Saturday, July 5th, 2008

Green Is In… But Why?

Sat May 17, 2008 4:53pm CDT • Investor's Daily Edge

Or how about commercials on how Honda and Ford are making huge strides in helping the environment and making the world a better place. Hmm, at least Honda isn’t being green because it’s in fashion. They’ve had one of the most fuel-efficient fleets for a long, long time. Ford, on the other hand, is turning green out of necessity (they won’t make money if their cars guzzle gas).

I swear, I’ve seen hundreds of commercials just like these. All that’s happening is that major corporations are doing some ‘brand’ repair. They know that if they look green in a world that’s moving in that direction, they’ll keep the brand image intact.

That’s not to say that going green is a bad thing, even if the improvement is small. But these companies are all making a far bigger deal than they should be.

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As an investor, should you invest in a company that is greening?

Well considering green technology is still at its infancy, it is very expensive. Last time I checked, any company that spends too much doesn’t do very well in the stock market.

Granted, companies like Google and IBM (which have BILLIONS) can afford to turn their entire operations into self-sustaining powerhouses. But smaller companies simply can’t afford the big switch.

What’s the Benefit of Going Green?

So why does a corporation turning green even matter? If you’ve been a reader of my blog, then you’ll know exactly what this means.

There is something you should know about these new initiatives.

THEY ARE EXPENSIVE.

The cheapest solar panels – even after tax credits – cost about 20 cents per kilowatt-hour. Coal costs 5 cents. So for solar to compete effectively, prices have to drop by about 75%.

If you buy a hybrid car, it’ll take between 3-7 years for the extra cost of the hybrid to be recovered by fuel savings. If you buy solar panels, it could take even longer.

Now, I love the fact that the world is turning green. And I’ve said on previous occasions that I think the U.S. needs to speed up its adoption. But for major corporations and even you and me, what is the economic benefit in going green?

In Europe, the big benefit is that companies gain carbon credits that help them stay under emissions caps (and avoid those nasty fines). But in the U.S., the home of no comprehensive emissions reduction pact, lowering emissions only means added expense.

It doesn’t matter if Wal-Mart is willing to pay for an army of inspectors to go from state capital to state capital, letting governments know how to reduce energy usage. In the end, having that army of inspectors is going to hurt their margins and affect their profitability.

With no real economic incentive there, why the heck is turning green becoming such a cultural phenomenon? How is it that a solar company - which hasn’t generated an ounce of profits – can go on to skyrocket 200-300%?

I’ll talk in detail about this next week. Be sure not to miss it, because it’s going to give you a very clear direction for the next big growth market.

Until next time,

Charles P.S. I just started up a new blog and would love for you to check it out. Just go to http://stockcharlie.blogspot.com/. I’ll be giving you my unrestricted opinion on economic developments and the effect politics can have on the markets. Make sure to comment and let me know what you think!