Seeing Green With Alternative Energy

They say the first step to breaking an addiction is admitting you have a problem. If that's the case, then President Bush made some strides in breaking the nation's dependence on oil by promoting alternative fuel sources last week in his State of the Union address. But Matt Patsky, portfolio manager for the Winslow Green Growth fund (WGGFX), is way ahead of him.

Patsky has been searching for promising alternative energy companies since he joined the fund in 2003. Nearly a quarter of his fund is now composed of solar, clean-burning coal and other environmentally friendly energy sources, which he says are the best long-term solutions to the current energy crisis. His "green"-based strategy has made his shareholders a lot of green as well. The small-cap growth fund is up 10.5% year to date and has a 41% average annual return for the past three years.

TheStreet.com sat down with Patsky to get his views on how the U.S. can go cold turkey from Mid-East oil, as well as discover his favorite alternative energy companies.

In his State of the Union speech, the president talked about breaking away from our country's "addiction to oil." What is your view of the current state of U.S. energy consumption?

In the near term, we need to focus not on alternative fuels but on reducing usage. More energy-efficient cars, lights and appliances. There has been little focus in the U.S. on conservation. This is a large near-term opportunity.

In the longer run, we must develop safe and secure sources of energy. This requires the acceleration of development of renewable energy sources like wind, solar and geothermal.

What percentage of your portfolio is composed of alternative fuel sources? Is it tough to find good companies? It seems like a niche area filled with mostly small-cap companies.

Twenty percent of our fund is invested in cleaner energy or renewable energy stocks. Yes, it is tough to find good companies. Most of the pure plays are small-cap companies. Many of the biggest players are parts of larger conglomerates like GE(GE), BP (BP)and Shell(RD).

Which alternative energy stocks do you like?

We like Fuel-Tech NV(FTEK), which is a technology company engaged in the air-pollution control and specialty chemical businesses through Fuel Tech Inc., its wholly owned subsidiary. FTI's focus is the marketing of its nitrogen oxide reduction and "fuel chem" processes. To put in more simple terms, Fuel-Tech is focused on two products: one which reduces emissions from coal, the other improves the efficiency of coal-fired furnaces. This company continues to benefit from the move toward using more "clean" coal technologies. We believe the stock will continue to trend higher over the balance of 2006.

To watch Gregg's video version of this column, please click here.