Green investing is no longer just for those who celebrate Earth Day. Decades of talk about alternative fuels and green technologies has turned energy independence into a national priority.
The investment category that focuses on the environment and alternative-energy sources has earned a position in the mainstream financial world.
Some shares have been in a slump during the oil price decline over the past several months and have historically moved with that indicator. Even though oil is primarily used for transportation while most alternative energy is for electricity and heat generation, the two are intertwined in the public consciousness.
Some analysts see any recent stock price slippage as a buying opportunity, though there is substantial risk. Technologies of green companies are not always fully evolved or easy to understand, the firms are often small, and the answers they seek are not easy.
"Public debate has turned into political acknowledgment that climate change is real and can't be ignored," said Thomas Kuh, managing director of indexes for KLD Research & Analytics in Boston. His KLD Global Climate 100 Index of companies gained 14 percent during the past 12 months. "The difference in the makeup of Congress and signals from the administration both point to inevitable policy change in the U.S.," he said.
President Bush's State of the Union address called for a nearly fivefold increase in the nation's alternative-fuel consumption by 2017.
Environmental, automotive and agricultural interests are combining worldwide. Many European countries, as well as China, Brazil and others, have approved or are considering new biofuel incentives.
Established investment houses such as Goldman Sachs and Morgan Stanley are issuing research reports on environmental topics because the issues have reached a critical mass with the public, Kuh said. Venture capitalists, hedge funds, pension funds and insurers are putting billions of dollars into wind, solar, biofuel and other technologies.
"I'm bullish because Wall Street is concerned about long-term oil prices and the need to offset the use of petroleum-based fuels," said Brion Tanous, managing director of financial services firm Merriman Curhan Ford & Co. in Los Angeles. "There also have been many IPOs for companies in solar power in recent years that are doing quite well."
Tanous recommends SunPower Corp., which sells high-efficiency solar panels and recently acquired PowerLight Corp. Tanous also likes Energy Conversion Devices Inc., supplier of nickel-hydride batteries to General Motors Corp. and developer of lithium-ion battery packs.
Analysts warn about rushing headlong into the sector.
"You must be careful because a lot of clean technology stocks have real cash flows and fundamentals that really work, while others don't at all and are speculative," said Hewson Baltzell, president of Innovest Strategic Value Advisors in New York. "Falling oil prices are their main risk, making them a tricky and volatile proposition for a small investor."
Not all the investment possibilities are small firms. FPL Group Inc., the former Florida Power & Light, is a utility with a large amount of solar power and some wind power, though it also has nuclear power, Baltzell said.
General Electric Co. is pouring big money into green ventures, such as wind turbines and fuel-efficient locomotives, with plans to sell $20 billion in environmentally friendly products annually by 2010. But that's still a relatively small proportion of its $163 billion in revenue last year.
Even successful green mutual funds are realistic about volatility.
"We're picking early-stage companies here, and being too early can make you wrong even if you are right in the long run," said Matthew Patsky, a portfolio manager of Winslow Green Growth Fund, whose five-year annualized return of 15 percent ranks in the top 4 percent of all small-cap growth funds. "For every one that goes up 10-fold, you'll have three or four that don't work out and another handful that just don't do what you'd like," he said.
Technology continues to improve and political conservatives have joined the ranks of those expressing concern about the environment. Other countries have demonstrated that progress is possible, such as Brazil with its long-standing support of sugar cane ethanol production.
Wind turbine companies in Patsky's portfolio include Denmark's Vestas Wind Systems and Spain's Gamesa Corp., solid companies that continue to prosper.
Winslow Green Growth fund's major holding, Fuel-Tech Inc., developer of a system to permit more efficient burning of coal, has excellent prospects for being acquired by a larger firm within several years, Patsky said. Metretek Technologies Inc., a designer of on-site electric power generators to meet peak demand and provide backup generation in power outages, is another of his holdings.
Development of low-cost feedstock is a growth area. Tanous recommends Diversa Corp., which is bioengineering enzymes to convert biomass into starch and sugar, and Dyadic International Inc., which is researching different types of fungus with feed in mind.
Among exchange-traded funds, PowerShares WilderHill Clean Energy fund invests in innovative energy firms and PowerShares Cleantech Portfolio selects from tech firms that have a positive environmental impact.
Andrew Leckey writes for Tribune Media Services.