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Can Old Tech Companies Compete In A Green Tech World? + Vic Wisemann’s Thoughts on: ESLR, STP, GE, SI, ENS, XIDE, BGC and ABB

Vic Wisemann
InvestorsObserver
Featured Contributor

I was talking with a friend a few days ago about the green technology sector. It was in preparation for a presentation on the subject in San Francisco later in August. He is a bit of an expert on the subject, so I wrangled an interview of sorts with a lunch invitation. He was of the opinion the alternative energy companies were the way to invest but the entire green sector should see tremendous growth in the coming decades.

The term technology refers to the application of knowledge for practical purposes, so green technology would be the application of knowledge for environmentally sound purposes. The field of green technology encompasses a continuously evolving group of methods and materials, from techniques for generating energy to non-toxic cleaning products. Now these are facts most are aware of, but I wanted to cover them just to make sure everyone was up to speed.

The present expectation is that this field will bring innovation and changes in daily life of similar magnitude to the information technology explosion over the last two decades. In these early stages, it is impossible to predict what green technology may eventually encompass. We can also expect a green tech bubble to inflate and burst making and taking millions if not billions of dollars in the process. The key is to get out before it pops while keeping an interest in the companies that survive.

Read on  to see how old line tech companies can profit with green technology.

Investment is seen shifting from capital-intensive energy generating technologies, such as solar companies like Evergreen Solar (ESLR) and Suntech Power (STP) and leaders in wind turbine manufacturing General Electric (GE) and Siemens (SI), to those associated with energy storage, transportation and efficiency. Companies like EnerSys (ENS), Exide Technologies (XIDE), General Cable Corp. (BGC) and ABB Ltd. (ABB) come to mind.

Industry experts and company executives are expecting the appetite for investments in green technologies, sometimes referred to as cleantech, to see a significant pickup as early as this fall, with continued improvement through 2010. But they caution that the level of activity is unlikely to reach the $2.6 billion peak seen in the third quarter of 2008.

There will be a lot of money dumped into the industry, but don't get caught missing the forest for the trees. Most of the apparatus, devices and machines that will make solar, wind, geothermal and other green technology possible will be based on smarter devices. These new electric hybrid cars, for example, are like computers on wheels.

Scientists continue to search for clean energy alternatives to our current power production methods. Some technologies such as anaerobic digestion produce renewable energy from waste materials. The global reduction of greenhouse gases is dependent on the adoption of energy conservation technologies at industrial levels as well as clean energy generation. That includes using unleaded gasoline, solar energy and alternative fuel vehicles, including plug-in hybrid and hybrid electric vehicles.

No matter what technology moves to the forefront, or which company becomes the market leader, they will need to have a steady supply of efficient controllers, switches and chips.  Expect companies like Intel (INTC), Applied Materials (AMAT), Texas Instruments (TXN) and Johnson Controls (JCI) to do well in a more green tech-centric world.

Taking a closer look at Applied Materials, we see the company has the largest market share among suppliers of machines that are used to fabricate chips on silicon wafers. That business was in a severe slump even before the economic downturn began, because makers of memory chips that had previously stocked up on production tools wound up with excess manufacturing capacity and sharply cut back their orders.

Sales of semiconductors and display manufacturing equipment both picked up in the third quarter. One factor was improved demand by semiconductor manufacturers called foundries, which build chips to order for other companies. New orders for chip-manufacturing equipment more than doubled from the second quarter and display orders were up seven-fold over that period.

Makers of chips and displays in China were particularly active in the latest quarter, aided by government stimulus spending. China also purchased more solar panels, another field where Applied's manufacturing tools are used. Overall, however, demand for solar panels remains hampered by the tough environment and tight credit market.

Though conditions are improving, the company's business is still operating at historically low levels. The company in February disclosed plans to cut about 14% of its work force, or about 2,000 workers.

All these factors are in plain view and are, for the most part, calculated into the current market price for the company's stock. As the economic downturn eases, the company could see significant improvement in revenue that should amplify the profit generating potential of cost cutting measures already in place.

For a hedged trade on AMAT, consider looking at the October 12/9 Bull Put spread for a 25 cent credit. That's a 9.1% return and the stock has to fall 10.3% to cause a problem. If the stock drops below your sold 12 put strike price as expiration approaches, you may want to consider selling the 9 put for whatever you can get and let the 12 put be assigned since there is a nice dividend coming in November.  

As the world economy turns around and begins expanding once again, green technology will see an influx of funds. When this occurs, companies like AMAT will be there to supply the necessary framework for green tech to build on.

If you have any additional thoughts, ideas or ways to play green, please e-mail me at vwisemann@InvestorsObserver.com.