Alt-Energy: Deja Vu All Over Again

Highlighted here are the following: PowerShares WilderHill Clean Energy (PBW), Claymore/MAC Global Solar Energy (TAN), Market Vectors Solar Energy ETF (KWT), First Trust NASDAQ Clean Edge US Liquid (QCLN) or the Market Vectors Global Alternative Energy ETF (GEX).

It's deja vu all over again. The parallels and similarities between the development and evolution of the "green," alternative, renewable energy industry closely tracks that of the now more mature technology industry of prior decades. Both industries emerged with myriad small companies -- too many to be realistically successful -- all competing for market share with widely accepted products.

Both industries rely on first-to-market technological innovations. Stocks in both industries feature high volatility with seemingly daily market moving news. High-flying valuations become value stocks, and vice versa, at any time.

If history is any guide, over the coming decades there will emerge a handful of market leaders in alternative energy, much like the flagships of technology such as Microsoft, Google, Oracle, IBM, Yahoo!, Sun Microsystems and others. Some renewable energy small-cap start-ups will grow up to become large-cap industry flagships while the majority will remain also-rans.

In his Inaugural Address, President Obama's pledge of a stimulus package to increase energy independence by weaning America off foreign oil recalled a similar initiative by the Nixon Administration. Some readers may recall President Carter in a wintertime televised national address wearing a sweater and asking the Nation to turn down their thermostats. The call for greater energy efficiency has been a long-time coming. It seems that presidential promises to improve U.S. energy policy is nearly as much of a certainty as closing an address with "God Bless America."

Yet things seem different this time -- ever-increasing concerns over national security, carbon emissions, anticipated fossil fuel shortages and energy conservation, collectively combined with more private sector companies engaged in offering technological advances in solar and wind power, biofuels and energy efficiency, suggest that there will now be greater change in energy policy.

Apropos of the current situation in the banking sector, federal regulation will be even more decisive of the course of future energy policy. The future of alternative energy companies, and the impact on the stocks of companies and their investors, depends greatly on the Obama Administration's ability to commit and remain focused on amending U.S. energy policy. Real change relies primarily on the new administration's success in offering the infrastructure and tax incentives to encourage companies to produce sufficient supply to meet increased demand generated by new regulations for greater energy efficiency at government buildings and commercial properties.

So what are investors to do? In arguably the worst economic environment since the 1930s, in spite of the current credit crisis, debt and equity financing continues to flow into clean, "green," renewable energy companies at a far greater positive rate than the decline in funding to other industries. This, in turn, allows continued improvements in energy efficiency through research and development, which has generated high double-digit growth rates in sales and earnings.

Favor companies with the federal government as one of their most significant customers. Since small-cap companies historically outperform large-caps over time, a diversified portfolio of smaller companies should outperform the market even with only one company growing into a market leader. Pick an industry segment (solar or wind power, biofuels, energy efficiency, etc.) that you believe will dominate future energy policy. Alternatively, purchase a diversified renewable energy ETF such as the PowerShares WilderHill Clean Energy (PBW), Claymore/MAC Global Solar Energy (TAN), Market Vectors Solar Energy ETF (KWT), First Trust NASDAQ Clean Edge US Liquid (QCLN) or the Market Vectors Global Alternative Energy ETF (GEX).

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