Alternative Energy Rallies: This Time is Different!

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Buried deep within the fiscal cliff deal were all sorts of relief and funding towards renewable energy, including those for wind power and biofuel projects. As a result, alternative energy companies were on a roll throughout the trading day on Wednesday. And while this may bode well for short-term traders/investors, I can’t help but feel a little deja-vu, and the outcome is not favorable.  

Company

Ticker

2012 Performance

1/2/2012 Performance

BioFuel Energy

(NASDAQ: BIOF)

(65.00%)

31.00%

Pacific Ethanol

 

(67.50%)

8.32%

Gevo

(NASDAQ: GEVO)

(69.54%)

18.18%

Renewable Energy Group

(NASDAQ: REGI)

(33.00%)

11.11%

Solazyme

(NASDAQ: SZYM)

(30.56%)

6.23%

 

  • Let’s go ahead and put BioFuel Energy and Pacific Ethanol together, in the same category, because the way they trade you’d think they were the same stock. Both have lost almost all of their value (over 99%) in the last five years, and are two bad quarters from bankruptcy. The sad thing is that both companies have potential, as leaders at marketing and producing low-carbon renewable fuels, but can’t sustain investor confidence or fundamentals. Yet there are some investors who continue to believe that a surplus in supply, global demand for corn-based biofuels, and our desire to cut dependence on foreign oil will lead to the recovery of these stocks. Honestly, it makes sense, but so far, we are yet to see proof on a consistent basis.
  • While Gevo’s five year loss of 89.22% looks small compared to the two biofuel stocks above, the company itself has been a massive disappointment. The company is a renewable chemicals and advanced biofuels company, focusing on petroleum-based products. The company focuses on a form of biofuel called biobutanol, which longs believe will lead the company to riches because of its ability to easily be blended with gasoline.
  • Renewable Energy Group is a producer of biodiesel, and in the market of renewable fuels/energy it had a pretty good year in 2012. The company recently announced production growth with the acquisition of a biorefinery and has at times looked good in a struggling market. Much like the others on this list, the company has traded with a lot of debt on its balance sheet, but recently reduced this load with a large payoff.
  • Solazyme might be the most controversial of the bunch because it’s an oil company that produces oil from renewable fuels. The company’s seen progress with fermentation, production, expansion, and has seen a surprising amount of support in recent weeks.

There is a misconception on Wall Street that President Obama is good for clean energy stocks. But as you can see, he has not been too good for any of these companies above. The problem with clean energy companies is that although they are innovating it does not appear as though Americans are ready to make the switch to clean energy products/energy regardless of the benefits. If you need proof just look at the outcome of the Chevrolet Volt, a car that saves consumers a great amount of money, is affordable, and stylish, yet sold less than 20,000 units in 2012. The fact of the matter is that Americans have shown a slow adoption of clean energy products/services. The demand is simply not present.

A couple months ago I wrote an article, following the election, highlighting all the clean energy failures during President Obama’s presidency. This included $80 billion that was set aside for clean energy loans, grants, and tax credits to companies in this space. It included 34 companies that have received this support that are either bankrupt or have significantly decreased their workforce and are expected to falter. The bottom line: America is not ready for the “clean energy movement” and it doesn’t matter how many benefits there are to a successful clean energy economy.

On the first day of 2013 all the clean energy stocks may be rising, but I see no fundamental changes in demand to insinuate that they will rally in 2013. These stocks rallied because of “funding,” but as I explained, funding has occurred in the past on a much larger scale and the result has always been the same. Therefore, without this fundamental change in demand I can not buy into this rally. It doesn’t make sense, and investors should be careful not to believe that “this time is different.”


BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of Solazyme. 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!

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