Alternative energy stocks have been lackluster in part due to a political environment that has shifted its focus away from the sector. Longer-term, however, corporate America and businesses abroad continue to invest in these developing markets. Numerous investment experts and MoneyShow.com contributors see upside potential for those willing to take a contrarian stance.
A nuclear energy supporter for most of my investing career, I recommend buying Cameco Corp. (CCJ) , a Canadian leader in mining, processing and managing waste from uranium.
The easiest path to carbon cutbacks is nuclear-fueled power production. Offsetting this is fear of radioactivity. But the risk of nuclear disaster has been greatly exaggerated.
Cameco is a stock with more appeal to institutions than retail investors, but it turns out to be one of the few ways that you can buy uranium, a market which is run by governments concerned with proliferation, and therefore, unlike other commodity markets, being highly regulated.
Uranium deposits are mostly found in Australia, Kazakhstan and Canada, but the only known high-grade deposits are all in Canada. As with other minerals, current production is focused on the highest grade, cheapest-extractable ore.
Cameco accounts also for about 16% of all the uranium produced on Earth. It is a key intermediary in a controlled market. It also dominates the North American market for components as well as the fuel needed for nuclear power plants. Nukem, a subsidiary of Cameco, is a market intermediary between mines (not just its own) and nuclear electric power plants. It manages its mines with a discipline to protect its interests while keeping its investment-grade rating and value of its reserves and resources.
After the Fukushima disaster in Japan, Cameco cut back on production in Canada and Australia to prevent the market glut. In November 2017 it also slashed its dividend and this took down its stock price after a dispute with Tepco (Tokyo Electric Power Co.).
Cameco is seeking C$682 million in damages for the contract canceled early in 2017 which had been in force since 2014. The timing of a final decision will be dependent on how long the arbitrators deliberate following the conclusion of the hearing. It yields more than 4% despite the dividend cut last year.
Cameco's current year production will be about 25 million lbs. of uranium from Canada mines Cigar Lake, McArthur River, and Inka although it is licensed to mine 53.4 million lbs. in Canada. Full steam ahead will be slow but sure, as 55 nuclear reactors are under construction worldwide over the next decade. Last year only four new reactors were connected to the grid.
Overall, this is my current investment favorite. The stock dominates its industry with good results that are being discounted because of worries about potential risks which are being overstated.
Despite a bit of bad luck, Ormat Technologies (ORA) remains a strong long-term recommendation. It's the world's largest producer of the most efficient form of geothermal energy, geothermal energy produced in "binary cycle" power plants, and the largest integrated geothermal producer.
Thanks to Ormat, the United States is the world's leader in geothermal -- the only renewable energy in which the U.S. comes out first. We expect long-term growth to approach the low teens. And there's potential for far higher numbers if governments start to realize geothermal's exceptional potential and begin to open their pocketbooks.
About 4.5% of Ormat's generating capacity comes from its Puna Power Plant, which is located about 15 miles from the Kilauea volcano now erupting in Hawaii. The more than 10% drop in the stock is out of line with a worst-case scenario in which the eruption inflicts permanent damage to Puna.
Moreover, even this very low-probability event would be at least partially offset by $100 million in insurance. Though the stock could drop to the $45-$50 area near term, the longer-term upside far outweighs any near-term downside.
Given geothermal's enormous potential, this form of renewable energy gets surprisingly little respect. The amount of energy available in a geothermal plant can, for all practical purposes, be virtually unlimited. Depletion rates are essentially nil, and in contrast to solar and wind, geothermal energy is typically available 24/7.
Current estimates peg the world's potential geothermal capacity at roughly 140 gigawatts, some 10% of which has been exploited. About two years ago the National Renewable Energy Laboratory concluded it was reasonable to project that as much as 5,000 gigawatts of enhanced geothermal systems (EGS) could be developed from the country's enormous thermal resources. That would easily provide more than enough energy to satisfy all our primary energy needs.
Ormat, with the help of funding from the Department of Energy, has carried out a "proof of concept" project for EGS. Though the pace has been slow, Ormat is in the forefront of U.S. plans to develop EGS.
