Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some clean-energy stocks to your portfolio but don't have the time or expertise to hand-pick a few, the PowerShares Global Clean Energy ETF (NYSEMKT: PBD ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF focused on clean-energy stocks sports an expense ratio -- an annual fee -- of 0.75%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This clean-energy-stocks ETF has performed reasonably, but it's also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why clean-energy stocks?
Interest in alternative energies and cleaner forms of traditional energy has been around for a long time, but it finally seems to be gaining some traction, so the future for stocks involved in clean energy looks brighter.
More than a handful of clean-energy stocks had strong performances over the past year. LED lighting specialist Cree (NASDAQ: CREE ) soared 104%, and that includes a recent sharp drop following a quarterly earnings report that featured solid revenue growth but lowered projections from management. Cree's revenue has been growing by double digits for several years, and the LED market is expected to grow by about 34% annually over the next few years, eventually totaling nearly $100 billion. Meanwhile, Cree's bulbs have received an Energy Star rating that will permit them to qualify for rebates from utility companies, and it has a promising partnership with Home Depot, too. Still, the stock's price seems a bit steep lately. Its forward P/E ratio recently topped 35.
Johnson Controls (NYSE: JCI ) surged 71% and is near a 52-week high, with a dividend yield of 1.8%. (It has been paying dividends since 1887!) It's a "Tier One" supplier to the auto industry -- i.e., a direct supplier to global automakers -- and is also a building-efficiency expert. The stock has been having a good year, despite lots of numbers not looking too rosy, and as global economies pick up, Johnson Controls should benefit. The company has won part of a massive $7 billion Pentagon contract and is investing heavily in China. Its stock was downgraded by Morgan Stanley recently, largely on valuation concerns. Johnson Controls reports its latest quarterly results tomorrow.
SolarCity (NASDAQ: SCTY ) , specializing in solar installations, grew some sixfold in value from its low point this year. It has focused on the residential and commercial markets and is now moving into utility-scale work, too. SolarCity's recent growth rates have been "mind-blowing," but it remains vulnerable to changes in consumer behavior and technology. Bulls are looking for the company to turn cash-flow-positive soon.
Other clean-energy stocks didn't do quite so well over the last year but could see their fortunes change in years to come. Universal Display (NASDAQ: OLED ) shed 5%, giving its shareholders a rollercoaster ride following strong earnings and a Wall Street downgrade, among other things. Bulls are excited about its curved screens that are featured on new smartphones, as well as its flexible displays possibly appearing on iDevices soon. Bears worry about competition and see the stock as overvalued.
The big picture
Consider adding clean-energy stocks to your portfolio. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.