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Today's interview is with senior analyst Jonathan Kolb, who discusses General Electric (NYSE: GE), Archer Daniels-Midland (NYSE: ADM), Evergreen Solar (Nasdaq: ESLR), Energy Conversion Devices
A synopsis of today's Analyst Interview is presented below. The full article can be read at at.zacks.com/?id=2678.
How should investors look to play the alt-energy market?
Well, there's always big companies like General Electric (NYSE: GE) and Archer Daniels-Midland (NYSE: ADM). They are not pure plays, of course. Another angle is that many utilities receive tax incentives to use alternative energy - 15% or whatever.
The problem with a lot of the pure-play alt-energy companies is that they're trading at extraordinarily high valuations. Many of them have multiples way up in the hundreds; some have even gone over 1,000. This obviously creates a great deal of risk, especially when profitability is still a year or two out.
This reminds me of the Internet bubble in the late-90s. Those valuations got way out of whack and eventually plummeted down. Unfortunately, I expect some of the same thing with many of these alt-energy stocks.
The winners will be those that are first to market - I'm thinking specifically of Evergreen Solar (Nasdaq: ESLR) and Energy Conversion Devices (Nasdaq: ENER). We like the stories of these two companies, but we feel they are very expensive at this time. Recently, we upgraded ENER and ESLR to a Hold, and it looks like a good time to have done it. But there still is considerable downside risk - and they won't be showing profits until 2008.
Pacific Ethanol (Nasdaq: PEIX) is another company worth taking a look at here. This stock has done really well - Bill Gates was an early investor - but another issue with ethanol companies is that their reliance on the commodity of corn may cause it to trade like a commodity stock. Again, the multiples are way too high from that perspective right now.
What developments will you be watching for going forward?
It will be interesting to see how alt-energy evolves over the next 10 years. I expect solar power will probably earn higher multiples than the other forms of alt-energy because there is a little more proprietary knowledge in making their product.
Read the full interview at at.zacks.com/?id=2647.
A synopsis of today's Analyst Interview is presented below. The full article can be read at at.zacks.com/?id=2678.
How should investors look to play the alt-energy market?
Well, there's always big companies like General Electric (NYSE: GE) and Archer Daniels-Midland (NYSE: ADM). They are not pure plays, of course. Another angle is that many utilities receive tax incentives to use alternative energy - 15% or whatever.
The problem with a lot of the pure-play alt-energy companies is that they're trading at extraordinarily high valuations. Many of them have multiples way up in the hundreds; some have even gone over 1,000. This obviously creates a great deal of risk, especially when profitability is still a year or two out.
This reminds me of the Internet bubble in the late-90s. Those valuations got way out of whack and eventually plummeted down. Unfortunately, I expect some of the same thing with many of these alt-energy stocks.
The winners will be those that are first to market - I'm thinking specifically of Evergreen Solar (Nasdaq: ESLR) and Energy Conversion Devices (Nasdaq: ENER). We like the stories of these two companies, but we feel they are very expensive at this time. Recently, we upgraded ENER and ESLR to a Hold, and it looks like a good time to have done it. But there still is considerable downside risk - and they won't be showing profits until 2008.
Pacific Ethanol (Nasdaq: PEIX) is another company worth taking a look at here. This stock has done really well - Bill Gates was an early investor - but another issue with ethanol companies is that their reliance on the commodity of corn may cause it to trade like a commodity stock. Again, the multiples are way too high from that perspective right now.
What developments will you be watching for going forward?
It will be interesting to see how alt-energy evolves over the next 10 years. I expect solar power will probably earn higher multiples than the other forms of alt-energy because there is a little more proprietary knowledge in making their product.
Read the full interview at at.zacks.com/?id=2647.
