Given an increased demand for energy, a number of utilities and independent power companies are looking for ways to develop cutting-edge technologies, says Craib-Cox. Many are aiming to make the transfer and sale of power between utilities more efficient, he says. These companies include El Paso Energy, Southern Co. and TXU Corporation — all are profiting from the rising price of energy and renewed interest in the utility sector.
A company worth watching is Arlington, Va.-based AES, which aims to help large industrial companies to make their power plants more energy efficient. “This company is growing very quickly and providing a lot of gain year-on-year,” says Craib-Cox.
Another beneficiary of the upsurge in this sector is New Alternatives, which is ranked second for total returns for the quarter ended Sept. 21, according to Lipper. The fund, which has over the last year has grown from $35 million to nearly $60 million in assets, has posted a year-to-date return of 67.5 percent.
Oil Prices Only Part of Story
About half of the fund’s investments are in alternative energy companies, including fuel-cell energy companies such as Fuel Cell Energy, and Plug Power.
The current price of oil, while it plays a role, is not the primary reason for the fund’s performance, says Maurice Schoenwald, who manages the fund with his son, David. “We have pursued alternative energy since 1982 when the fund started, but recently the technology has become cost-effective and some of these companies are competing with conventional energy providers.”
Still, investments in alternative technology remain speculative, warns Barnes. “What’s speculative is not the viability of the technology but what the company is worth. I think a really big issue is getting the company’s valuation right, which is hard when dealing with a company that is more concepts that fundamentals.”