Vestas, which you can receive via email by signing up for it, looks good. They are establishing a manufacturing facility in Portland, Oregon, which will have an annual production capacity of approximately 300 turbines, and full capacity employment by 2004 for about 1,000 employees. Vestas also received large orders recently from their American subsidiary, which is working with Florida Power and Light Energy, LLC. They also received another "large order" for the Italian market in September 2002. They also have orders from the UK and Irish Markets, and they have been selected as a supplier for the first UK offshore wind farm.
So I thought -- maybe a simpler way to invest in Vestas without having to deal with international investing would be to invest in Florida Power and Light Energy, LLC (NYSE: FPL). But not so fast: our IBD Power Tools Stock Check-up gave FPL a diagnosis of C. Its ratings for Technical, Fundamental and Attractiveness were okay, but once group ratings were factored in, the overall rating went down substantially. It should be noted that Investors Business Daily is biased toward growth stocks, and their information is proprietary. To more fully understand how they rate stocks, you can subscribe to IBD.
Vestas Wind Systems on the Copenhagen Exchange
A quote from the pinksheets for Vestas (VWSYF)
More on International Investing
Some foreign shares, like Vestas, trade through the US pinksheets in US dollars. According to sources at The Motley Fool, this market is extremely "illiquid" so it is best to use limit orders if you decide to go this route, figuring your limit amount by looking at actual foreign value and current exchange rates. If you buy through the pinksheets, you are not buying shares valued in US dollars. You are just paying for them in US dollars, but they are still foreign shares valued in foreign currency.
In addition to the normal risks associated with buying stocks, when you invest internationally you also have to deal with the fluctuation of exchange rates, and possible political/economic instability in the company's host nation.
To buy shares internationally, here are some things you will need in your broker:
- the ability to trade on a foreign market or via pinksheets
- the ability to hold foreign shares in your account
- the ability to receive dividends in foreign currency and convert them to US dollars
- the ability to provide correct valuations of current US dollar equivalents of the correct foreign values. Though this might sound like a "no brainer" one source who invests internationally told us that "every foreign trade I've made has had to be reversed and reposted by my broker to get the value to show correctly on statements."
- the ability to provide correct 1099 forms, so you can take advantage of foreign tax credit.
- a genuine interest in foreign investing
Generally speaking, you will probably need to go through a broker with some sort of international presence. You might be more likely to find this presence in the large full-service firms.
Some questions to ask of your potential broker:
- How genuinely knowledgeable and excited is the broker about international investing? One of our sources warned that many US brokers "have no clue about foreign stocks beyond Canadians and ADR's, so ask questions."
- What are their trading fees for foreign stocks and do they differ if the order is placed by pinksheets as opposed to on the foreign market?
- Do they charge ongoing fees for holding foreign shares in your account?
- Do they charge fees for receiving dividends?
- Can they provide you with stock research?
- Will they trade in "odd lots" (less than 100 shares)?
- When can you place orders -- during the American work day or 24 hours?
- Will you be able to vote on proxies? Sources say, don't count on it.
If you are looking for quick foreign quotes and news on stocks, you can
try Reuters,
Yahoo
Denmark, Yahoo
Germany, or London's
Financial Times.
Diversified Wind and Solar Companies
With all of these companies, you can't invest in just the green energy division. You have to buy stock in the whole company.
Ultimately, the positioning of wind and solar technology development within larger energy and electronics companies may be a good thing, since it indicates these industries' awareness of the need to incorporate new, greener technologies. But it also gives those mighty cash-generating parents the power to develop the greener technologies as slowly or as quickly as they want, if they effectively dominate a particular market.
Mitsubishi: This company is huge. Of local interest, Mitsubishi entered into a joint venture with TPI Composites of Warren, RI in April 2002.
Kyocera: This one is also huge, and well-known for their wireless phones. An interesting factoid: the name Kyocera comes from "Kyo" for Kyoto, the ancient home city of the corporation, and the "cera" stands for ceramics, as this is what the company initially produced. They get a C+ rating from IBD.
Sharp: Sharp trades on the Tokyo Stock Exchange.
- A link to Sharp's Investor Relations page of Historical Data.
- A PDF of Sharp's Consolidated Common Stock Information
BP: This is British Petroleum. They have a division called BP Solar. They have an interesting feature on their website called the clean power estimator, which helps you estimate the costs of converting to clean power. You can get their MSN Stockscouter rating here.
General Electric Wind Energy: Again, you can't invest in just the wind division. Click here for GE's rating on MSN Stockscouter.
Shell: Also known by the ticker symbol RD for Royal Dutch. Click here for Shell's rating on MSN Stockscouter.
Other Big International Wind Companies
As with Vestas, these other big European wind companies do not trade in ADR's. You can trade with pinksheets.
Resources on Sun and Wind Online:
The National Wind Technology Center
American Wind Energy Association (AWEA)
List of Corporate Members of AWEA
Federal Office of Energy Efficiency and Renewable Energy
The America Solar Energy Society
Ecobusinesslink's Solar Energy Information
Exchange rate sites
Yahoo's Finance Exchange Rate Page
Copyright © 2002 Kiersten Marek. All rights reserved.