Green Stocks to Fill Your Pocket With Green

Everything is "going green" these days. So why shouldn’t your portfolio? Investing in green energy/technology companies could prove a lucrative bet over the long term, given the federal government’s planned expenditures in the space, not to mention the international community’s backing and green technological innovations that are already under way.

The U.S. clears the way
First let’s look at the space broadly. President Obama, Congress and state governments have already begun to incentivize investment in green energy by allocating funds to subsidize investment in the space, while also imposing new alternative energy requirements on companies.

The market for investment in alternative energy in the U.S. is in its early stages, which means there’s much room for growth. According to the Electric Power Research Institute, right now the U.S. obtains less than 1% of its power from wind energy. Compare this with Denmark and Spain, which generate 20% and 9% of their power through wind energy respectively. Should the federal wind tax credit stay in place, wind energy projects will double by 2011, according to BTM Consultants.

Cashing in on China's green innovation
On the other hand, China -- the world’s biggest polluter -- has also devised prudent methods to create green energy. The country is actually farther down the path than the U.S. in creating more financially viable green technology for the marketplace.

To this end, not only will China’s innovations impact the local market, but they could have a profound effect on the international market for alternative energy. China is doing to alternative energy what it did for manufacturing: It’s lowering the cost of production.

Indeed, green efforts have reached global proportions. As the international climate conference wrapped up recently in Copenhagen, Secretary of State Hilary Clinton pledged that the U.S., along with other wealthy nations around the globe, would contribute to a $100 billion fund to assist poor nations with efforts toward climate change.

Greenifying your portfolio
With the entire world focused on going green and the stage set for growth, it’s time to consider adding some green stocks to your portfolio.

Using The Motley Fool’s CAPS ratings, you could put our CAPS screening tool to work (or simply punch in tickers at the CAPS website) to see what certain stocks are rated. I did just that to find promising companies in the green energy industry. I searched for companies in the alternative energy space with CAPS ratings of four and five stars, five being the highest possible from our CAPS community.

Source: Motley Fool CAPS.

Other pure-player names include LDK Solar (NYSE:LDK), SunPower (NASDAQ:SPWRA), and Evergreen Solar; however, valuations may be higher on these companies at the moment.

U.S. companies that are going green
You could also play the green energy card by investing in companies that are themselves making large investments in alternative energy. General Electric (NYSE:GE), for instance, is investing in wind energy. The industrial juggernaut recently secured a $1.4 billion contract to supply wind turbines for Caithness Energy’s wind farm. GE also has plans to cash in on global government stimulus dollars associated with developing smart grid technology. Domestically, of the $3.4 billion in federal stimulus money allotted for power-grid projects, one-third is going to GE customers.

Lockheed Martin (NYSE:LMT) is another possibility. The company, well-known for aerospace defense, is positioning itself to become a large player in the solar space as an engineer of concentrated solar-power plants. Regulation is dictating that utilities build renewable power plants. Specifically, the need to build solar-powered utilities comes as states have enacted aggressive renewable portfolio standards that require utilities in those states to progressively generate a certain percentage of power through renewable means.

Risks to the investment thesis
There is still uncertainty surrounding the international regulatory framework for this industry. Development in the space is also in its early stages, so there will be lots of losers and some winners -- but the winners could be big. That’s why investing in a worldwide massive investment trend early -- like green energy -- can pay off handsomely down the road.

Remember, these green stocks are just names to get you started in your own research. Remain mindful of the stock's valuation, fundamentals, and growth prospects.

Come join our CAPS online investment community to delve further into these companies and see if they're right for your portfolio. Let the collective wisdom of our 145,000-member-strong investment community help you make better investing decisions.