Tuesday, December 30, 2008

Time to Invest in Green

As 2008 draws to a close, there are a lot of good reasons for investors to see value in Green stock. Chief amongst them is President-elect Obama's 750 billion dollar stimulus, much of which is devoted to Green initiatives like renewable energy. Reducing greenhouse gas emissions, and preserving natural resources are amongst Obama's presidential priorities. As we make the transformation to the "new energy economy" we can expect painful adjustments, but there can be no doubt about the incoming administration's commitment to making America more competitive through Green technology.

The current economic situation is not as bad as some sensationalist media headlines would have us believe. Downturns purge inefficiency, and although we know that some will not survive, most non-financial corporations are in better financial shape than they have been in over 30 years. John Zechner of JZechner Associates Inc. predicts that the US economy will shrink by about 7% with unemployment peaking at about 7.5%. Even if this assessment proves to be optimistic, we will not be anywhere near the dismal economic numbers posted early last century. (From 1930 to 1934 the US economy contracted by 27% and the unemployment rate was over 25%).

Unlike 1929, central banks around the globe are responding to the economic crisis. We have come to understand that governments have a very important role to play. The combination of policy, regulation and investment should stimulate markets and slow the decline. And although it may take some time, 'reflation' should work as it has in the past.

The market decline and ongoing volatility is inspiring many investors to review their portfolios. But knowing how to profit from the market is largely a matter of timing. The history of recessions and bear markets indicates that downturns last between 7 and 14 months. Leading some to expect a resurgence starting in the middle of 2009. However not all firms will prosper going forward, and this is the caveat to smart investing. As the once mighty pillars of the old economy fall, investors are tasked with the challenge of identifying firms well positioned to take advantage of global trends.

Historical data (1932, 1942, 1982 and 2003) demonstrates that investors who buy when the economy seems most troubled, earn the greatest returns. Stock prices have dropped to five-year lows, and when compared to bonds, stocks are at their most inexpensive level in 40 years. We have not hit bottom yet, but we would do well to remember that markets tend to begin their rebound anywhere from two months to six months before an actual economic bottom. This is the time to begin looking at firms that are well positioned to capitalize on global trends.

There are an abundance of Green investment opportunities that arise from Obama's pledge to invest in renewable energy, energy efficient public buildings, and the electricity grid. As he put it, "The pursuit of a new energy economy requires a sustained all- hands-on-deck effort." This "21st- century economic recovery plan" will put Americans to work building wind farms, solar panels, and fuel-efficient cars. With the announcement of his energy and environment team, President-elect Obama has demonstrated his commitment to renewable energy and reducing America's dependence on foreign oil.

We are about to embark on a journey towards "a new energy frontier", investors who seize the moment will be in a position to benefit. To quote the President-elect, "we must seize boundless opportunities now [and] we must have the will to act and to act boldly." For those who wish to support the environment and turn a profit, now is the time to go bargain hunting for undervalued Green stock that is well positioned to soar in 2009. Green can provide smart investors with an earning opportunity of a lifetime.

Next: Solar Stocks: Short Side Profits


Rafael Rosa from Investment Analysis said...

nice post.
I agree with what you're saying, but investors must also becareful because the next bubble is likely to be the Green Bubble.

I actually had a post about it on my blog last week or so.

Keep up the good work.

SBC said...


I agree with your cautionary warning. The injection of hundreds of billions of federal dollars could indeed contribute to a Green bubble. This is a topic I will be addressing in 2009.

Thanks for the comment and I appreciate the straight talk in your blog.

Go Green said...

Great Post..Thanks for this. I saw an article and thought it was nuts but you have done a terrific job at pointing that out.