The Next Millionaire-Maker Megatrend

I don't know about you, but I'm starting to forget what life was like before the Internet.

I can't even remember the last time I called a travel agent instead of just logging onto Expedia (Nasdaq: EXPE  ) , or went to the library and cracked an encyclopedia instead of just using Google (Nasdaq: GOOG  ) , or went to the store to buy music or movies instead of just using Apple's (Nasdaq: AAPL  ) iTunes.

In a lot of ways, that's sad. But it's also incredible to think that a technology that evolved out of the U.S. government's reaction to the Soviet Union's launch of Sputnik has come to dominate our lives.

Even more incredibly ...
Investors who foresaw how profoundly the Internet would change our world have been able to make an absolute fortune from it.

Take those who understood the potential of e-commerce, for example. Most people scoffed at the idea of buying retail goods "online," but early investors in Amazon.com have grown their money by as much as 5,100%.

Needless to say, the Internet revolution turned out to be an unprecedented source of wealth. That's why I was blown away when I read that a well-respected venture capitalist now sees a megatrend on the horizon that he says could be ...

"Bigger than the Internet by an order of magnitude"
In case you're unaware, an order of magnitude is a multiple of 10.

That's right. Venture capitalist Ray Lane recently told The Wall Street Journal that he has found something he thinks could be 10 times as big as the Internet. And he would know.

After all, he's a partner at the famed venture capital firm Kleiner Perkins Caufield & Byers. He was also an early backer of legendary companies such as Genentech (NYSE: DNA  ) and Sun Microsystems (Nasdaq: JAVA  ) .

And he's not the only one who's taking notice
In a shareholder update, Fidelity Magellan manager Harry Lange outlined several reasons why his fund has begun to focus more on "cleantech" in general, and on solar energy in particular.

  • Technological advancements and greater economies of scale are making it cheaper to produce electricity from solar energy.
  • Thanks to a declining cost curve and the rising cost of conventional fuels, solar energy is becoming more competitive in areas with high electricity costs.
  • Governments worldwide are providing tax incentives for both producers and consumers of solar energy.

The next great bull market?
All of these factors contributed to Wall Street's love affair with solar energy in 2007:

Stock

Gain in 2007

Suntech Power

142%

SunPower

251%

First Solar

795%

In fact, by the end of 2007, it looked as though Ray Lane might actually be understating the case. But then 2008 hit, and the market began selling off steadily, before heading into an all-out tailspin. The solar sector was particularly hard-hit, and while those who snapped up shares at the March lows have been handsomely rewarded, long-term shareholders have been crushed.

Stock

2007/2008 High

2009 Low

Current Price

JA Solar

$25.74

$1.90

$4.60

Canadian Solar

$51.00

$3.00

$17.62

China Sunergy

$17.88

$1.38

$4.61

Data from Yahoo! Finance. All prices dividend- and split-adjusted.

Granted, much of this poor performance can be blamed on general market turmoil, massive hedge fund sell-offs, cheaper oil and gas, tightening credit, and ever-present recession fears. But it reminds us that just because you recognize a developing megatrend, you're not guaranteed to cash in on it.

In fact, more often than not, those who jump on board without doing their due diligence will end up losing a fortune.

Just look at the Internet
As anyone who was a 20-something slacker working in Silicon Valley in the late 1990s can tell you, the Internet spawned more big losers than big winners -- by an order of magnitude.

That's why at Motley Fool Rule Breakers, we've been doing plenty of research on cleantech and keeping a close eye on solar stocks in particular -- but you won't find us recommending every solar stock under the sun.

Among our recommendations, you will find a few carefully selected cleantech companies, including Suntech Power -- a proven leader in the solar industry, and a Chinese company taking the lead on forays into new clean-coal and nuclear power technologies.

We're also recommending that investors take advantage of major discounts on an alternative-energy exchange-traded fund that gives you exposure to a wide range of companies involved in cleantech, including Applied Materials (Nasdaq: AMAT  ) and Broadwind Energy (Nasdaq: BWEN  ) .

Granted, many of these stocks are still selling well below their 2007 highs. But as the economy recovers and the Obama administration begins to make good on its promise of massive investments in green energy, these stocks present a compelling profit opportunity.

Better yet, they were handpicked using Motley Fool co-founder David Gardner's Rule Breakers criteria:

  • Top-dog and first-mover status in an important, emerging industry.
  • Sustainable competitive advantages gained through business momentum, patent protection, visionary leadership, or inept competitors.
  • Great management with financial backing from smart investors and corporations.

Only time will tell whether this will lead us to gains 10 times greater than those generated by the Internet. Until then, we're always on the lookout for the next millionaire-maker megatrend, and the next great growth stock.

If you'd like full access to all of our research and recommendations, including our top alternative energy picks, we invite you to take a free 30-day guest pass to Rule Breakers. All you have to do is click here. There is no obligation to subscribe.

This article was first published March 24, 2008. It has been updated.

Austin Edwards looks forward to a world powered by sunshine. He owns shares of Google and Apple. Google, Suntech Power, and First Solar are Motley Fool Rule Breakers picks. Amazon.com and Apple are Stock Advisor recommendations. And yes, even the Fool's disclosure policy sneered at that pun about "recommending every solar stock under the sun."


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