Rising Oil Prices A Catalyst For Investment?Oil prices have been hitting record levels consistently in 2008, with very little sign of it slowing anytime soon. As the price of oil rises, the interest in greener (and often considered "cheaper" energy) companies rises as well. And, solar power is getting its share of the green energy popularity too. (Learn more in our related article
Clean Or Green Technology Investing.)
I think investors should keep in mind that if oil trends higher there could be a greater demand for shares of various alternative energy companies including those in the solar space.
The RisksWith all of the above in mind, it is important to realize that there are risks to investing in solar power. First of all, it’s unlikely that individuals are going to make a shift to this technology en masse in the very near future. After all, switching to solar energy can run up a bill for homeowners in the thousands of dollars range, and in this tight economy people don’t seem flush with disposable cash. In addition, although there are some environmental concerns, nuclear power is considered a popular alternative for power generation and the technology is unlikely to go away anytime soon.
My Picks
Obviously it’s hard to guess what will happen in the future, however, I do have my favorites among the aforementioned companies. They includes:
1. Energy Conversion DevicesAs per the company’s website, Energy Conversion “manufactures and sells thin-film solar laminates that convert sunlight to energy using proprietary technology.” The Michigan-based company is expected to report earnings of just a penny this year. However, next year Wall Street
analysts are expecting it to earn $1.53 a share. And in the next five years Energy Conversion is expected to grow at a 35% clip per annum. (For more on analyst expectations, read
Analyst Recommendations: Do Sell Ratings Exist?)
On the downside, it trades at a pretty hefty 43.6-times the 2009 estimate.
2. Evergreen SolarEvergreen manufactures solar panels, and I think that makes it pretty well positioned to reap the benefits if solar technology does take off. This year, the Massachusetts-based company is expected to lose 22 cents a share. In 2009, however, Evergreen is expected to generate a 46 cent a share profit. If it does manage to meet or beat the
consensus number this year and next year I think it could cause analysts and investors to flock to the stock.
On the downside, it's important to note that these expected profits are not guaranteed, and if profitability is pushed back I think it could have an adverse impact on the share price.
Bottom LineAlternative energy companies are likely to be in greater demand in the future. And as a result, I think that solar stocks have the potential to do quite well over time. It is important that you are aware many of these stocks, at least right now, are trading at a very high multiple of earnings.
