Add Some Green to Your Portfolio

• Email
• Share
• Print

Green investing is here to stay, according to a survey conducted by Allianz Global Investors earlier this year. Americans believe that changing government policies and other factors will welcome a "golden age" for environmentally friendly investing. Additionally, 78% of investors surveyed think that green technologies have the potential to be the "next great American industry." In the spirit of Earth Day, we've consulted several Motley Fool writers about their thoughts on green investing, and asked them which investments they think might add some green to your portfolio.

Why should investors consider adding environmentally friendly investments to their portfolios?

Rick Aristotle Munarriz: Green tech is the future. It certainly doesn't feel like the present. When oil barrels were heading toward $150 apiece, everyone flocked to greener alternatives as more of an economic than an environmental necessity. Now that oil has shed two-thirds of its value, it's easy to see why investors have backed away from green initiatives.

However, crude oil isn't a limitless resource, and recession-weighted prices won't stay down forever. Now is a great time to analyze the playing field before your fellow investors begin thinking ahead -- like you should be doing right now.

Toby Shute: Well, how about self-preservation? I'm not just talking about maintaining the quality of our planet's water, arable land, and atmosphere, either. Climate change regulations are coming, whether they come in the form of a tax or a cap-and-trade system. If you're invested in a cement producer like Cemex (NYSE: CX) or a heavily coal-dependent utility like Allegheny Energy, those emission restrictions could pressure your company's profitability.

Tim Beyers: I'll take the tree-hugger view on this. Green investing is the responsible thing to do. We're stewards of the planet, why not invest in the technologies that will help to take care of it?

That said, I'm also a capitalist and green technology is seeing lots of government and venture capital investment. As such, the next Google (Nasdaq: GOOG) is much more likely to be a recycler or solar-cell manufacturer than an e-commerce wunderkind.

Anders Bylund: First, you get to feel good about your portfolio when the companies in it aren't destroying Earth's limited resources. I, for one, feel pretty good about Google's efforts in solar energy, low-emission car technology, and so forth. You don't expect those kinds of green initiatives out of an Internet business.

Second, what's good for the soul can be good for your returns. If you think that environmentalism is hot today, you ain't seen nothing yet. Peak oil may happen in my lifetime. Pollution isn't magically going away. The companies that get an early grip on these things should gain branding power, which will lead to sales and profits over the years. Green investing may be just a "virtual sector," but it's red-hot and only getting hotter.

Green investing hasn't always meant green for your portfolio. Which industries or investments provide attractive investment opportunities?

Rick Aristotle Munarriz: I'll let Toby talk solar, because he knows the sector far better than I ever will. I've shied away from boning up on the solar stocks, because I can't pick out the one company that has a discernable advantage over the competition. So I would prefer buying a basket of green energy stocks -- like PowerShares WilderHill Clean Energy -- instead of trying to pick out with photovoltaic specialist can squeeze an extra penny out of its solar panel costs.

The companies that really draw me in are the green stocks outside of solar. They're longshots, but I think fuel-cell players like Ballard Power and Plug Power will one day revolutionize the way we power our cars and our homes.

Toby Shute: I've been following developments in the solar industry pretty closely for the past two years now. I have been very reluctant to give my blessing to the space from an investment point of view. We're mostly talking about start-up enterprises heavily dependent on continued rounds of debt and equity financing. Investing here equates to venture capital investing, which takes a unique skillset and benefits from managerial influence, something we ordinary investors lack. First Solar (Nasdaq: FSLR) had the right idea by staying in private hands until it was ready for prime time.

Now, there are hundreds of well-financed, profitable companies positioned to profit from the push for cleaner energy. Natural gas appears to be a big winner relative to coal, and in that area, I would look at a producer like Range Resources. Solar and wind power installations should keep infrastructure player Quanta Services busy. And as far as next-generation fuels derived from any sort of biomass go, Air Products & Chemicals (NYSE: APD) stands ready to deliver the industrial gases generally required.

Anders Bylund: Makers of solar panels and wind-power equipment are an obvious choice. But I think that the opportunities in less obvious green investments are even more exciting. For example, the greenest stock in my portfolio is Universal Display (Nasdaq: PANL). This little technologist aims to replace every LCD screen, television, and light bulb in the world with far more power-efficient OLED technology. That's a huge growth opportunity if I ever saw one.

Tim Beyers: I'm extremely bullish on conservation technologies. Three I like in particular are high-efficiency gasoline engines, low-power microprocessors, and LED lighting. The key to these innovations is that they don't demand new habits or capital equipment. Instead, they radically transform our existing infrastructure in ways that are extremely friendly to Planet Earth.

Lastly, name one innovative green product or company that has the ability to make a big impact on consumers.

Rick Aristotle Munarriz: I like Universal Display, and not just because it's a component of the PowerShares WilderHill ETF -- nor because both are active Motley Fool Rule Breakers recommendations. Universal Display is a pioneer in organic light-emitting diodes -- or OLED -- displays, a more energy-efficient technology for use in everything from televisions to notebook screens. Universal Display is still bleeding red ink, but the OLED industry is also still in its infancy. It's a risky bet, but when you're swinging for the fences, nearly everything is.

Toby Shute: Between its activities in wind, solar, the smart grid, water, and nuclear power, General Electric (NYSE: GE) can positively affect consumers in a lot of different ways. Now, if it weren't for that pesky finance division....

Anders Bylund: You'll see Universal Display's cell phone screens first -- they're already on the market. Lighting panels and larger displays will come later, including the bendable and wearable ones. There will be OLED everywhere in five years or less.

Tim Beyers: Of those three I named before, I think power reduction is the killer app in the tech sector, because of the data center build-out that's behind the cloud computing revolution.

Google, by some reports, has some 1 million servers spread around the globe. Microsoft is racing to equal or better that. In the process, they're becoming huge polluters. A recent McKinsey & Co. study found that computing infrastructure accounts for roughly 2% of the world's greenhouse gas emissions today. That number is expected to almost double by 2020.

Fortunately, there's a company addressing this crisis: VMware (NYSE: VMW), a Rule Breakers recommendation that specializes in virtualization software. Virtualization can take many forms. Here, I'm talking about the process of dividing one server into many -- into distinct chunks of processing power, storage, and memory, thus reducing the amount of physical hardware needed to sustain the cloud. Less hardware means less power, and less power means less pollution.

What are your thoughts about green investing? Share your opinions in the comments box below.