Two New Alt-Energy Plays

07/29/2008 12:00 am EST


Michael Brush

Columnist, MSN Money

Michael Brush of MSN Money says demand for alternative energy is just getting started and he recommends two stocks that will profit from it.

Think higher demand for oil from emerging economies such as China and India has pushed energy prices out of sight? You ain't seen nothin' yet. By 2030, world energy demand will be up an additional 50%, according to the International Energy Agency and the US Department of Energy.

Few experts expect supplies to keep pace.

Green energy has the potential, at least, to make up the difference. "There's an infinite amount of it compared to what we need," says Michael Eckhart, the president of the American Council on Renewable Energy. Besides solar, green energy sources include wind and the geothermal heat inside the earth.

To tap those sources, investors pumped $148 billion into clean energy development last year, compared with $33.4 billion in 2004, according to Michael Liebreich of New Energy Finance. Liebreich thinks the amount put into clean energy could grow to $450 billion in five years.

Solar is the big investment play in green energy at the moment, but wind is not far behind. Astonishingly, 35% of electrical generating capacity built in the US last year is powered by wind. That was second only to natural gas plants, which made up 41% of capacity added last year.

About $9.4 billion was invested in wind capacity last year, and that is expected to grow to $16 billion this year, says Randall Swisher, the executive director of the American Wind Energy Association. "This is very mainstream," he says.

Technological advances and rising energy prices mean electricity from solar, for example, will be economically viable in many US markets within a year or two, predicts Jack Robinson, who runs the Winslow Green Solutions Fund (WGSLX) and the Winslow Green Growth Fund (WGGFX).

Robinson [has] a big position in one of the best-known green plays, First Solar (Nasdaq: FSLR), which makes components used in solar power generation. But he also likes these two lesser-known names:

American Superconductor (Nasdaq: AMSC) licenses wind turbine designs to manufacturers. It's also developing wire that is more efficient at transmitting power for use in the electricity grid. The company also sells devices that regulate voltage from wind farms, making it is easier to connect them to grids. After news of a huge Chinese contract, Jefferies analyst Paul Clegg recently upped his price target for the stock to $48 a share from around $32. (It closed above $36 Monday—Editor.)

LSB Industries (Amex: LXU) sells the pipes and pumps that allow customers to use underground temperatures to cool air in the summer and warm it in winter. (About five feet below the surface of the earth, the temperature typically holds at 45 to 55 degrees year round.) Canaccord Adams analyst Eric Prouty has a $26 price target on LSB stock. (It closed above $20 Monday—Editor.)

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