Please ensure Javascript is enabled for purposes of website accessibility

Why Alternative Energy Growth Hasn't Quite Rewarded Investors

By Motley Fool Staff - Apr 13, 2016 at 12:40PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Innovation doesn't always heap rewards on shareholders.

While solar and wind keep becoming more and more viable as sources of energy, some huge renewables company or another always seems to be in the headlines for toeing the bankruptcy line.

In this clip from the Industry Focus: Energy podcast, Tyler Crowe, Sean O'Reilly, and Taylor Muckerman explain why buying into the renewable energy space is a bit like betting on a wrestler in a Royal Rumble -- and what investors need to remember before carving out too much of a stake in any one company. Also, one important note that we all need to remember in the face of news of renewables "replacing" or "outpacing" oil and gas.

This podcast was recorded on April 7, 2016.

Tyler Crowe: This is actually kind of bringing it back to yesterday's MarketFoolery show, they had David Kretzmann on, and they were talking about the bankruptcy of SunEdison (SUNEQ). I find the conversation between this and that very interesting in the sense that, we're basically talking about the astronomical growth of solar and wind to the point that...

Sean O'Reilly: It's competitive.

Crowe: It's also throwing the electricity market on its head. But at the same time, you have these upstart energy companies rising and falling.

Taylor Muckerman: Yeah, the market hasn't caught on to the success yet.

Crowe: From an investor's standpoint, there's that weird point where, where is the company you want to invest in that's really going to grow? And that's where I think it's so difficult, because -- and, this is going to be a weird analogy -- I feel like investing in solar, renewables, wind, things like that, it's kind of like the Royal Rumble in wrestling. I don't know if you guys know the Royal Rumble...

Muckerman: (laughs) Yokozuna was always my favorite.

O'Reilly: Taking us back to our pre-teen years. (laughs) 

Crowe: One guy comes in every minute or so, and it changes, completely disrupts, what's going on. And typically, the person that starts...

O'Reilly: And then somebody gets hit by a chair. (laughs) 

Crowe: Yeah, somebody gets knocked out with a chair, somebody gets thrown over the rope. And typically, the person that started in the fight isn't the last one in. And I feel like with the solar market, the renewable market, you do need to tread a little carefully in the sense of, don't put all your eggs in one basket, like, "This is going to be the company," because it's such a fast-moving industry that you don't know. There are so many things that could change in any given moment. We saw it with natural gas and the shale revolution -- all these companies thought they could make a ton of money on this, and then boom, collapse.

O'Reilly: They did for a few years. (laughs) 

Crowe: Well, they did make money. And then they lost it all. So you can't just say, "This is going to be the company." You need to hedge your bets a little bit. There is an opportunity there, but don't think one company will make it all happen.

O'Reilly: When you started talking about your point, the first thing that entered my mind was that age-old Warren Buffett-ism. Buffett avoids technology because technological advances do not necessarily mean you're going to make money. Sorry, but, heck, Morgan Housel had that article a year ago -- the No. 1 stock of the last 100 years in America was Altria.

Crowe: Making cigarettes.

O'Reilly: Demand has been dropping for cigarettes for 40, 50 years.

Muckerman: In the U.S.

O'Reilly: Taxes, lawsuits from the government, all this stuff, and it still beat everybody. So, yeah, tread carefully, folks. Actually, on that note, I did want to mention that we just learned, apparently -- and it seemed kind of unfair, but I think Mr. Crowe, you sent this article to me earlier from Bloomberg. It's called "Wind and Solar Are Crushing Fossil Fuels," and it talks about how expenditures in investing in wind and solar beat out fossil fuels by like two or three times or something like that last year.

Muckerman: Globally.

Crowe: We actually went over that last week, when we had our energy quiz that you kind of failed.

O'Reilly: Well, you know, I failed on purpose, along with the audience.

Crowe: Sure.

O'Reilly: It was a good time. But, it seemed unfair, when I read it, because obviously capex in oil and gas have been cut massively, to like, 60-year lows. I was like, "That's not quite fair."

Crowe: Yeah, and that's another general point for investors -- stories can be very cherry-picked sometimes. Before reading it and having a knee-jerk reaction, step back and take a look at it. When it says something like, "Yeah, it's outpacing oil's growth," like, yeah, but there is very little correlation between oil and solar. Oil is a transportation fuel and used for plastics, solar is mostly an electricity generation, and there's very little overlap between the two unless you want to talk about electric vehicles, which is .01% of the overall transportation market overall right now. It's going to grow, but it's not there yet. So when you see that, don't immediately go, "Oh man! Oil is down because of solar!" It's going to take time.

O'Reilly: Not only that, but oil and gas is already a multitrillion-dollar industry. You're not going to... (laughs) 

Muckerman: I think it's going to be at least a decade before this show is dominated by renewable energy talk.

Crowe: We'll still be talking about oil for a little while longer on this show.

O'Reilly: We need to make plastics! 

Muckerman: Well, we need oil to make plastics, until the sun can make plastic.

O'Reilly: That'll be good, yeah.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SunEdison, Inc. Stock Quote
SunEdison, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.