By Patrick Foot, financial markets writer at IG – a leading provider of CFD trading, spread betting and live forex prices*
This earnings season has seen several major stories play out, with battles raging in several technological sectors and Facebook, Microsoft, Apple, and Google all taking centre stage.
On Thursday July 31, another story came to the fore as oil and gas giants Shell and Exxon Mobil announced their results alongside a company hoping to disrupt at least some of their operations in the future: Tesla Motors.
It’s a David vs Goliath(s) story: even taking its inflated position on the markets, Tesla is worth a tenth of Shell and around a 15th of Exxon. Tesla’s rise to a $27 billion dollar valuation has been nothing short of meteoric, however. The company was worth around $4 billion in March last year, and has had a remarkable 18 months during which the company has been valued as high as $30 billion.
Undoubtedly, the confidence of traders in this company has contributed to its success over the past year and a half. Could a disruptive cleantech company make a similar impact in the energy and utilities sector?
Currently there are several ETFs and other funds that offer green and ethical investment opportunities. The PowerShares Cleantech Portfolio may not have mirrored Tesla, but has had a very respectable return of almost 30% in a similar period. But there’s also plenty of opportunity for direct investment.
Photovoltaic cells are no longer a new technology, though continued innovation increases the sector’s importance to America’s energy supply. Older players on the market, like former world leader Suntech, are as such unlikely to replicate Tesla’s rise.
Suntech went public on the New York Stock Exchange all the way back in 2005, initially performing strongly but taking a hit during the recession, some scandal, and eventual bankruptcy that it has so far not managed to recover. First Solar, another major player, has been performing better but is similarly far from its 2008 peak. First Solar has, however, seen some impressive performance since March 2013. It has risen 164% in worth and is showing signs that it can take advantage of predicted further growth in solar uptake.
But the closest comparison to Tesla probably comes from Solar City, thanks to the large part to play that Elon Musk has had in the foundation and growth of the company. The Tesla shareholder has also spoken about his plans for Solar City – a company that not only provides the technology for solar generation but also acts as an energy supplier itself – and Tesla to work together in the future.
That involvement may have helped to drive Solar City’s impressive stock market gains in the past year and half. Since March 2013, the company has almost tripled in value and cemented its place as the second biggest solar systems provider in the US. A strong performance, but one the markets appear to believe is justified as five brokers rate the stock a buy and four rate it a strong buy.
The biggest blocker for wind power companies around the world at the moment is the bumpy and unpredictable support they get from governments. That has kept some wind energy stocks in check for the past few months – though there have been several success stories.
One company that has enjoyed a steady rise over the past 18 months is Vestas Wind Systems, a leading manufacturer of wind turbines and their associated auxiliary structures. Vestas has seen growth over the past year that rivals even Tesla, increasing around 600% in value and reaching a market cap in excess of $10 billion.
Like Tesla, that growth has led some to question whether Vestas may have stepped into overbought territory. Traders should evaluate the company on its own merits and not on market sentiment, but the signs are good for other assets in the sector to replicate Vestas’ performance.
There’s plenty to show that the major story in a future earnings season will be the rivalry between giants of renewable energy and oil and gas. The best way to ensure that renewables come to the fore in the market, though, is to be proactive and seek out some strong investments.
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