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Jubak's Journal Recent articles: • Russian roulette? Not with these 5 stocks, 1/4/2006 • 5 keys to beating the market, 1/3/2006 • The dark side of the dividend boom, 12/27/2005 More... | Jubak's Journal Invest in Europe's alternative energy leaders If you want to invest in alternative power, you'll want to head east. European companies like Iberdrola, Sunways and Conergy are leading the way. By Jim Jubak For a country projected to import 68% of its petroleum by 2025, according to the U.S. Energy Information Administration, the United States is doing shockingly little to develop alternatives to oil and natural gas. It's big news in the United States when Willie Nelson opens one truck stop to sell biodiesel. Efforts to build offshore wind farms are trapped in the doldrums while residents of the Hamptons, Martha's Vineyard and Nantucket worry that the windmills 10 miles out to sea will spoil their views. And it takes the shutdown of the U.S. oil and gas industry on the Gulf Coast to get President Bush to suggest that Americans might try to drive less. Europe is where the action is. In 2003, Germany passed Japan to become the world's largest market for photovoltaics, the silicon cells that turn sunlight into electricity. Spanish utility Iberdrola
Go east U.S. investors should follow the same path. If you want to invest in alternative energy, go east. And that's even more true now that the Russian shutdown of the flow of natural gas to Europe on the New Year's weekend has led European leaders to a panicked search for solutions to their own energy dependency. (Russia is the source of about 25% of Europe's natural gas.) Efforts to shut down existing nuclear plants in Germany and Spain and to cut back subsidies for alternative-energy production are likely to go down to defeat in the wake of Russia's power play. (The immediate crisis was quickly ended when Russia agreed to resume gas shipments to the Ukrainian pipeline that supplies such of Western Europe. For more on the reasons for the shutdown and its long-term effects, see my Jan. 4 column, "Russian roulette? Not with these 5 stocks.") Related news and commentary on MSN Money
Unfortunately for U.S. investors, very few -- well, maybe none, in all honesty -- of these stocks are household names. Most aren't followed by U.S. stock analysts and it's just plain tough to get information on many of these companies. What follows is my take on this sector and my pick for three stocks that offer a good combination of potential return and available information. Let's start with a big guy, Spanish utility Iberdrola. Spain has been one of the most aggressive countries in Europe in its pursuit of alternative energy sources. By 2010, the government projects, 29% of Spain's power needs will come from renewable energy sources such as hydro and wind power. (I know this is just a plan, but according to the European Commission, Spain is one of just four countries in the European Union that is on track to meet its target. The others are Germany, at 12.5% by 2010, Denmark at 29%, and Finland at 31.5%). The Spanish government has pushed that target with a combination of rate premiums for electricity generated by alternative sources, tax incentives and, in common with other European governments, a cap on carbon emissions. These incentives have been so successful that Germany's Commerzbank projects that Spain is on the verge of a boom in solar-power generation like that which pushed Germany to the top of the photovoltaic heap in 2003. Iberdrola gets about 70% of its power from a combination of wind, hydro and nuclear sources. About a third of the company's power comes from seven fully or partially owned nuclear plants. It's that nuclear exposure that makes the recent Russian gas shut-off especially important for Iberdrola. The Spanish government has called for a national forum to review the country's nuclear policy. But with the Russian shut-off demonstrating how dependent Europe's economies are on imported oil and natural gas, a shutdown of any Spanish nuclear plant becomes extremely unlikely. As a stock with a market capitalization of roughly $24 billion, Iberdrola draws research coverage from big-name international investment houses such as Deutsche Bank and Morgan Stanley. The stock even trades as an unsponsored ADR on the over-the-counter market under the symbol IBDRF. Its Reuters code is IBE.MC and its Bloomberg code is IBE SM. Any broker -- full service or discount -- with a decent international desk should be able to buy and sell this stock for you. The company's Web site is here. Conergy The one potential fly in the ointment for Conergy, as for all photovoltaic companies around the world, is the shortage of silicon cells that plagued the market last year and is likely to continue this year. The company is not a manufacturer but a distributor, and it has solidified its relationship with Sharp Sunways The company's new solar cell factory (remember, 2005 saw shortages of solar cells) came on line in the third quarter of 2005, which gives the company the capacity to meet forecasted sales growth of almost 40% a year between 2004 and 2008, according to Commerzbank. If the company can ramp up production to something like full capacity at the new plant, the stock's high price-to-earnings multiple of 126 on projected 2005 earnings per share will drop to 16 times projected 2006 earnings. In addition to the big increase in production, this small company has a solid technology edge going for it, too: its solar inverters, which change the direct current (DC) produced by solar cells into the alternating current (AC) used in the utility grid, are currently the most efficient (97%) on the market. Sunways trades as an unsponsored ADR on the OTC market under the symbol SWYAF. The Reuters symbol is SWWG.DE, and the Bloomberg symbol is SWW GR. The company has an English-language Web site here. When to buy Timing the purchase of stocks is difficult if you can't get good charts on them. Conergy has been strong along with the entire German market this year. Sunways has been weak as the new plant pushed the company into a negative free-cash-flow position in 2005. I might wait a bit on Iberdrola. The company is expected to pick up some assets from Endesa Updates Sell Siemens Siemens hit my March 2006 target of $87 just a little early -- on Jan. 3 -- even though I'd raised the target price by $4 a share on Dec. 21. The stock has gone up like a rocket since Nov. 8, moving from $72.80 to $91.14 on Jan. 4. Even though Siemens fits my theme for 2006 of increased spending on global energy infrastructure (see news on Dec. 28 of the company's contract to build power and desalination plants in Saudi Arabia, for example), I like to take profits when a stock's climb goes from steady to parabolic. I'm selling Siemens with a 22% gain since I added it to Jubak's Picks on Nov. 15. New developments on past columns "Why the greenback is back" We've been here before: The price of a commodity outruns analyst projections and, as Wall Street scrambles to catch up with real-world trends, stocks in that sector climb as analysts raise their estimates. The story is familiar because it happened in 2004 and 2005 with oil stocks, as analysts raised their estimates for oil from $25 to $45 a barrel -- and higher. Now it's happening again with gold and gold stocks. As of Dec. 20, according to National Bank Financial, the consensus estimate for the price of an ounce of gold stood at $438 for 2005 and $480 for 2006. But gold opened 2006 at approximately $530 an ounce. Only one of the 21 investment houses that National Bank Financial tracked has a 2006 estimate above that and there are still plenty of analyst estimates near $420 for 2006. Gold could go lower in 2006 if:
2) the U.S. dollar climbs in 2006, repeating its rally against the yen and euro in 2005; 3) real interest rates (that is interest rates after inflation) surge; 4) investors in the Far and Middle East stop buying gold as an investment and a hedge against the U.S. dollar; 5) jewelry demand from India, China and the Middle East falls after growing at nearly 10% in 2005; 6) central banks in Russia, South Africa and Argentina stop buying gold and start selling it; 7) global gold producers somehow find a way to get mines scheduled for initial production in 2008 to start cranking out gold now. Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak did not own or control shares in any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column. | |||||||||||||||||||||||||||||
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