Alternative Energy Investment

Unlike traditional energy companies which suffered a downturn in June but came up nicely thereafter, the alternative-energy shares could never get rid of that mid-year disillusionment of their investors.

For example, PowerShares WilderHill Clean Energy (PBW), an alternative-energy focused ETF (Exchange Traded Fund) or Winslow Green Growth Fund (WGGFX) , a small-cap portfolio that has investments in clean-energy stocks, are off by about 25-30% from their peak after a good run up there in the first half of 2006. A similarly focused midcap offering, New Alternatives Fund (NALFX) and another newer offering, Guinness Atkinson Alternative Energy Fund (GAAEX) also are off by about 11% and 16% respectively from their mid-year peaks.

The main difficulty in playing in this field comes from a limited understanding of the valuation of such stocks and their future. Everyone understands that Ethanol or solar energy would assume a great role in future but nobody is sure enough to tell when exactly these could play a significant role in the world dominated by conventional energy sources like oil and gas. For example, riding the hype generated by rising crude oil prices in mid-May, Pacific Ethanol Inc. (PEIX) , which claims Bill Gates as major investor, reached a 52-week high of $42, but was exchanging hands at $15.01 at closing bell today.

But many proponents of alternative power maintain that the good time for such stocks would arrive sooner than what the disillusioned investors predict. Their faith hinges on several broad factors: the ever-increasing thirst for energy from developed countries as well as China and India which are industrializing themselves at a rapid pace; the finite nature of fossil fuels; global warming, and the uncertain geopolitics of oil. In such a world, they say, it pays -- both economically and politically -- to find other power sources. And so, if you can put your trust on alternative energy and have time and patience on your side, it's probably right time to enter this sector.