The current alternative and renewable energy movement is very similar to the internet tech boom of the late nineties. Both movements have been categorized by fast and quickly changing technologies, failed start-ups and experiments, and outrageous share prices. One of the difficulties in alternative energy portfolio construction is dividing enough capital among these companies and trying to pick the "winners" from the herd.
That's why I often recommend going with exchange traded products such as the Market Vectors Global Alternative Energy ETF (NYSE: GEX), which gives investors a basket of various stocks devoted to renewable endeavors. However, the GEX has traded as high as $53 and as low as $14 over the past year so for those investors who can't stomach the volatility or who lack the necessary timeline associated with these kinds of investments, there are alternatives.
IN PICTURES: 7 Tools Of The Trade
A Green Chip Portfolio
What's exciting about the green energy movement is that several well established firms have "green" operations. Not all of the leaders are risky ethanol start-ups. For example, Japanese electronics conglomerate Sharp (OTC: SHCAY.PK) is the largest manufacturer of solar panels in the world.
Investors willing to dig deep into some large corporations may find industry leading green technologies that allow them to profit from the movement with less of the volatility. While these companies are not as exciting as Evergreen Solar Inc. (Nasdaq: ESLR), they will provide downside protection as well as dividends.
Waste to Energy
While being the nation's largest garbage hauler and recycler is already a quite impressive feet, Waste Management (NYSE: WMI) earns higher marks for its waste to energy and landfill gas projects. The company is overcoming one of the major problems in alternative fuels: feed stock cost. For Waste Management, feed stock is essentially free. Waste Management currently supplies landfill gas to over 100 projects in North America, which provides the equivalent of 470 megawatts of energy, about enough to power approximately 400,000 homes.
FPL Group (NYSE: FPL) is turning into the archetype green utility. Approximately 95% of its electricity is derived from clean or renewable sources, including wind, solar, hydro, natural gas and nuclear energy. Currently, FPL is the largest operator of solar energy and wind with 8,200 turbines in the United States. This allows investors to profit from the running of such operations rather than just the installation.
On top of that, FPL has the most efficient fossil fuel fleet of any large-scale electric utility in the nation. The utility has improved fossil fleet fuel efficiency by 19% since 1990. The shares yield 3.3% and offer long-term growth potential.
Energy Efficiency and Transmission
When the automotive industry ran into trouble, Eaton Corporation's (NYSE: ETN) share price followed suit; guilt by association. While its automotive division is suffering, its electrical offerings are humming right along. Eaton provides all the necessary equipment to upgrade our aging power grid and move to more of a smart grid operation including voltage regulation and power management hardware and software.
Add this to its energy-efficient power-management systems that help reduce fossil fuel and its recent new venture with the U.S. Environmental Protection Agency (EPA), a hybrid hydraulic/electric alternative for fleet-vehicle propulsion and you have the makings of a green superstar. The EPA estimates such advancements could produce fuel savings of 20% to 40%, and cut carbon emissions by as much as 40%. Shares yield 3.8% and investors are in good company. Warren Buffett holds nearly 3.2 million shares of the company.
The Bottom Line
Alternative and green energy offer great rewards to patient investors. However, for those who wish to play the sector with lower volatility, there are other options. Many large, well established corporations offer investors the chance to participate in the movement, and as with the examples above, receive healthy dividend payments. (For more, check out our Investopedia Special Feature: Green Investing.)
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