Next Bubble: Alternative Energy

We live in a Lovely Bubbly world as our economy inflates and deflates at the whim of the latest fad. The federal reserve provides liquidity which flows into whichever soap bucket tickles our fancy. With housing deflating before our eyes, we must cast our gaze upon the horizon to see the next big thing.

Alternative energy is here. We saw a little preview with the ethanol boondoggle perpetrated by the subsidies put forth for ethanol from corn and other biomass. This is merely the first inning of this energy drama, and much more is to come. The bubble is growing.

Harry Newton writes an amazing little blog about all things financial and seems to have a good grasp of the macro-economics we are enduring. He references a Harper's article about bubbles which reminds us that such asset inflation tends to overshoot on the upside, and we may have quite a run ahead of us with alternative energy and especially solar stocks. First Solar (FSLR) is the latest sexy stock that TV guru Jim Cramer is promoting, now that his four horsemen of the Naz are frothy and panting from exhaustion. Newton seems to agree.

Jack Yetev, writing at Jim Kingsdale's Energy Investment Strategies, has a differing opinion after looking at the valuations of various solar stocks. He prefers Canadian Solar (CSIQ) which has no earnings as yet, but boasts a much better sales growth rate than the others. The forward PE for CSIQ is a reasonable 11 based on consensus estimates for 2008. Even using the lowest earnings estimate of the seven analyst covering CSIQ, the PE is only 27. First Solar on the other hand has a consensus PE of 90 and a stratospheric PE of 125 based on the lowest estimate of the 24 analysts covering.

The demand for energy will steadily increase, a current recession notwithstanding. The supplies of fossil fuels are tight and no new reserves or new extracting technologies seem imminent. Add to this shrinking supply and increasing demand the consciousness of global climate change and the scenario is right for massive development of non-carbon energy sources.

I won't go into the vagaries of the methods of alternative energy generation: photovoltaic solar versus thermal solar... and don't forget wind power. You can pursue that on your own. From an investment standpoint, be aware that the big multinationals like General Electric (GE), Siemens (SI) and even Kyocera (KYO) will surely stake their claim and as the market matures their huge coffers will change the playing field.

Personally I own some oil stocks as well as Cameco Corporation, a large uranium mining company, as a play on the non-carbon energy industry. Nuclear has its own set of problems, but I cannot help but see a growing demand for such power generation. I am in the market to expand into alternative energy and Canadian Solar looks like a good candidate.

So let's ride this bubble!!