Are alternative-energy stocks the new tech?

Are alternative-energy stocks the new tech stocks, or are they simply socially responsible stocks and funds in disguise?


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By David Callaway
Market Watch

NEW YORK (MarketWatch) -- Are alternative-energy stocks the new tech stocks, or are they simply socially responsible stocks and funds in disguise?

That's the question investors need to ask themselves before they cast their hard-earned savings into the widening flood of assets flowing into anything bearing the name "green" or "alternative energy."

Certainly, as the MarketWatch special "The Heat Is On" series has been describing this week, an industry is already growing around the issue of climate change and pollution fighting, despite the fact that the debate over global warming continues to rage in political and academic circles. See the full special report.

But whether the industry can produce the type of technological breakthroughs and innovations that a young Microsoft (MSFT, Apple (AAPL), or even Google (GOOG) produced -- and the profits and stock run-ups that followed -- remains an open question.

In short, will this industry change the world, with all the benefits to investors -- not to mention to the world -- that would bring? Or will it just be another in a long line of Wall Street fads, dreamed up to pitch to gullible investors looking to make money and feel good at the same time.
Everybody remembers the socially responsible funds, which attempted to invest only in companies that steered clear of such practices as working with dictatorships and human-rights violators, or producing products -- such as cigarettes or alcohol -- deemed harmful to society.

Many of them produced tidy little returns. But none compared with the power of shares of Philip Morris Cos. over the last three decades.



Even after changing its name to Altria Group Inc. (MO), in an attempt to change society's perception of it as a purveyor of cancer, the shares have continued to soar over the past several years.

Let's face it: When it comes to investing, feeling good is nice, but profits are what drive stocks. And most investors are not shy about going where the profits are, even if they don't smoke, drink, gamble or support drilling for oil in global hot spots.
What sets the alternative-energy stocks and other makers of clean technology apart is that in this case it is typically the big energy companies that are at the forefront of these issues, anyway. Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and the rest, affectionately known as Big Oil, are behind some of the most dramatic innovations in alternative energy, if only as a hedge against the potential loss of their main businesses in the decades to come.

And while the markets for carbon trading, weather futures and other forms of global-warming-focused investing are booming, they are, like any new markets, bound to suffer growing pains in the form of scandals over the next several years, as investors get duped by too-good-to-be-true ideas and technologies.

The scars suffered by the energy-trading industry after Enron Corp.'s collapse have largely healed and been forgotten, at least by rank-and-file investors and certainly by Wall Street. But the potential for abuse of these young markets is still very much alive.

So the lesson for investors is to keep history in mind when jumping onto the bandwagon of alternative energy, clean technology or any other environmentally led investment play. Out of all these companies, both new and old, rushing to make a name for themselves in this league, undoubtedly a few will emerge to actually change the world for the better.

Whether you can make money on them, however, is a whole different issue.
David Callaway is editor-in-chief of MarketWatch.