Rough Summer for Alternative-Energy Stocks

August 23, 2007
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Most stocks in the Canadian alternative-energy sector have taken a beating in recent months.

Smaller players – including VRB Power Systems Inc., Plutonic Power Corp., Arise Technologies Corp., Hydrogenics Corp. and Polaris Geothermal Inc. – have seen their stock price chopped, some by as much as 50 per cent, since early summer.

Bigger, more established firms such as Canadian Hydro Developers Inc., Boralex Inc., and Carmanah Technologies Corp., have also taken a haircut of 10 per cent or more.

Dan McClure, who co-manages Investors Group funds that hold several renewable energy stocks, notes that many of these companies are still up substantially since the start of the year, even if they have fallen from levels reached earlier this summer.

The main reason for the pullback in recent weeks, he said, is that stock markets worldwide are jittery, especially when it comes to smaller, riskier companies. “There’s a shift towards quality and `larger-capitalization` names.”

At the same time, there has been a significant amount of profit-taking from investors who enjoyed the runup in the early part of the year, he added.

There are strong fundamentals underpinning the alternative-energy sector, Mr. McClure said, because of worldwide concerns about the security of energy supplies and the location of conventional oil and gas reserves.

Meanwhile, environmental concerns and a tighter regulatory environment are making alternative energy companies more viable.

“There’s a strong underlying tailwind to the sector,” Mr. McClure said.

Alternative-energy analyst Jon Hykawy said he thinks investors got a bit carried away with enthusiasm for stocks in this sector early in the year. Now that some of the firms have been slow to reach goals for revenue growth or profitability, the shine has dimmed.

“The best explanation is probably just boredom with the names,” he said. “`Each` company has to build up a business that’s going to be sustainable on its own.”