10 stocks for Earth Day

By Jim Jubak

When anticipation battles procrastination, procrastination wins.

That's the first rule of the strategy behind my "10 stocks for Earth Day" green portfolio.

The second rule, of course, is that when things get bad enough, even procrastinators spring into action.

And the third rule is, as all good procrastinators know, that the last minute flurry of panicked activity under deadline pressure doesn't always produce the best decisions.

Years ago, we had a chance for relatively inexpensive and gradual fixes to a wide range of environmental problems. But instead, we procrastinated until the problems seem so pressing that we suddenly have to do something. Now, of course, like the high school student who has wasted the days away and has to do a term paper overnight, we're desperate for a solution. The quick fixes that seem most available at this late stage will be very expensive. And, since decisions made under pressure often turn out to be bad decisions, they may not even work.

In the short term -- say the 12-to-18-month time horizon of my Jubak's Picks portfolio -- it's the panic that counts for investors. The popular quick fixes are expensive, but they promise to drive up revenue big time at those companies that supply quick solutions. In the long term, some of these fixes will turn out to be empty promises or even actually make the problem worse. But over the next year or two, investors can make a good profit going with the panic while the market separates the real from the make-believe solutions.

Panicked demands for action

In honor of Earth Day (April 22), today's portfolio focuses on 10 stocks that are likely to benefit from the short-term drive to DO SOMETHING before it's too late. For less cynical and/or more patient investors, my video linked to this column recommends two stocks, Johnson Controls (JCI, news, msgs) and Maxwell Technologies (MXWL, news, msgs), that focus on energy conservation and efficiency. Conservation is, in my opinion, one of the best long-term solutions to a range of environmental problems.

But we seem to be the point where procrastination yields to panicked demands for action.

So, for example, the Chinese certainly could have anticipated that inefficient irrigation, uncontrolled industrial and residential waste discharges, and unregulated dumping from boats would pollute the Chang River (formerly the Yangtze), the longest in China. But the Chinese government is only starting to confront the problem now that more than 370 miles of the 3,860-mile-long river and 30% of its tributaries are so polluted that drinking the water is the cause of a wave of sickness and death. (The river is the source of 35% of China's fresh water.)

So, for example, the developed and developing economies of the world could have anticipated that the uncontrolled release of carbon dioxide into the atmosphere from the burning of fossil fuels would destabilize the world's climate. But only now that global warming is on its way to becoming a security issue are governments starting to act on the problem. On April 15, a panel of 11 retired U.S. generals warned that "climate change can provide the conditions that will extend the war on terror."

So, for example, countries from Iran to Egypt could have anticipated that keeping domestic oil and natural gas cheap would cause domestic demand to soak up all the excess supply those countries now export. But only now that surging domestic demand threatens to turn Iran from an oil exporter to an oil importer within 15 years is the government moving to expand energy supplies. Damping demand, of course, is still out of the question. Three-dollar-a-gallon gasoline is unpopular in the United States, but it would cause riots in Iran, where gasoline sells for a government-subsidized 34 cents a gallon.

Costly consequences of waiting too long

The delay resulting from environmental procrastination has two results:

• It has made the fix astronomically more expensive. Making the U.S. economy as energy efficient as Japan's would have cost big bucks years ago, but that cost is a fraction of what the United States is now likely to spend on solutions such as nuclear power, liquefied-natural-gas terminals and pipelines, and ethanol. Add to that crash programs to subsidize research and development of the hydrogen economy touted by the Bush administration.
• The panic that follows the recognition that we've wasted so much time often leads to less-than-optimal decision making. So, for example, in the rush to "solve" global warming -- now that the experts tell us we have only 50 years before the trends become irreversible -- building hundreds of nuclear power plants around the world seems a good solution. If we weren't so panicked by our own procrastination, would the idea of building nuclear targets for terrorists in some of the world's least stable countries seem like a good solution? I doubt it.

So what stocks will benefit from this rush to throw money at environmental problems that suddenly demand a solution?

Nuclear. I don't think nuclear power is the solution to global warming that its proponents would like it to be. And there's a good chance that even the latest -- but relatively untested -- technology will wind up disappointing investors with unexpected delays and cost overruns. But nuclear power has built up huge momentum around the globe. According to the World Nuclear Association and the Uranium Information Center, 28 nuclear reactors were under construction around the globe at the start of this year, 66 were on order or planned, and another 158 were proposed.

In this sector, that tide is running strongly in favor of three stocks: Shaw Group (SGR, news, msgs), an engineering and construction company that builds nuclear (and other) power plants; Exelon (EXC, news, msgs), a utility that operates 17 nuclear reactors in the United States, representing 20% of the existing nuclear generating capacity in the country; and Cameco (CCJ, news, msgs), the world's largest uranium producer.

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