Recently, word came out about something that has not happened in
over a century: The United States is no longer the world's largest
energy consumer. That, held by the U.S. since at least the first
decade of the 20th century, now goes to China, which used a total
of 2.25 billion tons of oil equivalent energy in 2009. The U.S.
used 2.17 billion tons, according to the International Energy
In the time the U.S. has been the predominant energy consumer, U.S.
Gross National Product (GNP) grew from $737 billion (all figures
are in today's dollars) to $14.7 trillion today and GNP per person
from $6,629 to $47,240. It's no surprise that increased energy used
to build railroads then factories and, more recently, medical and
technology hubs fueled that growth.
We don't know what China's GNP was in 1900, but in 1980 it was $632
billion, while last year it topped $7.96 trillion. As in the U.S.,
there is also a close correlation between China's economic growth
and its rising energy use. In 1980, China used the equivalent of
610 kilograms of oil per person, while last year the country used
1,570 kilograms per person.
At the risk of throwing too many numbers at you, I want to point
out just two more that I think are telling: China's per capita GNP
last year was $6,010, just 13% of America's. The U.S. used five
times more energy per person than China did last year, a whopping
7,700 kilograms. The question is: What happens to energy usage as
Chinese GNP continues to grow and the average person there gains
the comforts of the Western lifestyle, from flat panel televisions
to cars to fully heated homes? The answer is obvious: China's
energy usage is going to continue to grow sharply.
China's government recognizes this too. It also sees two problems
on the horizon related to its growth: Tight world oil supplies and
environmental troubles. By 2020, China is expected to import as
much oil as the U.S., a significant shift considering that less
than 20 years ago, China was a major oil exporter. While China
could burn more of its massive coal reserves to make up the
difference, its air quality is already so bad officials are in the
midst of shutting down the dirtiest factories and coal plants. A
New Yorker columnist noted last year that Beijing's air quality
frequently hits 500 on a scale of 1 to 500, with 1 being the
cleanest air. By contrast, U.S. cities consider their air dirty at
100, rarely hitting as high as 300 and then only when surrounded by
For those reasons-fast growth, tight oil supplies and dire air
quality-the Chinese government has launched a plan for a massive
renewable energy program that aims to generate 15% of its energy
needs from Green energy by 2020. And that 15% is just the official
target. Between 18% and 20% is the unofficial target bandied about
by officials in Chinese state-controlled media, with some
Westerners in China saying they hear the true goal is as high as
It almost goes without saying that if China comes close to even its
official 15% figure, it will make the Red Dragon a Green dragon
too. By official Chinese goals for solar, annual installation will
need to quintuple in the next nine-and-a-half years to 1.8 GW, wind
will need to grow nearly 10-fold to 150 GW capacity from 16 GW in
2009, nuclear will need to grow almost 1,000% and the country's
already extensive hydroelectric capacity will have to double. China
will be investing at least $1 trillion to fund Green power growth
China isn't the only country legislating a greater percentage of
renewables be a part of its energy mix. The European Union,
currently the world's largest solar power market by far (Germany
alone is a 3 GW annual market), still gets just 7% of its energy
from Green power. It has mandated that by 2020, one-fifth of its
power come from renewables.
Here in the U.S., we don't have a firm federal standard and the
government is spending just $5 billion on Green research and
development. Still, bellwether states have mandated their own
standards. California, for instance, is aiming to get 33% of it
energy from renewable sources by 2020 (up from 12% today), New York
is aiming for 29% by 2020 from 3% today, and Colorado is setting it
sights on 33% by 2020 from 6%, according to National Public Radio.
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Cabot's Elite Stock Research Service
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A popular saying around the Green investing world right now is that
Green stocks are at the same stage as Microsoft was when it
released Windows 1.0 or where Motorola was when it rolled out its
$4,000 DynaTac mobile phone. With mandates like these in the
world's three largest economies, that hardly seems an exaggeration.
Today I have two suggestions for stocks that are already
experiencing the initial wave of all that investment. One is a
Chinese solar maker with a good European client base; the other is
an American company with a dominant foothold in the Chinese wind
The solar company is ReneSola (
), a solar wafer maker that is vertically integrated, meaning the
company controls its product line from sourcing its own polysilicon
through fashioning its own solar panels. It's a fast-growing
company that has gone from its founding in 2005 to being the
third-largest maker of solar wafers in the world this year.
Margins are improving as the cost of the raw material for panels
has been falling sharply. Its other costs are dropping too, thanks
to manufacturing efficiencies (its producing larger wafers) and
more energy-efficient factories (slashing high electric costs).
ReneSola expects to hit record sales this year of $795 million and
I expect it to do even better at around $1 billion in sales for
2010. Cabot Green Investor bought ReneSola shares at 7.45 in July,
and shares have since rallied 40% to over 10. With estimated
earnings of $1.26 per share for the current year, ReneSola shares
are still cheap at just eight times earnings.
The other company is American Superconductor (
). It's a Massachusetts-based maker of highly conductive
utility-grade cable being used everywhere from the Tres Amigas
project in New Mexico to better interlink the U.S. electrical grid
to Seoul, Korea's grid as part of that country's $80 billion
five-year plan to invest in Green energy.
Those are excellent deals, but the real value in American
Superconductor is its burgeoning business designing wind turbines,
which grows out of a small Austrian design firm it purchased a few
years ago. Among its 12 major turbine customers are five Chinese
companies, including Sinovel, the dominant leader in turbines in
China. As part of all of American Superconductor's licensing deals
in China and elsewhere, it has the right to sell the electrical
systems for every turbine built, a business model like the
razor/razor blade model that built Gillette so successfully.
Since the start of 2008, the company has had 13 straight quarters
of increasing sales. It also boasts six straight quarters of net
income and for its fiscal 2010, which started April 1 of this year,
management projects sales growth over 30% to $430 million with net
income surging 75% to $1.25 a share. The Cabot Green Investor model
portfolio bought AMSC in May 2009 and sold in February 2010 during
the market correction, making a profit of 40% on the position. We
bought the stock again this April at 31. It's down a little, at 29,
which makes for an attractive entry point.
The market has held both stocks down out of concern that a
double-dip recession is coming. Whether or not it is (and I'm with
Warren Buffet in believing it's not coming), the Green rally is
only just starting.
Click here to learn more
about ReneSola, American Superconductor and other leading stocks
featured in Cabot Green Investor.
All the best,
For Cabot Wealth Advisory
P.S. This week brought the first episode of the Cabot Chart School
by Cabot Market Letter Editor Michael Cintolo.
Watch the video
to learn how to read stock charts like a professional investor!