Neal asked me if I would comment on the markets for sustainable energy stocks in the last week. It's an area I follow closely so he hopes I will occasionally stumble across some nuggets.
Let me start by saying I believe there is potential for good returns in sustainable energy stocks over time. In the short term though, it was a tough week. Sustainable energy stocks in all four of Camino's sectors declined. In contrast, broader indicators such as the S&P, EAFA, and emerging markets were all positive for the week.
The Solar index, comprised of 33 companies, suffered the largest decline with a 5.3% drop bringing the YTD decline for the sector to -35.5%. Suntech (STP) was hardest hit with a 20.3% price decline after it reported earnings and revenue below expectations, driven in part by silicon supply issues. If other producers report similar problems I would expect to see further declines in the sector as prices adjust to lower growth expectations.
In Biofuels Aventine (AVR) was off 17.4% after it reported Thursday it had liquidity issues stemming from its $211.5 million invested in auction-rate securities. This issue may delay plant development. I expect analysts are reviewing the balance sheets of other sustainable energy companies to see if they have "cash equivalents" that aren't exactly equivalent to cash. If you don't understand what you're investing in don't invest in it.
In the Renewable Electricity sector Solar Millenium (S2M.DE) declined 10.1% . The company announced a rights issue on Feb 19 that may have triggered concerns about dilution. Overall 8 stocks advanced and 11 declined resulting in relatively modest decline of 1.1% in the index.
In Fuel Cells all of our companies reported price declines with Fuel Cell Energy (FCEL) falling the most at -6.3%. The company presented at the PiperJaffray conference on February 20, 2008 and didn't highlight any items of concern that I noted.
What did I learn this week? Apparently growth constraints are still a factor in the high growth solar sector. I also relearned that unexpected risks occur when broader markets are having problems. Are there more surprises from the credit markets waiting to be revealed in sustainable energy companies?
Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks.