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The “Bright” Side of Global Warming
05/16/2007 12:00 am EST
Neil George, editor of Personal Finance, and Elliott Gue, editor of The Energy Strategist, find opportunities for investors in "cap and trade," the effort to offset some companies' excess carbon dioxide emissions.
We saw investment potential in the warming movement some time ago. That's why we already hold a number of companies cashing in on several new, headline-grabbing government plans that coalesce around the "cap-and-trade" concept.
The gist of cap-and-trade is this: governments negotiate with industry lobbyists to come up with an overestimated ceiling of carbon-dioxide emissions from power plants and heavy industrial facilities. These companies then have to either buy more credits from companies in surplus to emit more carbon dioxide (CO2) or fix their emissions [by] shutting down plants or buying credits from other companies that are in surplus.
A fix entails partially or fully shutting down plants and moving them to other nations without CO2 caps or buying credits from other companies that are in surplus.
Surplus credits come from a variety of means that can include legit fixes in current emissions, as well as minor fixes that still leave room for improvement. In addition, companies in alternative fuels that supposedly don't emit CO2 can earn credits that can then be sold for lots of cash.
Getting credits from CO2 emitters means putting new fixes on existing power plants. It also means building non-CO2 emitting coal and nuclear plants. This is where Siemens (NYSE: SI ) comes in. Siemens boasts an impressive collection of industrial engineering assets and continues to focus on where cash can be generated. Cap-and-trade is made for our Munich-based bruiser. Siemens is a buy under 120. (It closed Tuesday at $118.42-Editor.)
Companies that generate power from alternative sources such as wind, solar and geothermal also benefit from cap-and-trade legislation. These operators don't produce greenhouse gases and are able to sell valuable pollution credits to firms that emit more CO2.
Brookfield Asset Management (NYSE: BAM ) has been on this for years. Armed with plenty of hydro, geothermal, and even wind farms, our big energy, infrastructure, and real estate company continues to be front and center in the parade of cap-and-trade deals. Continue to buy Brookfield Asset Management under 65. (It closed just below that price Tuesday-Editor.)
For a speculative play on alternative power generation, consider Ormat Technologies (NYSE: ORA ). The company is a leading global builder and operator of geothermal power plants. Ormat generates around three-quarters of revenues by producing power from its own geothermal facilities.
The company owns power plants globally with nearly 400 megawatts of generating capacity and sells that power under long-term contracts often at premium, subsidized rates. The remainder of Ormat's revenues comes from building geothermal facilities for third-party operators. Buy Ormat Technologies under 45. (It closed under $36 Tuesday-Editor.)
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