Solar Stocks Boom in 2005 — But It Is Just the Beginning

For the most part, 2005 was a mediocre year for the stock market. The market mostly went sideways to nowhere and was generally a boring year for most stock market investors. The Dow Jones was down 0.61%, the S&P 500 was up 3% and the NASDAQ was up 1.37% for the year.

But quietly in the background, 2005 may also have been the beginning of a “bright,” new and very promising trend. More solar-related companies became public companies both in the U.S. and in Germany and as a result the renewable/solar industry sector gained a much needed higher profile with the American investing public. This is an important trend, because for many years the solar industry has been very much of a cottage industry, with little attention being paid to it and money invested in it. However, as we all know, once people start to invest their hard earned money into an industry, they pay much more serious attention to that industry and what it is doing. All of which is good for the industry and good for the future of our planet. There are not many companies that are public, whose primary business is in one of the renewable energy areas: biomass (ethanol, bio-diesel), hydropower, solar electric (photovoltaics), solar thermal, wind power, geothermal, fuel cells and other “green” areas. But more and more of these companies are starting to show up on investors’ “radar” screens and they are beginning to get a following on Wall Street. Below is a comparison of the 2005 performance of seven solar related public companies and one “clean energy” exchange-traded fund (ETF) that trade on major U.S. markets and whose primary business is renewable energy verses a number of indices that are commonly used in the financial press. These companies and the ETF are listed in alphabetical order, followed by their stock market trading symbol and their percentage gain in 2005: Distributed Energy Systems Corporation (DESC) + 160% DayStar Technologies, Inc. (DSTI) + 336% Energy Conversion Devices, Inc. (ENER) + 160% Evergreen Solar Inc. (ESLR) + 213% Powershares Wilderhill Clean Energy Fund (PBW) + 19.5% Spire Corporation (SPIR) + 120% Sunpower Corporation (SPWR) +34% Suntech Power Holdings (STP) +32% Average Gain for U.S. solar stocks in 2005 = 134% Average Gain for three Indexes in 2005 = 1.25% As you can see from the numbers, there was nothing “lackluster” about solar related stocks in 2005. They clearly and substantially outperformed all the comparative indices. Admittedly, there are only a small number of stocks and they are almost totally focused in the Photovoltaics sector of the industry, but it is certainly a beginning and a “stellar” beginning at that. Their growth has slowed down in the first half of 2006 and they are currently in the midst of a corrective stage, but they are still substantially outperforming the major indices since the beginning of 2005. There are two things that are important to understand regarding investing in the current renewable energy industry: Just the Beginning This is “just the beginning” of the birth of the renewable energy industry. The renewable energy industry is at the same stage now as the automobile industry was in 1900. We are seeing the first few companies becoming public and we will see hundreds more over the next decades. It will be an exciting time for investors and there will be plenty of opportunity for investors to make money and also help the environment, which is a welcome change from fossil fuel dominated energy sector of today. High Volatility At this early stage of development there will be plenty of volatility in this sector until it becomes a more mature industry. Investors must carefully select their entry points and be patient. This sector is NOT for the faint of heart. An investor has to be careful to only invest a portion of their portfolio, which they have designated for “higher risk” investments. These will be the stocks that you can make the most money on, but also the ones you could lose the most on. Risk and reward have always been intrinsically linked and this is no exception. With this increased profile for the renewable energy industry, hopefully will come a greater knowledge and awareness on the part of the American public and thereafter more positive action and attention directed at the most critical topics of our lifetime – Global Warming, our insane and growing dependence on foreign oil and a range of other related problems that can, in the long term, only be addressed by a massive scale up of renewable energy technologies of all forms. About the author… J. Peter Lynch has worked for 29 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker to small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977and is regarded as an expert in this area. He is currently an investment banker and financial/technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.
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