Two Cleantech Game Changing Stocks to Buy

Perhaps the largest threat facing our world today is a looming energy crisis. Along with food, water and shelter, energy has become the fourth necessity for human existence.

As we all know, oil is king. However, the way I see it, there really is only one certainty -- oil is not going to solve our long-term energy problems. In fact, our continued use of oil will only serve to worsen the environmental, political and national security issues that come with its use. In response to these issues, the door has opened for a host of alternative energy sources -- and that means opportunity for investors in stocks like Applied Materials (AMAT) and Westport Innovations (WPRT).

Clean technology, or cleantech as it is often referred to, is one of the most promising areas for investment today. This sector is set to grow exponentially over the next 50 years as the world weans itself off oil. According to the latest data from the Department of Energy (DOE), the total number of solar panels in the U.S increased from approximately 21,000 in 1999 to 524,000 in 2008, and electricity generation from solar power increased by 37.8% in 2008 as compared to 2007. Yet even with this increase solar power was still only responsible for 0.1% of the total energy consumption in the United States.

Wind energy also has been growing steadily. According to the DOE, consumption of wind energy grew by over 50% in 2008 compared to 2007. Yet like solar, wind energy only accounts for a small fraction (0.52%) of the total energy consumed in the U.S. Wind, solar and other alternative energies all grew in popularity in 2009, and they continue growing in 2010. Unfortunately, these technologies still remain a fraction of total power consumption. For investors, however, this is not so unfortunate, because it means you haven’t missed the cleantech boat yet.

Over the next two decades, technologies like solar, wind, nuclear and other alternatives will be looked upon to contribute a significant fraction of total energy consumption. The savvy investor should realize there will be a ton of growth in cleantech sectors, and she should constantly be looking for the best ways to take advantage.

Clean Energy Technology Sees Legislative Tailwinds

For an idea of just how much growth is expected in the cleantech space, just look at the Kerry-Leiberman Climate Bill. The bill seeks to change the very structure of our energy consumption, dropping consumption of fossil fuels from 84% to 70%. Currently, renewable energy makes up about 7% of the total power consumption in the U.S. while nuclear energy makes up about 9%. To replace fossil fuel based energies, renewable and nuclear energy supply need to increase their current usage to 14% and 16%, respectively.

Over the next twenty years, the bill sets a goal of generating 24 gigawatts of power from renewables via 58% wind, 23% biomass, and 13% solar, with hydroelectric and geothermal rounding out the rest. This represents massive growth for these industries. Now, the obvious way to take advantage of this knowledge is to buy the different solar, wind or nuclear stocks that should benefit from this growth. However, a smarter way to take advantage of this is to buy the companies that support the growth of these industries.

Applied Materials - AMAT Bets on Solar Feed

Solar companies will need silicon and a range of other semiconductor fabrication products to manufacture photovoltaic cells. One company that stands to benefit from this is Applied Materials (AMAT). Applied Materials describes itself as a nano-manufacturing technology solutions provider for the global semiconductor industries, including solar and photovoltaic panel manufacturers. Photovoltaic cells are primarily made of silicon, and the knowledge of silicon wafer processing has helped AMAT become a leader in photovoltaic equipment manufacturing.

Now, one issue with photovoltaic cell manufacturing is the limited supply of pure silicon. Because of this, the industry has been trying what they call thin film solar cells. In these devices, a thin layer of silicon is deposited on a glass substrate as opposed to using a thick crystalline silicon wafer. Applied Materials has developed important technology for thin film solar cell applications, and the company has already entered into multiple contracts for its thin film line with customers in Europe, Asia and Saudi Arabia.

AMAT shares recently dipped below their 50-day moving average. That means the stock is a bargain right now, and it’s a great chance for investors to get into solar before the growth of the industry really starts to kick in.

Westport Innovations - WPRT Stock Powered by Natural Gas

According to the DOE, transportation accounted for 27% of the total energy consumed—and over 70% of the petroleum used in the United States. The reason for this is that it is difficult to find alternative ways to power vehicles. Sure, there are some hybrid and fully electric vehicles out there, but their numbers are barely making a dent in the amount of oil Americans consume for transportation. There is, however, an alternative fuel out there that can help alleviate some of our dependence on oil.

Natural gas can be used to power a variety of motor vehicles. In fact, in many countries natural gas is the default fuel for vehicles. Natural gas is not just an alternative fuel, it’s an attractive alternative. It burns cleaner than petroleum, and the United States has abundant supplies. On a per-energy basis, natural gas is about a third the price of oil. In fact, one barrel of oil at roughly $75 per barrel equates to approximately $13 per million BTU. Currently, natural gas is selling at about $4.30 per million BTU. As we start trying to wean ourselves off oil, we are inevitably going to see increased use of natural gas in vehicles.

One company poised to benefit from this is Canadian firm Westport Innovations (WPRT). Westport is a leading global supplier of systems that allow engines to operate on clean-burning fuels, including compressed natural gas (CNG), liquefied natural gas (LNG), hydrogen and even landfill gas. The impetus for switching engines to burn on these fuels is obvious to anyone who even remotely follows the debate about climate change and greenhouse gasses. Westport estimates that a natural gas powered heavy truck can help reduce carbon emissions by up to 40 tons, and natural gas powered busses could save 20 tons of emissions compared to diesel.

As of January 1, 2009, Westport-powered natural gas vehicles are eligible for carbon credits of up to $25 per ton. Currently, the U.S. Senate is debating the merits of Natural Gas Act of 2009. If passed, this act would improve the North American transportation infrastructure for LNG and CNG refueling terminals. What this means is there is serious political interest in making natural gas an engine fuel of choice for the enormous North American transportation industry.

This fact hasn’t been lost on the smart money, and we’ve also seen that in abundance in Westport. Big players like famed wildcatter T. Boone Pickens now owns a 10% stake in the firm, and billionaire George Soros recently bought a 5.26% stake in the company. The biggest action, however, has come from investor Kevin Douglas, who has gone on a spending spree in the past few months, and now owns 17.74% of the outstanding shares of the firm.

One possible reason so much money has flown into Westport is because the stock has really outperformed over the past year, with shares rising 259% in the past 12 months. Westport shares now trade above both the 50- and 200-day moving averages—and that means the bulls are running smooth on natural gas.

Both Applied Materials and Westport represent key components of an alternative energy future, and now just might be the time to consider adding these cleantech game changers to your portfolio.