5 Words That Change Everything

Prepare yourself, because few topics spark as fiery a debate as the one we're going to discuss today.

What's your take?
In just a second, you can tell all of us exactly how you see things playing out. You can even rant about our government until you're blue (or red) in the face.

But first, a few points.

When President Obama signed the American Recovery and Reinvestment Act of 2009 into law, nearly $79 billion was set aside for renewable energy. Politics aside, that's an awful lot of money. And it may just be the beginning.

Don't forget, Obama pledged to "help create 5 million new jobs by strategically investing $150 billion over the next 10 years" and to "ensure 10% of our electricity comes from renewable sources by 2012, and 25% by 2025."

Fuzzy math?
According to Management Information Services, a Washington, D.C.-based economic research firm, between 1950 and 2003, U.S. federal government subsidies for renewable energy were approximately $111 billion -- meaning Obama is going to invest more in one decade than we previously had in more than half a century.

This looks like a major win for green energy, and it could certainly benefit green-tech companies ranging from Evergreen Solar (Nasdaq: ESLR  ) and Canadian Solar (Nasdaq: CSIQ  ) to Calpine (NYSE: CPN  ) . But, still, it pays to dig a little deeper.

When you do, you discover -- among other things -- that according to the Department of Energy, renewable sources accounted for 9% of electricity generation in 2008. That means Obama has three years to move the dial just 1 percentage point.

Pot, kettle, black
Late last year, an article in The Huffington Post called out a similar discrepancy in Obama's rhetoric: "If this is how the impressive sounding goal of 'doubling alternative energy' is calculated, what Obama is essentially pledging is to simply maintain business-as-usual growth."

Combine this with the fact that oil prices have been cut in half, and that even wind super-evangelist T. Boone Pickens now says the U.S. doesn't have the infrastructure needed to get clean energy to market, and you begin to realize why some people aren't jumping on the alternative energy bandwagon.

5 words that will knock you off the fence
I admit, I love the idea of a stiff breeze charging my iPhone and a sunny afternoon lighting up Manhattan at night. But when it comes to green investing, I've been a bit of a skeptic lately. That is, until I opened a Wall Street Journal article about alternative energy and saw this line:

"The money is coming back."

That's according to Ethan Zindler, head of North American research at New Energy Finance Ltd. And frankly, it's a bit of an understatement.

After all, Morgan Stanley (NYSE: MS  ) and Citigroup (NYSE: C  ) each took advantage of new federal incentives to invest more than $100 million in wind farms last year. Meanwhile, Spain's Iberdrola is throwing around cash-grant numbers in the $500 million range and is planning on investing another $2 billion.

And now even General Electric (NYSE: GE  ) is getting back into the game -- telling The Wall Street Journal, "We see opportunities and are pursuing them actively."

So are we -- and so can you
There are plenty of ways to play the clean-energy craze -- such as buying shares of well-known alternative energy companies like First Solar (Nasdaq: FSLR  ) . But our Motley Fool Hidden Gems team is busy uncovering less obvious -- and potentially much more profitable -- opportunities.

Primarily, it's looking for small, ignored, or overlooked companies with explosive growth potential. One that fits the bill is Jinpan International. Although lesser-known than other Chinese companies like JA Solar, this company makes cast-resin transformers, which require only a fraction of the upkeep of their oil-based predecessors.

And because many wind farms are being built in desolate, hostile environments -- including some hundreds of miles offshore -- they're in very high demand.

In fact, over the past two years, Jinpan's wind products have gone from accounting for less than 1% of revenue to more than 13%. And over the past five years, the top line has had an impressive 30% compound annual growth rate. Here are a few more favorable metrics.

Company

Insider Ownership

Sales Growth*

EPS Growth*

Net Margin*

ROE*

Jinpan International

33%

13%

22%

15%

24%

*Trailing 12 months. Data provided by Capital IQ, a division of Standard & Poor's.

No one-trick pony
Wind isn't the only thing propelling Jinpan's growth, either. As part of its most recent "five-year plan," China is investing $65 billion in its medium-voltage electricity network, and China's Ministry of Machinery has very strict regulations that require all transformers in public buildings to be made of, you guessed it ... cast resin. So you can see why the folks on our Hidden Gems team are so excited.

But Jinpan isn't the only amazing clean-energy play they've uncovered. Another compelling opportunity, Otter Tail, has a major foothold in the "Saudi Arabia of wind" and pays a large 5% dividend.

Take the next step
Now I want you to use the comments section below to tell us if -- and how -- you are playing the clean-energy craze.

And because electricity -- clean or not -- doesn't pay for itself, I'm going to invite you to join Hidden Gems absolutely free for 30 days. Stay with us if you like it; pay nothing if you don't.

Either way, you'll get full access to all of the Hidden Gems team's top small-cap stock picks and research – including their newest pick, which is primed to profit from Obama's $3.4 billion investment in our nation's electric grid.

Plus, you can follow along trade for trade as Motley Fool senior analysts Seth Jayson and Andy Cross use $250,000 of The Motley Fool's own money to build a best-of-the-best small-cap portfolio.

There is no obligation to subscribe. Simply click here to learn more.

This article was originally published Sept. 16, 2009. It has been updated.

Austin Edwards doesn't own shares of any of the companies mentioned. Jinpan International and Otter Tail are Hidden Gems recommendations. First Solar is a Rule Breakers selection. The Fool is investors writing for investors and has a disclosure policy.


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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 January 29, 2010, at 9:19 AM, MrCrayon wrote:

    I get tired of people touting that renewables can't stand on their own, while not pointing out that other energy sources have been getting long term subsidies also.

    With that said, as a utility scale wind and solar energy designer, it pays to think outside the box.

    The cherry picked project areas are in hot demand while those with lesser, or even marginal, resources are often over-looked by those who dream to hit pay-dirt by selling their suspect projects to one of the players like Iberdrola or Nextera (in the US and Canada anyway). These lesser sites also have an easier and less extreme resource that puts electrical equipment through less strain.

    Companies specializing in power electronics and control, like Jinpan, are going to be major winners if they have the right equipment and continue to keep their product quality high.

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