Windmill power, long about as rational as Don Quixote, has, at last, become not only viable but also profitable, as one look at the General Electric Website—recently fronted with windmills—attests. But buying GE for windmills is like buying it for dishwashers; forget it—wind isn’t a big enough business to drive GE. Instead, there’s Distributed Energy Systems. Here’s another company with a mosaic of energy alternatives, the fastest growing of which is wind. Distributed also has its bases covered with solar, biogas, and hydrogen businesses. It’s the hydrogen technology that fascinates me. Most alt-energy companies haven’t made revolutionary leaps, but Distributed can put a machine on-site that can split water into hydrogen and oxygen, then make power out of the hydrogen through fuel cells. That makes Distributed a reliable backup plan for companies that fear Katrina-like grid breakdowns. The company won’t make money until next year, but it sells for less than $10, so you aren’t paying up for its lack of profits.
My final alt-energy pick belongs in the total spec category: Capstone Turbine. This company makes microturbines, small backup generators that use natural gas to create electricity. I started to write off this company when natural gas rose to $15 a unit a few months ago, post-Katrina, but now that natural gas has come back to the $5 to $7 range, where Capstone’s generators can generate a quick payback, I want in. Wal-Mart’s testing Capstone’s microturbines in one of its stores, and KeySpan, the local electric company just snapped up by the Brits, is Capstone’s selling partner. Right now, any company that uses these microturbines can sell back its excess power directly onto the grid to create payback in five years. Capstone’s been ignored by the Street just when its product makes the most sense, when you can lock in low natural-gas prices. The company’s not profitable, but then again, it’s at $3.
These companies may finally make up an industry. You can buy them on the basis of profit, not promises.
I’ve got more alt-energy stocks that make sense—Zoltek, which makes carbon fibers needed for windmills, and Ormat, an Israeli company with great geothermal technologies—but those have run up so much I’d advise waiting for a pullback. Both might be worth buying if they pulled back 10 percent.
Either way, alternative energy makes too much sense now to ignore. I like to think of these companies as energy biotechs, using new technologies to create new products that the big dogs lack the DNA, no pun intended, to develop. I’d buy half a position now, wait for a couple of warm days, and then buy the rest, as Wall Street is still hopelessly negative on the price of energy itself, always thinking we are just a few sunny days away from $40. When you consider that we had the warmest January on record and oil is still hovering around $60, you can bet that we are far closer to our lows than our highs for the next couple of years. Who knows? Soon, we may not regard the group as “alternative” energy but as “cheap” energy, which might in fact be a more accurate sobriquet.