Should You Invest In Green Energy?
Oil dropped below $114 today after hovering around $117 per barrel. But I still think the long term trend is up.
According to Kevin Kerr, editor of a commodities investment newsletter,
“The U.S. is filled with gas hogs, but the developing world is catching up. Last year, Chinese drivers bought 5.5 million cars, minivans and SUVs and 3 million commercial vehicles, up from just 1.6 million vehicles sold in 1997. Sales are expected to grow 15-20% this year. Looking down the road, China’s auto sales are expected to grow by 1 million vehicles annually through 2015.
“Meanwhile, India is poised to rocket past China as the world’s fastest-growing car market. Sales of passenger cars in India increased 12.17%, to 1.5 million, in this past year.
“As a result, China’s oil imports are expected to nearly double by 2020, and India’s oil imports are projected to more than triple over the same time period. So while $120 oil and $4 gas may seem expensive, it’s likely that in three years, we will have $250 crude and around $8 gas. I wonder if the ‘experts’ will still be debating whether oil prices are high by then.”
Seems like someone else agrees with my prediction of $8 per gallon gasoline!
Solar energy stocks have also been on a tear lately. I had shorted First Solar (FSLR) earlier this year and I closed out my position with a small profit. However, since then its spiked from $195 to nearly $295! I would’ve made a lot more money if I had just gone long! It’s currently sporting a very high PE ratio of 143. Despite its ~50% jump, I don’t feel comfortable buying stocks which have absurd valuations. As Buffett’s mentor Benjamin Graham believed, you should always look for a margin of safety
But regardless of the increase in green energy stock prices, I think alternative energy sources will take a lot of research and time before they can replace oil as a major source of the world’s energy. Until then, I’m happy to keep holding on to my dividend-producing canroys.
For any of you that think ethanol is a viable long-term alternative, I strongly recommend reading Time Magazine’s article: The Clean Energy Scam.
![[Amazon Rainforest surrounded by Sugarcane fields]](http://livingoffdividends.com/wp-content/uploads/2008/04/amazon_rainforest_sugar_cane_biodiesel_scam.jpg "amazon_rainforest_sugar_cane_biodiesel_scam")
This is a picture of Brazil’s Amazon rainforest which has now been replaced by sugarcane fields to produce ethanol. Yes, its a cheap alternative to Oil, but it is in no way a better or a green solution. In the US, using a food source to produce energy is even more moronic. But until we start having our own food riots, I doubt the government subsidies will go away.
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April 30th, 2008 at 2:07 pm
Interesting thoughts. I wouldn’t be surprised to see oil fall back down to $100 with the rising strength of the dollar, but agree that over a couple years we are looking at a pretty pricey barrel of oil.
May 1st, 2008 at 7:26 am
“with the rising strength of the dollar” I missed that memo. I had never really heard the case that Time presented. That is a unique perspective though. I think gas will continue to increase short (summer) and long term.
May 1st, 2008 at 8:15 am
I remember looking at FSLR a few months back, but didn’t look too hard. The valuation just seemed outrageous ( even to a novice like myself ), and now it’s even moreso. Perhaps the investors know something that I don’t.
May 1st, 2008 at 12:54 pm
Oil will end! more discoveries and extensive drilling will relieve the pressure, but the amount of oil is finite!
Solar will never end, because if it dies we all do! The sooner you own a piece of desert that is good for solar development the better! It will provide the only known source of perpetual energy that is known to mankind. The Europeans are planning to own and develop the Sahara,most of the desert in the states is under consideration, and barring an astounding change in the fusion sciences there is no other competition.
May 4th, 2008 at 5:57 am
Hello,
very nice site.To your article. My personally I am more bearish with crude oil. In my view USD bottomed and any strengthening will weight on crude oil.
Regards
Vlada
May 6th, 2008 at 3:57 am
I am a bit iffy about the ethanol thing but there are other ways to invest in green energy.
You can invest in solar companies or wind companies. I read in one of my student’s science books that there is enough wind in Texas (and two other states that I forgot) every day to produce enough energy to power every home and business for one week. I guess we better start giving those windmills a harder look.
May 9th, 2008 at 11:53 am
I like the idea of being “green”. But at the same time I don’t see the best bang for my buck quite yet on it. I like the $8 per gallon of gas idea coming, but I’m thinking the current green trend is going to push the alternative fuels here before 2020, but I know, it takes time…
May 9th, 2008 at 8:01 pm
So far green has been a bust when it comes to investments. Very few if any green companies have ever made a profit. Basing economic decisions on any article from Time is really stupid. Everything they publish is left wing liberal garbage. Oil will end and new energy sources will appear but all will take time and substantual investment. Right now no one is motivated to produce any alternative.
May 27th, 2008 at 12:56 pm
Couldn’t agree more here. I’ve read Graham’s ‘The Intelligent Investor’, and it really opened my eyes to how dangerously high valuations can cost us a ton of money, even in supposedly sure-fire markets like energy, both traditional and green. Heck, back in 98 and 99, the internet was the sure-fire way to riches, and we know how that turned out. No matter how big energy figures to be in the future, there might be a dangerous bubble there.
That said, Honda (HMC) is one of my favorite long-term plays. In everything from motor scooters to small jets, Honda is at the forefront of innovative, efficient transportation.