EGS is not baked into the price of the stock. This suggests that Ormat, which we target for $100 just on baseline assumptions, could ultimately soar far higher than we currently imagine if the U.S. does indeed wake up to the urgent need for renewable energy resources that can skirt the problem of energy storage.
First Solar (FSLR) , along with many other solar stocks, are among the latest casualties of the Trump administration's effort to revive the practice of using tariffs as a component of diplomatic and trade relations.
And though the jury is still out on whether the approach will prove to be effective in the long run, many investors are concerned about the 30% decline we have seen in the stock over the past few weeks, but also the longer-term outlook for solar stocks in general.
There is no doubt that having foreign countries start to cut back on their government subsidies for things like solar power is going to create challenges for companies such as First Solar over the short-term.
However, I want to remind investors that part of why we own First Solar is the fact that the company represents "best of breed" among all the players in the industry. In addition, its size (and the caliber of its management team) also suggest that it will have the best chance of not only weathering the storm, but also coming out of it in even better shape than many of its competitors.
Yes, though it undoubtedly requires a very long-term outlook, I believe the rise of solar energy as a significant source of power for the global economy is about as certain a bet as you will ever find.
Of course, before you take out a second on your house to buy a few more shares of First Solar after the 30%-plus haircut it has been given over the past five or six weeks, I think it is important to remember that one of our favorite mantras is "trends often go on for far longer than seems reasonable."
Consequently, even though I do think the stock is very attractive after falling from over $80 to the low $50s in such a short period of time, there is nothing that says it won't also fall into the low $40s (or even $30s?) before all is said and done.
As such, if you decide to follow my lead and purchase more shares in response to the drop, you are encouraged to spread your purchases out over at least a couple of trades (rather than just one), ideally at least a few days or weeks apart.
In a market dominated by battery electric vehicles, hydrogen fuel cell technology continues to make some headway. Hyundai (HYMTF) just announced that it had reached an agreement with Audi to collaborate on hydrogen car technology.
Under the terms of the new agreement, the two companies will share intellectual property and components in an effort to bring down costs to make the technology profitable.
That's good news for hydrogen fuel cell proponents. Both automakers are leaders in the fuel cell industry. Audi leads fuel cell development within Volkswagen (VLKAY) , the world's largest automaker, and Hyundai was among the first (after Toyota (TM) ) to introduce a hydrogen fuel cell vehicle to the retail market.
Hyundai most recently unveiled its latest generation of hydrogen fuel cell vehicles, called the Nexo, at CES back in January. The Nexo -- the latest evolution of Hyundai's ix35 FCEV, which is essentially just a fuel cell-powered Tucson -- first began very limited production in 2013.
For the past few years, car manufacturers such as Toyota have promoted the benefits of hydrogen cars, which require less refueling time than battery electric vehicles. Right now, however, hydrogen vehicles are still significantly more expensive and suffer from a lack of infrastructure.
There are currently 39 publicly available hydrogen refueling stations in the U.S., with 35 in California. Globally, there are only around 500 hydrogen refueling stations. But the industry is working to add more all the time.
The first retail hydrogen fueling station recently opened in Canada. The station is the first of a network of eight hydrogen stations planned to be open in British Columbia over the next two years.
Other Canadian provinces are also expecting to open hydrogen fueling stations and testing vehicles. The Quebec government plans to soon begin testing a fleet of 50 Toyota Mirai fuel cell cars.
Estimates put the current fuel cell vehicle market at less than $2 billion. Still, the market is growing. By 2022, it is estimated to be worth more than $12 billion. And that should be noteworthy to investors. Maybe it's time again to take a look at the big three fuel cell players: FuelCell Energy (FCEL) , Plug Power (PLUG) and Ballard Power Systems (BLDP) .
Over the past few months, shares of all three stocks have taken a beating. Ballard is down almost 50% since hitting a 52-week high in November 2017. The excitement and newness surrounding hydrogen fuel cell technology is all but gone.
Large automakers continue marketing the technology, but the mainstream and social media are no longer adding false value through hype. So now might be a great time to start looking back into fuel cells.
-- This article was originally published June 28 on Real Money.