The Clean Tech Revolution: The Next Big Growth and Investment Opportunity

For a long time, whenever anyone asked me “What’s the best stock for the next five [or ten] years?”, I’ve answered: water. (Sidebar: Let’s forget the impossible demand of the question or the lack of basis any answer would have). To me, water seems the only possible answer. Demand for water is one of the few items in the world that we know for a fact will increase significantly for the next decade and the next century. Few realize that here is a resource that has outperformed oil in the past from 2003-mid 2006.

In any event, it was water that got me interested in what has come to be known as “clean technologies.” Anything but an environmentalist in practice, the combination of solving major social and economic problems and offering an unprecedented growth model was what sparked my interest further. This was the state of mind I was in when I picked up The Clean Tech Revolution, by Ron Pernick and Clint Wilder.

As a historian by education, I immediately went to the bios on Pernick and Wilder. Each work for Clean Edge, a leading clear-tech research firm. “Launched in 2001 by environmental and high-tech business pioneers Ron Pernick and Joel Makower, … we provide a variety of services including research and publishing, strategic consulting, and co-producing the annual Clean-Tech Investor Summit. Clean Edge tracks and analyzes clean-tech markets, trends, and opportunities and offers unparalleled insight and intelligence to its customers through an extensive network of partners and affiliates.” In addition, CleanEdge team contributes to ” The NASDAQ® Clean Edge® U.S. Index. [This index] is designed to track the performance of clean-energy companies that are publicly traded in the U.S. The index includes companies engaged in the manufacturing, development, distribution, and installation of emerging clean-energy technologies such as solar photovoltaics, biofuels and advanced batteries.” The index does have an ETF, the First Trust NASDAQ® Clean Edge® U.S. Liquid Series Index Fund (QCLN).

This is where I almost put the book down. It’s not to say that Pernick and Wilder aren’t qualified to write on this issue, but they clearly were not going to provide a critical analysis of the industry. I have to admit, I was not really in the mood for two deeply vested and biased men telling me how great this industry was and how we should all fall in love with related investment opportunities.

In any event, my lack of metro reading one day led me to grab the book on the way out the door one morning. I have to admit, it was hard to put the book down. Pernick and Wilder’s book is composed, really, of ten essays on the industry, making it great commuter reading. If you read the book cover-to-cover, this fact is somewhat annoying, but that may be the charm of the book for some; you could easily pick it up and read chapters 1, 6, and 9 independently and be content with your purchase. I would even venture to say that all investors should put at least the Introduction on their required reading list. It offers a great synopsis and outlook for the clean tech industry as Pernick and Wilder. In addition to less discussed topics like green buildings and mobile power technologies, the authors tackle perrenial favorites like solar, wind, biofuels, and automobiles. Toward the end of the book, the authors lead us through two fascinating accounts of the Electric and Water utilities. The fact that these, both, are running through grids and pipes, over 100 years old (that’s in the US, much older in the Europe), is mind blowing. They almost needn’t go into the inefficiencies of such a system, but they do so with great, if somewhat scary, data. Pernick and Wilder end the book with both a challenge and a promise: “We hope you’ll join us in the clean tech revolution.

So do Pernick and Wilder have it right? Well, there is no question that clean tech offers an immense “opportunity”, but not quite a “promise.” Perhaps most compelling in this section is their discussion of what is driving the clean tech revolution. According to the authors it is: costs, capital, competition, China, consumers, climate. I believe that these factors are all real and significant. In my mind, this will first yield profit for company’s and organization in the “green” consulting business. As companies, developers, and homeowners seek to reduce their carbon footprint and “go green”, they’re going to need experts who can cross the myriad opportunities available a provide action plans. The authors do mention this opportunity in Chapter 4, “Green Buildings”, where they talk about energy efficiency consultants Enermodal Engineering. The most compelling anecdote for green consulting that I’ve read, was a recent article in Wired entitled “Pop-up cities: China builds a bright green metropolis.”

Nevertheless, investors looking at stocks and ETFs today should still consider the vast majority of “clean tech” stocks as very speculative. As I review some of these companies, I see a real danger to lose a significant amount of money on speculative gambles. On the other hand, there are some real gems out there. How do you find them without purchasing a fake? My suggestion is to forget the speculative, get rich quick, companies. These are the company’s selling at a high valuation on the promise of their technology taking hold. To that point, I would also avoid company’s carrying a large amount of debt. You may miss the initial big pop if these company’s hit it big, but by waiting for the first sign of a self-sufficient, profit generating company, will not preclude you from returns altogether.

Personally, I still like water and if I had to narrow it down I like Veolia Environment (VE) and the PowerShares Water Resources ETF (PHO). I also like most of the larger companies “green plays” mentioned in the book including Dupont (DD) and 3M (MMM). I have no current stake in these equities.

[Disclosure: Collins approached me with an copy of this book, of which I received at no cost]

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