3 stocks for investing in China’s mighty wind power industry

In August 2007 only one Chinese wind turbine maker, Xinjiang Goldwind, made Merrill Lynch’s list of the top ten wind turbine makers in the world.

In 2010 two Chinese companies Xinjiang Goldwind and Sinovel Wind Group both make the top 5. Sinovel has climbed to No. 3 in the world.

Even though neither company sells much of anything outside of China. (In 2009 the two companies exported 20 units with a total capacity of 29 megawatts.)

The growth story is spectacular but not especially surprising. $47 billion of China’s stimulus spending over the last two years went into alternative power generation such as solar and wind. A local content law that required 50% of any turbine purchased with government money to be made in China was revised to require 70% local content.

China installed two times the number of wind turbines in 2009 than it had in 2008. Wind power capacity soared to 25.8 gigawatts in 2009 from 12.2 gigawatts in 2008. And in 2010 plans are to add another 18 gigawatts of capacity.

The investment story isn’t quite that simple. Read more

The disaster in the Gulf has killed the chance for a national energy policy: here are the winners and losers, if I’m right

The list of casualties from the explosion at Transocean’s (RIG) Deepwater Horizon just keeps getting longer.

There are the 11 rig workers who died in the fire. The reputation of BP (BP), the owner of the oil, Transocean, the owner and operator of the rig, and Halliburton (HAL), the company that at the time of the explosion was pouring the concrete that was to seal the well. The wetland ecologies of the Gulf coast. The fishermen and shrimpers who make a living from these waters. The towns and communities that depend on the Gulf for their economic life blood.

And somewhere in that list of casualties you should add national energy policy.

Certainly any national energy policy that’s built on cap and trade or a carbon tax or any other mechanism for fighting global climate change is now dead. And maybe even the kind of smaller, focused energy bill that Senate majority leader Harry Reid (Dem.-NV) started to talk up last weekend.

One of the strange consequences of the Deepwater Horizon disaster is that it has reduced the chances for any kind of comprehensive energy plan in the near future to between slim and none

Not because the United States doesn’t need a national energy policy. We do. Desperately. The disaster in the Gulf of Mexico just makes that clearer.

But because of the politics of energy in Washington. Read more

Update watch list stock A123 Systems (AONE)

Lithium-ion battery maker A123 (AONE) is an object lesson in why buying into popular IPOs (initial public offerings) can be so dangerous—for investors who aren’t part of the initial insider crowd anyway.

Consider this post an explanation for why this stock has been on my watch list since September 25, 2009. And why I’m only finally starting to look at buying it now.

A123 went public in September 2009 in a high anticipated offering. Here was a startup out of MIT with technology that would make the company the next big thing in batteries for hybrids and all-electric vehicles. The stock opened for trading at $19.60, already above its offering price, on September 25 and then went on to run up to $25.77 as investors who hadn’t been able to get any shares before the stock went public rushed to get in now. Anybody who owned shares at the first trade price was looking at a 31% gain in a week. And some of those initial investors took their profits. The stock dropped to $14.70 by mid-November on the selling.

But many investors couldn’t sell. The investors who had put money into the company before it went public were required to hold onto their shares for a lock-up period of either 90 or 180 days, depending on exactly what kind of relationship they had with the company before the IPO. With approximately 72 million shares locked-up the stock recovered from that initial round of profit-taking to climb back into the low $20s by the end of December.

It’s been all downhill from there as first the 90-day lockup and then the 180-day lockup expired. (The 90-day would have expired, roughly, on December 25, and the 180-day on March 25.)

The shares closed at $9.63 on May 7. That’s 51% below the $19.60 of that first post-IPO day.

I think that’s a reasonable bottom for this stock. Read more

Update Ormat Technologies (ORA)

Ormat Technologies (ORA) has been on a very slow recovery track since it hit a low of $27.76 on March 29. The shares were up about 12% as of 2 p.m. ET on April 22, 2010, to $31.08. That still leaves the stock a lot of work to do before it gets back to the $41.08 where I bought shares for Jubak’s Picks on November 17, 2009.

Ormat Technologies shares crashed on a February 23 announcement that it would restate its financial statements for all of 2008. The company had concluded that its accounting treatment that capitalized certain exploration and development cost was inappropriate and that the company, at the SEC’s urging, expense these costs. That will have the effect of moving these costs onto the company’s books much more quickly.

The news generated a rush to court with lawyers filing class action suits in behalf of shareholders charging that the company, in the language of one suit, “recklessly disregarded that their public statements concerning Ormat’s business, operations and prospects were materially false and misleading. Specifically, defendants made false and/or misleading statements and/or failed to disclose: (1) that the Company was improperly continuing to capitalize costs for individual projects after Ormat had decided to abandon further exploration and development of individual projects instead of expensing those costs in the period in which any such determination was made; (2) that, as a result, the Company’s financial results were overstated during the Class Period; (3) that the Company’s financial results were not prepared in accordance with Generally Accepted Accounting Principles (GAAP); (4) that the Company lacked adequate internal and financial controls; and (5), as a result of the above, that the Company’s financial statements were materially false and misleading at all relevant times.”

Nothing good for the share price in either Ormat Technologies news or in the flurry of lawsuits. I take the law suits seriously. After all in the period that the suits name, May 6, 2008 to February 24, 2010, the share price fell from $50 to $22. Multiply that by the 45 million shares outstanding and you’ve got $900 million in losses to investors. That’s a lot for a company with annual sales of just $415 million.

But most class action suits never go to trial, getting settled for a payment far below the alleged damages. In those that do go to trial the final award is seldom equal to the alleged extent of shareholder losses.

Especially when as in the current situation, part of the decline in the stock was due to a general collapse of the stock market. Remember that the stock market didn’t hit a bottom until March 2009. Good luck collecting on the drop in Ormat’s share price from May 2008 through March 2009.

And then there are sound fundamental business reasons for the decline in the company’s stock since May 2008. Fundamental problems that increasingly seem behind the company. Read more

Update Ormat Technologies (ORA)

On February 23 Ormat Technologies (ORA) reported fourth quarter results that paid the price of the global economic slowdown and of delays in any U.S. plan to promote alternative energy sources.

In the company’s first business segment, electricity generation from its geothermal power plants, Ormat reported an increase in revenue of just 2.9%. Electricity generation went up 14.2% in the quarter but the average price per megawatt hour fell by 12%. That’s exactly what you’d expect in this slow economy.

In the company’s other, much smaller, products segment, the company reported revenues of $31.4 million from the sale of generating equipment to other geothermal power producers. Order backlog climbed to $90 million from $70 million.

The two segments added up to $95.3 million in revenue, essentially flat with the fourth quarter of 2008. Earnings for the quarter came to 35 cents a share. The positive surprise of four cents a share was due to higher than expected revenue in the company’s products segment.

Ormat isn’t projecting any improvement for 2010. Total revenue for the year will fall between $350 and $370 million, down from $415 million for 2009.

I’m generally in favor of waiting when a long term trend takes longer to assert itself than expected. Ormat is still the preeminent geothermal company in the world in my opinion and when the world get’s serious about doing something about global climate change Ormat will occupy a very profitable position.

The question, though, isn’t how long I can wait, but how long Ormat can. Read more