Most articles of this nature present a list of green companies that an investor should and should not invest in. Investors often look to analysts and advisors to tell them exactly what to buy or sell. Instead, it can be more useful for an investor to learn some useful tools in which to formulate investment decisions with the highest probability of success in green equities.
Spotting a Great Green Investment
When choosing green investments with the highest probability of success some items to look at are:
- Low price to book value. During this bear market many companies like Arise Technologies (APV.T), or Sunopta (STKL-Q, SOY.T) currently have market prices below book value per share (at time of writing).
- Companies that provide quality products and are already past the initial R&D phase and generating sales with long-term contracts secured. Therefore look at performance, not just potential, to lower risk and increase probability of success.
- Trends and consumer feedback.
- Level of debt in a company. Check footnotes in financial statements. Especially during recessionary times, a good company that is highly leveraged may not be able to meet debt payments and obtain additional financing.
- Companies that do not just depend on one country for sales, but rather sell products internationally and have long-term contracts in place, such as Arise Technologies (APV.T) or Suntech Power (STP.N).
- Companies with strong partnerships and good management. Examples include Akeena Solar with MS (Morgan Stanley) Solar, and Verenium and BP.
Pay Attention to Trends
It is advisable when investing in green, or any asset for that matter, that it is an active process and an investor keeps informed and up to date on technological developments and changing government regulations. The future is not definite, but there are usually clues around as to a products future viability.
When deciding whether to invest in biofuels, an investor could invest in biofuels made by food products such as corn, or cellulosic products made from non-food sources such as wood chips. It has been made clear in the media that consumers have been voicing out concerns over biofuel made from food products for many reasons. During this economic recession some food source ethanol companies, such as VeraSun Energy and NovaSource Biofuels have gone bankrupt. Meanwhile, cellulosic biofuel maker Verenium, is still in business with the help of a partnership with BP.
Investing in Solar Panel Complements
Look for technology and the firms that produce them that are outside the normal large solar panel manufacturers investors usually turn to when investing in green. For instance, look for companies that stand to benefit from installing smart-grid meters, such as ICP Solar (ICPR.OBB), or make products that help solar producers become more efficient, such as Sustainable Energy Technologies (STG.T).
With regards to solar firms, keep up to date as to which companies are producing more efficient cells and solar-related products. Sustainable Energy Technologies (STG.T) is one company that is producing advanced power inverters that optimize performance of roof-top solar panels made with thin film PV cells, a disruptive technology with high efficiency due to a lower cost structure than many current major PV producers.
Have a Plan
Most importantly, an investor should write down a plan before investing including reasons for it. If anything changes, such as a major contract falling through, an investor must have courage to sell and always remember the importance of capital preservation.
Sources
http://greenoptions.com/tag/verasun-bankrupt
http://www.bp.com/sectiongenericarticle.do?categoryId=9025113&contentId=7046637
http://www.sustainableenergy.com/
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