This column was originally published on RealMoney on May 1 at 11:04 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.There is a feeding frenzy going on in alternative-energy stocks. It is not difficult to identify the source of everyone's excitement. With oil at $75 threatening the economy's buoyancy and our reliance on the Middle East for energy facing myriad pressures, not the least of which is a nuclear Iran, alternatives to oil seem like a terrific solution. Whether it is ethanol, solar or hydrogen, stocks of companies in these areas are all experiencing huge interest and appreciation. Pacific Ethanol ( PEIX - Get Report) has tripled since President Bush first uttered the word ethanol, and even perennial cash destroyers such as Ballard Power ( BLPD) have seen share prices double. But the long-term viability of these technologies as suitable substitutes is still in question. Given the cost issues and uncertainty surrounding the prospects for the different alternative-energy sources, I have identified two companies that should benefit regardless, simply by adding efficiency to existing platforms: Intermagnetics ( IMGC) and Echelon ( ELON). Both offer technologies that improve energy efficiency and reduce costs for providers.
Problematic AlternativesThe trouble with most of these alternatives is cost. While from an environmental standpoint the technologies represent significant improvements, without subsidy there is no significant cost savings. In the case of hydrogen there is doubt whether it is even a viable alternative, considering all the energy needed to produce the fuel itself.
According to a 2004 report from the National Academy of Engineering, "the vision of the hydrogen economy is based on the expectation that hydrogen can be produced from domestic energy sources in a manner that is affordable and environmentally benign," and that "applications using hydrogen -- fuel cell vehicles, for example -- can gain market share in competition with the alternatives." The conclusion of the committee that authored the report? A transition to a hydrogen economy is, at best, decades away.
Although ethanol is more expensive to produce than gasoline, federal tax incentives reduce the price to a competitive level. Ethanol prices tend to vary regionally due to availability and promotional efforts by retailers.But no matter what the fuel source, Intermagnetics and Echelon offer technologies that improve energy efficiency and reduce costs for providers.
IntermagneticsIntermagnetics specializes in technologies based on magnets. The main business is superconductive magnets and coils for MRI (magnetic resonance imaging). This has been a great growth business that still offers tremendous opportunity. The uses for MRI are expanding beyond usual applications, creating greater demand for IMGC products. Also, as the technology and capabilities expand, so does the complexity of the magnets and coils, forcing many MRI original equipment manufacturers to outsource magnets from companies with more specialized and sophisticated research programs. Intermagnetics is a leader in the field. In 2004, Intermagnetics acquired the MRI patient-monitoring company Invivo. This product line offers good growth potential as MRI applications expand. Invivo recently announced a partnership with the Office of Naval Research to develop advanced MRI system to diagnose and treat brain injuries. This technology could replace CT, or computed tomography, as a more effective tool for these applications. The energy-efficiency component of the company is its superconductive materials subsidiary, Superpower. Intermagnetics has aimed its technological know-how at high-temperature superconductivity, which promises to offer a new generation of power cables capable of substantially more efficient transmission of energy. The company's annual report explains, "High-temperature superconducting ('HTS') materials could become a key solution to what the U.S. Department of Energy has described as a national electrical transmission and distribution infrastructure that is rapidly becoming incapable of meeting the demands of our modern economy." The company has achieved world-record performance from its technology. In its annual report, it stated that the 2005 Energy Policy Act, which was signed into law by the president on Aug. 8, 2005, will serve as a major stimulus for accelerating the development and adoption of HTS technology.
EchelonEchelon is a global networking company that provides technology for controls, energy and environment management and smart metering. In addition to interconnecting and monitoring heating, ventilation and air conditioning (HVAC), control systems are used in buildings to manage such functions as energy usage and consumption, elevators, lighting, security and access control. Electric utilities may use control systems to remotely turn power on or off to a customer, read usage information from a meter or detect a service outage.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Echelon and American Superconductor to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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