Green is in… But Why?

By Charles Delvalle

I have a confession to make…

I spend my weekends watching a lot of TV. So needless to say, I see a lot of the stupid commercials that get put on TV.

From disappointed cavemen to chanting young people who have no shame, I’ve practically seen them all. But I’ve been noticing a little trend and its implications on the financial markets are huge. Let me explain…

The other day I saw a commercial for Dow Chemicals. They talked about how they are using more sustainable ingredients for their cleaning products. They’ve even started a new line of products touting these advancements (at a higher price, of course).

Let’s ignore the fact that the company is still pumping tons of pollutants into the air. The fact is, by making a small change, they can call themselves ‘green’.

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.

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,

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!

P.S.  To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com.

Market Watch

Ride or Slide: Constant Contact (CTCT)

By Charles Delvalle

Last week Jonathan B asked me…

I am not an expert at picking stocks, but CTCT looked good based on some very positive recent revenue reports, but after buying in, the stock promptly slipped. Was I too eager to jump the gun on this?

Well Jonathan the first thing you need to understand is that what happened to Constant Contact (CTCT) is common. I can’t tell you how many times I see a strong company issue strong earnings and go on to drop. So don’t worry too much about that.

This company specializes in online marketing. They basically give small companies and non-profits the technology they need to track important metrics in direct response e-mail marketing.

That’s certainly a growing sector. But the big question is, how good is their product? That’s something I can’t be sure of just by looking at the stock. So let’s take a look at the numbers and see if we can get a clue.

Negative margins, negative return on assets and equity, but an 88% increase in their quarterly earnings. I also like that they have $101 million in cash and zero debt.

In their latest quarterly report, they achieved that boost to earnings simply because they introduced a new service and acquired a lot more customers than they expected. This is good news. Online marketing is growing big time. And so are non-profits.

When I look at their chart, I see a solid downtrend. A possible bottom has formed around $14 per share and it’s close to being oversold right now. That means in the next 10-15 days, we should see a rally. If that rally takes the stock above its previous high of $19, then you’ve got the start of a new uptrend.

And a lot of people are shorting the heck out this company. As of April 10th, it would take 22 days for shorts to cover their positions! That makes a short-covering rally very possible.

Listen, honestly I feel like you might have gone into this company a little early. Technically, there have been no big triggers that make me want to buy. Fundamentally, the earnings were great. I’d love to see another quarter of similar growth. And when you look at the sentiment, this company looks ripe for a climb higher.

With two out of three analysis techniques saying buy, I’m going to say that Constant Contact (CTCT) is a ride. But if this sucker drops under $14, you should reconsider your position.

P.S. Want to see me cover a stock?  Send an e-mail to feedback@investorsdailyedge.com

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