The Colour of Money
Investors are putting their money behind green companies, but as in any hot sector, it’s buyer beware
by Christopher Gulka
Years back, socially responsible investing was pretty much about avoiding tobacco and nuclear energy companies. Today SRI increasingly focuses on companies that will make a difference to the environment.
A recent study by Barclays Global Investors showed that the value of socially invested assets last year was $503.6 billion compared to $65.5 billion in 2004. Huge numbers of dollars are being invested in this sector. On average, up to 20% of the assets in mutual funds can now be classified as SRI picks. Another reason for the increase in value is that there is increased demand by consumers and industry for environmentally friendly products.
It is definitely easier to be green these days. No longer are consumers concerned solely about the monetary cost of a product; they consider the environmental cost. For example, sales of expensive hybrid cars are increasing. Likewise, investors are not solely looking at profit margins and earnings per share; they are also looking at companies that are catering to the environment.
Consequently small-cap companies that focus on wind power, solar power, hydrogen, fuel cells, ethanol, hydroelectricity, biomass and so on are sought after. Investment funds are financing these firms, and retail investors are buying these stocks in the market.
But not all green companies are good investments. The penny-stock promoters who typically chase trendy investment sectors have predictably embraced green investing. So for the wary investor, the basics of business still apply. Companies must have a sound business model and the ability to generate revenue and eventually turn a profit. This is more of a concern for the long-term viability of the companies. In the short term, at least for now, the market is jumping on the green bandwagon, and as long as a company has a good green story to tell, investors will be flocking to it.
The companies here either have strong fundamentals or a good story, with all trying to capitalize on the green movement.
Canadian Hydro Developers Inc. (KHD: TSX $6.19) is an independent developer, owner and operator of renewable power generation facilities in Alberta, B.C. and Ontario. By producing certified green power from a diverse portfolio of renewable wind, water and biomass resources, Canadian Hydro effectively balances both the interests of investors and the needs of the environment. The company owns and operates 18 green power facilities: 12 hydroelectric sites, five wind sites, and one biomass site. It is one of the few green companies that have been profitable, earning $8.9 million last year. As a result, the stock has been performing well, rising from its low of $4.68 to trade close to its high of $6.94. With this track record and the interest in environmentally friendly power, the stock should continue to perform well.
Dynetek Industries Ltd. (DNK: TSX $1.58) develops, manufactures and markets fuel storage systems for storing compressed natural gas for low-emission vehicles and for storing compressed hydrogen for zero-emission hydrogen fuel cell vehicles. The company claims that its DyneCell cylinder technology, which is recognized as the most lightweight and fastest-filling product on the market, can power the world’s fleet of alternative energy vehicles. Yet, Dynetek is trading near its low of $1.45, well off its high of $2.08. With the increasing need to meet low and zero emissions, Dynetek’s products are ready to fuel the demand.
Sustainable Energy Technologies Ltd. (STG: TSX.V $0.24) is a leading developer and manufacturer of power conversion products for the renewable-energy industry. The company has developed and patented a unique technology that enables more efficient utilization of renewable energy assets and higher power output from both solar and wind applications. The company is marketing its products across the world and has partnerships in Spain and Portugal. It recently completed a $6.5-million financing at $0.20. The stock is trading well above its 52-week low of $0.09 near its high of $0.29. With the growing demand for green technology, its performance may well be sustainable.
Christopher Gulka, CA, CFA is the Prairie Trader. He is an avid investor, sometime day trader, and owner of Working Capital Corporation.
Prairie Trader is an independent overview and assessment of Alberta-based companies in the public markets that have investment potential. The author declares that he has no investment or business interest in any of the recommended companies described herein. Alberta Venture assumes no responsibility for the accuracy of any stock recommendations. You can reach Gulka at prairietrader@albertaventure.com or send feedback to feedback@albertaventure.com
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