Don’t Fear the Reaper

August 18, 2007 at 9:08 am
Contributed by: Chris


In this week’s Energy and Capital article, I assess the recent correction in the stock market and what it means for renewable energy investors…with a nod to Blue Oyster Cult.


Don’t Fear the Reaper

Correction Just A Buying Opportunity for Renewable Energy


By Chris Nelder

All our times have come

Here but now they’re gone

Seasons don’t fear the reaper

Nor do the wind, the sun or the rain

We can be like they are

–Blue Oyster Cult, "Don’t Fear the Reaper"

That B.O.C classic was my theme song for this week, and for more reasons than the "reaper" part.

From the dizzying record heights of Dow 14,000 and $78.77 crude, the markets and commodities have all given back about 10%.

But this is nothing to fear. In fact, I think we should welcome it.

As my trading sensei often reminds me, "No tree grows to the sky." Healthy markets must "correct" every so often, to moderate growth and make sure that prices don’t get too far ahead of value.

Or, as our macro trends guru, Justice Litle said to me yesterday, "the nature of booms and busts are such that Wall Street always, always overshoots whenever given the opportunity. Its a function of market logistics and human nature."

And we had overshot, big time, in a few areas.

This correction just brings the Dow back to its 200-day line.

And the cooling off of housing valuations-which ultimately led to the subprime mortgage mess we’re now trying to unwind-only brings housing appreciation back into its normal trendline, after three (and some would say ten) years of excessive appreciation:

Now, I don’t mean to minimize the pain out there. I’ve taken my own lumps in the last few weeks, even taking some losses playing the short side, as the market veered crazily from one extreme to another. It’s tough to make a buck when the market has gone loco.

But we really needed to work those "toxic" loans out of the system. We really needed the hedge funds and big banks to cool their jets a little. (And it ain’t over yet.)

I daresay we even needed a chance to take some profits in the energy sector, because the growth has been nothing short of amazing for about three years running now. This correction only brought my personal fossil-fuel fave, Valero, back to its 200 day line:


So, while the pain out there is real, and those who have profited the most egregiously (the banking and housing sectors) are now getting the worst whippings, we could also look at this as simply taking our medicine

To that extent, I think the Fed was right not to lower rates at this point and just let the system do its thing.

Meltdown? What Meltdown?

But in the midst of this carnage-as always!–there have been a few bright spots, and there were more than a few in the renewable energy sector.

While the major averages and the highest flying stocks got taken down 10% or better, some of our quiet little darlings rose against the tide, and ended this four-week correction period somewhere between holding up and jumping up!

That’s whatcha call strength, baby. Staying power.

In fact, today I’m going to show you a winner in every single segment of renewable energy.

Take a look at these charts, all starting on July 19th, the day the Dow hit its record 14,000 high, as compared to performance of the S&P 500 index.

First, one of my personal favorites in the geothermal sector, Raser Technologies:


Next, another great geothermal play, Ormat Technologies:


Or one I mentioned a few weeks ago, the solar/advanced battery/hydrogen/just-about-everything-RE company, Energy Conversion Devices:


Or SunOpta, the grains processor, which is a play on both grains and ethanol:


Or Calgon Carbon Corporation, a play on carbon sequestration and air and water purification:


And finally, a winner in wind:


Now admittedly, those are cherry-picked winners. The renewable energy sector was hardly immune to the broad market selloff this past month.

But even the corrections received by the better plays in RE were, again, merely a return to somewhat more reasonable valuations. Let’s look at a couple of one-year charts, with their 50- and 200-day moving averages, compared to the S&P 500.

Take a look at Gamesa SA, the second-largest wind turbine maker in the world (after GE). It came off a peak with everything else, but only returned to its 50-day line…still sporting about a 75% gain over the last year:


Or have a look at the poster child of solar power stocks, First Solar. Again, it’s now just barely below its 50-day line, with less than a year’s history, and it’s still up over 250%:


So enough with the crocodile tears. We’re sitting pretty on some gains here in the renewable energy sector, and this correction only gives us a chance to catch a decent entry point for a change, without feeling like we’re chasing a runaway train.

In fact I hope my editor doesn’t cut some of these exemplary stocks out, because I just showed you a couple of the best gems in the Green Chip Stocks collection. (But of course, there are many more.) To gain access to them, click here .

The boom in energy is hardly over. It’s just catching its breath. So don’t fear the reaper. Just relax, sit back, wait for the dust to settle, and then take that opportunity to jump on the train before it gets rolling again. Next stop: Profit Junction.

Until next time,



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