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
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
- Add A123 Systems to My Watchlist.
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
That doesn't mean there aren't opportunities out there for algae. Solazyme
- Add Syntroleum to My Watchlist.
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
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.
- Add Canadian Solar to My Watchlist.
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.
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