HardAssetsInvestor

Written by Murray Coleman  |

July 25, 2008

Tom Konrad Talks Renewables

Details

The analyst for Alternative Energy Stocks shares his latest views about the market for renewable energy.

• Timing the market with ETFs
• Index-based vs. active management
• Have high corn prices thwarted ethanol?

Tom Konrad is one of the investment community's most well-known observers of renewable energy markets. He's a prolific writer and his latest work can be found at Alternative Energy Stocks.com. With a Ph.D. in mathematics, Konrad brings an academic's mind to the sometimes hype-filled alternative energy space.

The Denver-based researcher isn't trying to be the next hot stock guru."I get a large number of emails asking ‘What do you think of Company X?' Unlike Jim Cramer, I don't have a lot to say about companies I have not been following ..." he explains in a recent blog post.

Konrad also has studied mutual funds compared to exchange-traded funds covering the alternative energy universe. He likes ETFs right now. But he's an analyst with a keen eye of how different investing styles can best take advantage of stocks, mutual funds and ETFs.

HardAssetsInvestor.com (HAI): There are now ETFs which allow investors to fine-tune their alt energy exposure to particular markets. Is that an approach that makes sense, or is that getting too narrow?

Tom Konrad (Konrad): For some traders who really like to time the market, it can be quite useful. Other than that, you're starting to get down to pretty narrow industries. With solar, you can just buy individual stocks. There's not much advantage to the ETFs at this point. A few companies make up a large part of their portfolios. So these are very, very focused types of portfolios. It raises the question: Why not just invest in particular companies through individual stocks?

But again, as a market-timing instrument, these sorts of narrowly focused ETFs might work. For example, if you have a good feeling for when Congress might extend the investment tax credits - or even if you think they're not going to be - ETFs might be a way to take advantage of those short-term expectations.
 
HAI: Does an index-based approach make sense in the alternative energy space, or is there room for an active manager to add value?

Konrad: There's definitely room for active management. The alternative energy space is still very young and the analyst coverage is pretty lean. There's a lot of market inefficiencies left to take advantage of at this point. Those opportunities will be less as time goes on, but right now, alternative energy is the place to be for active managers.

HAI: Which presidential candidate would be better for alternative energy stocks?

Konrad: Barack Obama, by a long shot. He gets alternative energy. He didn't originally; he had an early misstep. Obama supported the conversion of coal to liquids, which is environmentally a horrible idea. It's a viable replacement for petroleum in the sense it could work, up to a point. But there are other processes that are just as viable and less environmentally damaging. Obama was called out by the environmental community and he learned from that mistake.

He's really the only [current] candidate for president who has gotten into the subtleties of the issue. John McCain hasn't really addressed the issue. He has a policy, but not nearly one that's as in-depth and focused as Obama's on the prevailing issues. We're talking worlds of difference between Obama's understanding of the issues and that of McCain's camp.

HAI: Is ethanol doomed by high corn prices?

Konrad: No, ethanol and corn prices are moving in sync with oil. There will always be arbitrage opportunities. But it's never going to be a gold mine. An efficient producer of ethanol will be able to, on average, create a small return on investment. It's not the greatest opportunity out there and never has been. That's what the current correction is all about - people thought it was and overplayed that market. But ethanol is here to stay because of legislative activity in the area.

HAI: If you had to put your money on one stock in the alternative energy space, what would it be?

Konrad: New Flyer Industries. They're the largest North American manufacturer of buses. And I consider mass transportation to be the only viable way to address the high oil price situation. It's the only answer with enough scale to truly address the problem in a timely manner. New Flyer Industries is the dominant manufacturer of buses. And buses are the types of mass transit which are the quickest to deploy. They've got a very strong and growing order book. And I think it's just the beginning of the story for this company.