Long-Term Value in Recent Clean Energy Selloff

Richard Cox

NEW YORK (TheStreet) -- Recent selloffs in alternative-energy investments are creating some attractive opportunities for long-term plays in the sector.

The easiest way to gain exposure to the clean energy space is to find mutual funds that are devoted to compiling a green energy portfolio. But many of these funds have expense ratios in the neighborhood of 2% and encounter additional trading costs when high turnover ratios are seen.

Because of this, the highest returns (and lowest levels of risk) can be found in individual companies that use its resources in the most efficient ways. Finding companies that meet this criteria requires some additional research, as many of these options fail to grab as many headlines as some of the more widely covered (but less cost-effective) technologies.

Here, we will look at three individual stocks that are well-positioned to benefit from the recent pullback in market valuations, giving investors some strong alternatives to the clean energy mutual funds that are typically chosen.


Remembering the Broader Trends

Investments in clean energy projects dropped by 11% last year, falling to $268.7 billion in 2012. These declines came largely as a result of reductions in government subsidies. But, at the same time, it should be remembered that 2012 was still the second strongest year on record for the green energy sector. So, it starts to become clear that the latest market reactions are simply a negative blip in an inevitable, long-term uptrend that favors multiyear "buy-and-hold" strategies.

Focusing on the Established Names

One excellent choice is Maxwell Technologies , which is one of the world's leading manufacturers of the electrodes that are used in ultra-capacitors. Ultra-capacitors have extremely long life spans and store electricity in applications that require high power and low-energy output. Ultra-capacitors are important for a wide range of electricity transmission and distribution applications, and are used in heavy-duty hybrid vehicles (large trucks or busses) and in energy-efficient wind turbines.


Maxwell is trading at an incredible discount (near the bottom of its all-time range), with a price-to-earnings ratio of less than 15. These declines are starting to reach a bottom, however, as Maxwell's stop-start technology continues to be one of the most cost-effective ways to improve on fuel economy for automobiles. Auto manufacturers are having some difficulty meeting the increasingly stringent fuel economy standards set by governments in Europe and the US, and this is a bullish scenario for Maxwell as its products continue to meet rising demand.

Rising Demand Seen in Carbon Fiber

Another choice is Zoltek , which is a leading carbon fiber manufacturer. Carbon fiber is used in a wide range of applications, given its high strength-to-weight ratio. Common items requiring carbon fiber include racing bicycles and tennis rackets, but there are many applications in the clean energy space as well. Carbon fiber is used in wind turbine blades (the largest source of revenue for Zolek), and as replacements for the heavy aluminum and steel used in airplanes, performance automobiles and electric cars. As automakers continue to look for ways to meet fuel efficiency standards, mass-market demand for carbon fiber is likely to increase as a means for reducing weight without sacrificing safety.

Zoltek's stock has recovered from the drop seen in 2008, and share buybacks have helped to push valuations back above the $12 mark. On a company level, Zoltek is showing improved fundamentals with record sales leading to profits of $0.66 per share in 2012. Zoltek's balance sheet is strong, as the company shows no net debt and has access to unused lines of credit at excellent interest rates. Analyst forecasts for 2013 show expected earnings per share at $0.52, with a forward P/E of 14. Zoltek is poised for growth in multiple areas, with carbon fiber usage continuing to show expansion into new markets.

Gaining Growth Exposure with Arista

For investors more focused on growth, an excellent small-cap choice can be seen in Arista Power . The biggest strength of ASPW is its diversified exposure to a variety of clean energy markets. Arista Power develops and manufactures innovative renewable power solutions in wind turbines, solar energy systems and custom-designed power management systems. Arista had a blockbuster year in 2012, selling its Mobile Renewable Power Station and securing substantial contracts with the U.S. Army.

These positives are combined with an improving cost environment (declining costs in producing solar panels). Arista doubled its sales in 2012, and company forecasts show an expectation for these figures to reach $12 million in 2013. Arista shows impressive diversification in its product pipeline, and the stock makes a solid growth alternative for those looking to gain broad-based exposure to the clean energy sector.

Capitalizing on the Pullback

In 2012, clean energy stocks saw a significant pullback on reductions in government funding. But with a supportive cost environment and improvements in commercial and residential demand, these pullbacks should be viewed as strong opportunities to re-establish positions in the broader uptrend. The companies listed here possess diverse product pipelines as protective measures against downside shocks, and the variety of market outlets puts each choice in a solid position to capitalize on the upturns expected in 2013.

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At the time of publication, Cox had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.



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