Tuesday, May 08, 2007

Low Hanging "Green" Fruit

Most point to excessive carbon emissions as the cause of global warming, although there are still a few nay-sayers who cling to the view that the recent temperature changes are just the normal ebb and flow of planetary forces. Personally, I am not willing to stake the fate of future generations on the chance that Mother Nature will cool things off on her own. Before my grandchildren have to trade in their cars for boats, I am going the route of “life style” change right now.

Those changes include new investment criteria that focus on the dynamics of a “green” economy. First, the obvious strategy is to invest in operations that clean things up. This includes those operations that offer waste disposal (
American Ecology Corp. – ECOL: Nasdaq) or recycling (PureCycle Corp. – PCYO: Nasdaq). The second category consists of companies with pollution abatement solutions (Basin Water, Inc. BWTR: Nasdaq). I have also made a few picks among companies that offer energy generation and resource conservation alternatives (Altair Nanotechnologies, Inc. ALTI: Nasdaq; Flexible Solutions, Inc. FSI: AMEX).

There are a number of companies that can generate “carbon credits” from the creation of new non-polluting energy sources. It is a new asset that has been attributed monetary value. As such carbon credits change the economic equation for any number of operations that might otherwise struggle to achieve profitability. The biodiesel and ethanol producers come into mind. I mentioned
Environmental Power Corp. (EPG: AMEX) in the “Carbon Credit Line” post on May 4, 2007. Clean-up companies can generate carbon credits also.

In that same post I mentioned
Fuel Tech, Inc. – )FTEK: Nasdaq). Fuel Tech and many other mature operations can also create carbon credits, leading to higher returns on invested capital and enhanced profitability.

Another category of targets is that of manufacturers that are cleaning up their processes and products. Aside from the obvious public relations benefits, reducing power usage and pollution outputs should ultimately benefit the bottom line. Lower bills for energy and lower pollution abatement costs should ultimately pay for the upfront investments in new systems and processes. The electric power utilities make a good category to watch. In particular
Duke Energy Corp. (DUK: NYSE) has been an early-mover in cleaning up its coal-fired boilers and trying renewable energy such as wind and solar. There should be carbon credits for Duke as well.

Process manufacturing is also ripe for change from a reduction in
carbon footprint, which is the measure of the amount of green house gases produced as measured in carbon dioxide. Carbonfund.org provides a handy little calculator that individuals can use to find their personal carbon footprint.) As awareness and acceptance for the concept grows I expect manufacturers to engage in more than just “greenwashing” and move to meaningfully reduce power consumption in operations as well as in final products. This is an investment strategy that has yet to materialize to a meaninfgul level. However, we expect heavy power users to begin addressing power usage issues.

The electronics manufacturers another sector of focus for clean-up in general, which we expect is probably inextricably linked to carbon emissions.
Nokia Corp. (NOK: NYSE) has received high marks from Greenpeace and is included on the Dow Jones Sustainability Index. Computer manufacturers are another group to watch, since computing devices contain high amounts of cadmium, lead and mercury. Interestingly, Apple, Inc. (AAPL: Nasdaq) is not on either Greenpeace or Dow Jones list probably because Apple has shown little progress in replacing highly toxic chemicals used to produce their computers. The new MacBook has been found to have high amounts of toxic flame retardant, tetraromobisphenol.

Worse yet, Apply has no recycling program in place to collect old computers or handhelds. Imagine a world littered with iPODs! The inability or unwillingness of manufacturers to take action should give shareholders pause. We see big fines and/or disposal fees down the road, which means that electronics manufacturers would be better off to get on the “green” bandwagon now. Apple has bowed to public pressure and just recently promised in an announcement from Steve Jobs to become a “greener apple.”

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Hold rating on FTEK and Buy ratings on BWTR and ECOL. EPG, ALTI, FSI and PCYO have been favorably mentioned in the Small Cap SEARCH newsletter.

No comments: