The 3 Worst Clean Tech Stocks

Longtime clean energy investors know there are dangers at every turn. Whether it's the promise of a better technology that doesn't take off, an emerging market that never emerges, or a promise of lower costs that never turns a profit, we need to be careful out there. This week, I highlighted the three companies I think are the best bets in the clean tech sector, so today I'll highlight three others that I'd stay away from.

Batteries are coming -- no really, they are
When President Obama signed the stimulus package in early 2009, one area getting lots of funding was advanced battery technology and manufacturing in the U.S. Since then, two recipients of funding, A123 Systems (Nasdaq: AONE  ) and Ener1, have done nothing but disappoint. It's the classic case of investors buying into a story that's written on loose-leaf paper but never quite makes it to hardcover.

I gave up on Ener1 a while ago, but right now, investors need to watch out for A123 Systems. The company has promised us that financial performance is going to turn around soon, but with a massive amount of manufacturing capacity, we need to see a hockey stick demand curve to keep up.

A123's $146.9 million of cash on hand gives it some time to ramp up, but operations burned $152.4 million in cash over the past year -- and that will continue unless there's a huge pickup in demand. A123 is hoping for the best, but I'm taking a wait-and-see approach. It's disappointed before.

I would much rather make a bet on a company like Quantum Fuel Systems (Nasdaq: QTWW  ) that has an ownership position in Fisker, a customer that A123 is relying on.

We've tried growing fuel before
If you haven't heard about the emerging technology of having algae produce fuels, then you haven't heard of the "next ethanol." It took years to prove that growing corn and turning it into fuel was actually costing us more than it helped, and I'm not seeing a big difference here. Syntroleum (Nasdaq: SYNM  ) is the stock I'd avoid in the algae fuels space, which I think will head down a similar path as ethanol.

That doesn't mean there aren't opportunities out there for algae.  Solazyme (Nasdaq: SZYM  ) can produce many high-quality byproducts using algae, but let's not kid ourselves that we're going to replace oil tankers with algae farms. The sun's energy could be more efficiently turned into solar power to fuel electric cars.

The solar shakeout begins
The solar industry has too much capacity for current demand, which is leading to lower panel prices for manufacturers. The margin pressure has already caused some manufacturers to warn that results won't be as strong as originally anticipated, and we're in for a shakeout.

So, who is the pick to fall first? How about Canadian Solar (Nasdaq: CSIQ  ) , which has some of the lowest margins in solar? Last quarter, gross margins were just 14.7%, compared with 27.5% at crystalline silicon leader Trina Solar (NYSE: TSL  ) . Canadian Solar isn't as vertically integrated, which leads to a lower margin, but it also means the company could be squeezed from both sides.

Canadian Solar is also relying heavily on Europe, which accounts for more than 75% of revenue in the first quarter. Solar manufacturers are quickly transitioning to new markets like the U.S. and China in an effort to lower reliance on a few European demand sources, but Canadian Solar is behind the curve of solar leaders.

Beware of landmines
Watching out for dangers in clean tech stocks is tough when the industry is in such a great growth phase. If you can stay away from the biggest risks, your winners will look that much better when they pan out.

Do you disagree with my list or have a stock that you think is a risk that isn't worth taking? Sound off in the comments section below.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (8)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2011, at 4:03 PM, Straightener wrote:

    Quantum currently owns less than 1% of Fisker stock. A123 also has an ownership position in Fisker, although smaller.

    From A123's 10-K:

    " In January 2010, we entered into an agreement with Fisker Automotive, Inc., or Fisker, a privately-held company, to invest $13.0 million in cash and 479,282 shares of our common stock, which when transferred to Fisker had a value of approximately $7.5 million. In exchange, we received shares of convertible preferred stock in Fisker which are not liquid, and we do not expect that they will be liquid for some time. "

  • Report this Comment On July 29, 2011, at 5:43 PM, snafu03 wrote:

    Geez, the next time you're going to slam a stock, do some freaking homework! SYNM an algae fuels play? Get Real! They're partnered with tyson on a fat to fuel project, for crying out loud. Of all the advanced biofuels companies to slander, you pick the only one with a commercial scale production facility! Congratulations, you truly are a Fool!

  • Report this Comment On July 29, 2011, at 7:31 PM, BillStacker wrote:

    Actually he's missed the point on SZYM too. The solar powered electric car comment is idiotic. Let's not kid ourselves? Okay you're kidding yourself if you think you can fly a commercial jet or a warplane on electricity from solar or even a tractor trailer. Trains maybe... But Solazyme makes drop-in biofuel that works for all those cases and if its cheaper to produce after it scales than importing foreign oil, than yeah you can kiss oil tankers goodbye. They are so diversified otherwise that it makes me drool. Enormous growth potential in Solazyme. Today is the perfect day to buy.

  • Report this Comment On July 30, 2011, at 12:48 AM, Riskysam wrote:

    This is what happens on TMF. I have been seeing badly written articles lately. Also, notice how on article praises a company and the next one --sometimes by the same writer -- trashes the same company.

  • Report this Comment On July 30, 2011, at 9:49 AM, snafu03 wrote:

    BillStacker, I like your take on the value of and need for biofuels. Those are many of the same reasons I'm in SYNM. Not to dog on SZYM, but the current price is based on an awful lot of hope and dreams since they don't have commercial scale facilities up and running. I've seen very little discussion on their actual fuel production platform suggesting they may be dependent on an outside technology provider to produce certain end products. SYNM is 1/10th the market cap of SZYM and has a 75 MGY production facility up and running, currently producing jet fuel precursors which they pay a third party to finish off to jet fuel being used by KLM and other major airlines. Previous SYNM conference calls have included discussion of targeting the same specialty markets SZYM sees so much potential in. Of the two, SYNM just seems like a better value and more diversified, especially with their intent to develop GTL, CTL, and biomass to liquid projects. Thanks to the operational plant, they should soon have the one thing thats holding them back the most: cash flow.

  • Report this Comment On July 30, 2011, at 11:52 AM, Straightener wrote:

    Snafu, I have been watching SYNM for many years, as it first came to my attention when they flew bombers on coal-to-liquids jet fuel. I had high hopes for their new plant, but it has not lived up to expectations thus far. Revenues for 1Q '11 totaled $849,000, compared to $4.2 million for Q1 '10. How are investors justifying this drop? Is it just increased operating costs, development, or something else? SYNM seems cheap here and I really like their product(s), but I would like to see earnings increasing instead of dropping before I commit money. I have been burned by these types of companies before.

  • Report this Comment On August 01, 2011, at 9:47 AM, grover348 wrote:

    With the good news out of China SYNM is looking better and better.

  • Report this Comment On August 01, 2011, at 1:15 PM, JayRice1 wrote:

    This calls for a retaction:

    "Syntroleum is the stock I'd avoid in the algae fuels space"

    WHAT?!?

    I have been following SYNM for about 4 years now and have never heard anything about them being involved in "algae fuels". They do however have an operating facility (Dynamic Fuels JV w/ Tyson Foods) and other projects in the works with China's Sinopec.

    How 'bout it Travis? Can you admit when you are wrong?

  • Report this Comment On August 01, 2011, at 7:09 PM, snafu03 wrote:

    Couldn't agree more, JayRice. Straightener, I haven't been too worried about the revenue change, mainly becasue the old revenue number was kind of junk, IMO. My understanding of that revenue number is that it was basically the engineering for the Dynamic Fuels project wich was billed back to their own JV. I never really expected any revenue out of SYNM until the plant started producing. So far management seems to be doing everything possible to hide revenue and keep the share price down. They are reporting for the JV on a 1 quarter lag. Only the 1st quarter of plant operations has been reported so far, and that was only part of a quarter at reduced cpacity during the startup. They should be reporting the first full quarter's operation in the upcoming conference call, but the plant wasn't running at full capacity for much of it due to continued startup operations, so it's anybody's guess whether they'll have profit to report from the JV, but at least we should see some kind of revenue uptick...

  • Report this Comment On August 02, 2011, at 1:03 PM, JayRice1 wrote:

    I agree about the revenue SNAFU03. I have to admit though, that the recent secondary offering was somewhat worrisome for me.

    Seeking Alpha has reported that insiders are buying and there is currently a significant short position against the stock.

    Anyone know if I can purchase share on the open market with the warrants attached? And how?

  • Report this Comment On August 03, 2011, at 7:44 AM, snafu03 wrote:

    Agreed regarding the secondary offering. Unfortunately, there was no way for individual investors to participate in the recent offering. All the shares and warrants went to a single financing company. That has upset a lot of investors. The secondary offering itself was cncerning on a number of levels. IMO, it would have been in the share holder's best interest to raise funds by taking on debt instead of via dillution. The secondary offering to me says that either the company isn't credit worthy enough to obtain a loan, management is inept and didn't see the dillution as a negative to share holders, or management was looking out for their own best interest and sending the share price down prior to purchasing additional shares at a steep discount from the pre-dillution levels. I'm seriously hoping it was the first scenario, but the third does seem just as likely with the recent insider purchases...

  • Report this Comment On October 06, 2011, at 4:22 PM, vstrother wrote:

    SNAFU03, I have been following SNYM for about 18 months now. As much as I hate to say it I think the board for SYNM is only looking out for themselves and not the private investor. The entire board is in their mid to late 50s (early retirement age). During the last Q conference call, a fellow investor asked why they did not offer the secondary offering to existing shareholders and the board's response was something along the lines of "that's just the way we decided to go".

    So much for the board's fiduciary responsibility to act for the goodwill of the shareholders. I am hoping the company is bought out at this point especially since the board continues to keep investors in the dark.

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