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Today I've got five alternative-energy stock picks that you've probably never thought of.
Ready?
Alstom (AOMFF, news, msgs). Archer Daniels Midland (ADM, news, msgs). General Electric (GE, news, msgs). Johnson Controls (JCI, news, msgs). Toray Industries (TRYIY, news, msgs).
Bored yet?
These certainly aren't the alternative-energy stocks that come leaping to investors' minds these days. With the possible exception of ADM, which gets some buzz for its ethanol business, these stocks haven't gotten much of a boost from all the talk about alternative energy. Or from the hot money flowing into alternative-energy stocks.
That's understandable, because there's not a battery breakthrough, a revolutionary solar-cell manufacturing technology or a hydrogen-powered whatever among the group.
Which is exactly my point in picking these stocks.
Thinking short term
To me, the most extraordinary aspect of the alternative-energy technologies that will transform the global economy over the next two decades, thanks to higher oil prices, is how little they rely on breakthroughs and revolutions, and how much they are extensions of existing technologies and processes. Which is, if you think about it, a very good thing.Related news and commentary on MSN Money
President Bush talks about funding research for a "hydrogen economy," a catchall phrase for a group of developing technologies that might lead to hydrogen-powered cars and fuel cells everywhere, that's scheduled to arrive, if everything goes well, sometime after 2030. But these and other alternative-energy companies, using today's technologies, can deliver new energy production and new energy efficiencies right now. When we need them.
Let's start at the top of my list, with Alstom, to see what I mean.
Alstom, with its shipyards, train, turbine and boiler businesses, is a classic old-technology company. Alstom, which required a bailout from the French government in 2004, is on the comeback trail today largely thanks to the increasing use of coal -- the cheapest alternative to oil and natural gas -- to generate electricity. And thanks to huge growth in demand for electrical power in India and China.
Back in 2000, natural-gas turbines represented more than half the total orders for power generation. Today, natural gas's share has dropped back to 30%-35% and coal has climbed back to roughly the same market share as natural-gas turbines.
And that's 30% to 35% of a much bigger pie. Over the last 20 years, according to investment bank ING, the installed base of power-generation equipment grew by about 3% a year, on average. That roughly matched economic growth in the developed world, which represented the bulk of new orders. In 2003, and again in 2004, China alone bought the equivalent of France's entire existing installed power-generation capacity.
Great, you say, but what does this have to do with sources of alternative energy?
Turns out that if you can build a boiler that uses burning coal to generate steam to turn a turbine that produces electricity, you can certainly build a boiler that uses the heat from a nuclear reactor to generate steam to turn a turbine that produces electricity. Which puts Alstom right in the middle of any worldwide revival of nuclear power. There are currently plans to build anywhere from 60 to 130 nuclear power plants around the world. (The exact number depends on what you count as a plan).
Alstom's home is the world's most-nuclear country. France generates 79% of its electricity from nuclear power.
And it's not just that Alstom can count on a part of that business falling into its lap -- competition from General Electric and Siemens (SI, news, msgs) is pretty fierce. The French government looks like it is brokering a business alliance that would create a French national nuclear-power champion. On April 27, the French government sold its 21% stake in Alstom, acquired in the bailout, to Bouygues (BOUYF, news, msgs). That combines a company that can build power plants (Bouygues) with a company that makes power-plant boilers and turbines. Last year Bouygues asked the French government about buying a stake in Areva (ARVCF, news, msgs), the government-owned company that owns Framatome, a builder of nuclear reactors. That would be a very interesting combination indeed.
Cheaper, lighter, more efficient
Now that you see the shape of my logic, let me go through the other stocks on my list more quickly.- Archer Daniels Midland. Turns out that making fuel from corn has a lot more to do with the seed processing and distilling business than it does with the oil business. Increasingly, it looks like the coming ethanol business will be dominated by agricultural companies rather than the oil giants. And what's the critical edge in making ethanol from corn? Not technology. Moonshiners made alcohol from corn long before there even was a U.S. government to regulate them. No, I think the critical edge that will separate profitable from unprofitable ethanol companies is their commodity-trading skills. Buy corn cheap, ethanol produces a flood of profits. Get caught in a corn price squeeze, and you lose your shirt on your ethanol production. Nobody in the grain business knows the commodity markets better than ADM, and nobody in the ethanol business buys corn on the scale that ADM does. The company, already the largest ethanol producer in the United States, plans to open a second ethanol plant in 2006, which would add capacity of 275 million gallons.
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