Alternatives on Alternatives

05/19/2006 12:00 am EST


Jim Jubak

Founder and Editor,

I’m always impressed with the unique perspective of Jim Jubak . While looking at the same data as others, he always comes up with a different twist–seeing opportunities that others miss. Here, he looks at alternative plays on alternative energy.

“I've found five alternative-energy stock picks that you've probably never thought of. 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.

"To me, the most extraordinary aspect of the alternative-energy is how little they rely on breakthroughs and are extensions of existing technologies. Which is, if you think about it, a very good thing. Indeed, using today's technologies can deliver new energy production and new energy efficiencies now–when we need them.

Alstom (AOMFF Other OTC) is a classic old-technology company, with shipyards, train, turbine, and boiler businesses. 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 and huge growth in demand for electrical power in India and China. Great, you say, but what does this have to do with sources of alternative energy?

"If you can build a boiler that uses burning coal to generate steam, 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. Alstom's home is the world's most-nuclear country. France generates 79% of its electricity from nuclear power.

”Meanwhile, it 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, but commodity-trading skills. And nobody in the grain business knows the commodity markets better than Archer Daniels Midland (ADM NYSE), and nobody in the ethanol business buys corn on the scale that ADM does.

Johnson Controls (JCI NYSE) doesn't turn out turbines or solar panels, but its controls business is a key to energy efficiency. Turns out that one of the best ways to save energy in heating, cooling, and lighting a building is to have real-time information on the energy use and requirements in each part of a building so that a central control system can fine tune the supply of hot and cold air and light. No one in an office? Turn down the heat or the AC.

"Empty offices at 9 a.m. become a big source of heat as they fill up. Gradually adjust the building's heating and cooling systems to take account of that. Besides making the local and central controls, Johnson Controls is gradually moving into managing the heating/cooling, security, and information systems for an increasing number of companies that want to outsource that part of their business.

“Finally, it sure doesn't hurt to be the world's leading producer of carbon fiber at a time when making things from airplanes to cars to windmill blades lighter but stronger is a key to energy efficiency. Japan's Toray Industries (TRYIY Other OTC) has signed contracts with Boeing worth $6 billion over the next 16 years for the delivery of carbon fiber.

"The material, ten times as strong as steel and 75% lighter, is critical to Boeing's new Dreamliner 787 aircraft. The plane, scheduled for first delivery in 2008, is projected to use 20% less fuel than current aircraft of similar size. Toray is in negotiations to supply carbon fiber to Airbus later in 2006, for the first time, and reportedly is looking for a site in Europe where it could begin producing carbon fiber for Airbus beginning in 2010.”

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