The Numbers, Renewables, and Growth
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Where is the growth? This is the question investors are always trying to answer. In the midst of natural resources constraints, fiscal constraints, and geopolitical constraints, finding sustainable growth can be very challenging. A quick look at the cold hard numbers shows that renewable energy continues to grow as a part of America's energy portfolio. The United States has not pushed renewables with the same vigor as the Germans, but renewables are slowly starting to play a bigger role regardless. Investors should not ignore the fact that major energy firms continue to devote some portion of their R&D budget to renewable technologies. The recent difficulties in the solar market have soured opinions on green energy, but the froth in the stock market does not change the fundamentals of America's energy portfolio.
It is common to decry environmentalists as pie-in-the-sky thinkers who are willing to sacrifice progress in order to save a few animals that have little practical use. At the same time resources constraints and terminal ecological damage can have very drastic effects. Humans and nature exist in a precariously dependent relationship, and killing the golden goose does not serve anyone's interests. A healthy balance between economic development and the sustainment of the environment that allows for such development should be the aim of growth as we enter into the 21st century.
SUNPOWER CORP COM USD0.001 CLASS'B' (NASDAQ: SPWR) makes some of the highest efficiency solar modules in the industry. On a pure cost basis their product is very expensive, but when the entire cost of the system, installation, and real estate is taken into account their high efficiency technology is cost competitive. In an attempt to help remove customers from focusing only on the price tag SPWR has introduced one of the best warranties in the industry. Expectations for 2013 are rather mixed; analysts expect continued pressure in the industry to make profitability elusive. SPWR's total debt to equity ratio of .74 and gross margin of 15.6% are healthy, and in 3Q 2012 they finally showed positive normalized income. With an uncertain 2013 SPWR is not a screaming buy, but it is definitely deserves a place on the watch list.
First Solar, Inc. (NASDAQ: FSLR) is another strong player in the solar industry. FSLR has made their mark with thin-film technology which is cheap but less efficient. With their lower ticker price FSLR has had great success over in industry but as new space-constrained markets like Japan start to open up thin film technology will be a harder sell. The company boasts strong gross margins of 32.8% and a low total debt to equity ratio of .15, and a healthy quick ratio of 1.4. FSLR is a well-run company and has shown massive growth and survived massive industry upheaval. Their less efficient thin-film technology may hold them back but for now they remain a strong solar manufacture ready to grow.
Traditional Energy Sources
As the above chart shows, US crude oil production has grown over the past decade, though not as quickly as renewables. Total SA. (NYSE: TOT) is a large integrated French oil company, and they are also a major investor in SPWR. Currently Total is executing their strategy to increase oil production to 3 million Mboe/day by 2017 and achieve a 3% CARG between 2011 and 2015. With a return on assets of 6.0% and a profit margin of 5.9% they are not the hottest integrated oil company. Their market cap of $113 billion is relatively small when compared to ExxonMobil, and is a blessing as it means growth requires a smaller increase in absolute revenue. Total's total debt to equity ratio of .48 is reasonable and their assets in Angola, the Ivory Coast, Uruguay, Bulgaria, Iraq, and Argentina are set to increase their liquids production over the coming years. Currently they trade at a PE ratio of 8.5 and offer a yield of 5.2%. TOT is a large cap that is ready to grow slowly but surely.
ExxonMobil Corp (NYSE: XOM) is a very well-run company with a total debt to equity ratio of only .07, return on assets of 13.2%, and a profit margin of 9.4%. This large integrated oil company has a wide range of downstream and upstream assets. XOM's size makes growth difficult to come by and its 5 year EPS growth rate of 3.6% and 5 year revenue growth rate of 4.9% show this. The company is looking to the Black Sea, Nigeria, the Gulf of Mexico, and unconventional liquids in North America to drive upstream growth. This large cap will not provide the excitement of a junior, but with a PE ratio of 9.3 XOM offers stability and some growth.
America's energy portfolio continues to evolve, and these changes offer growth and danger for investors. If the past decade is any indication, renewable energy will develop as traditional resources become more difficult to find and yields slowly decrease. Investing in the major petroleum firms offers stability and oligopolistic control, while solar promises growth and environmental stability.
MrCanadian1 has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend First Solar and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!