The Iconoclast Investor

With the end of one era, another must replace it. While investors are scrambling to play defense, it’s worth noting that the family of Cabot growth newsletters positioned our readers to be largely in cash by the time the market began its knife-like plunge last month. And we’re already looking ahead to what the next great investment trend will be.

As editor of the Cabot Green Investor, I see the next market boom as one based on sounder fundamentals and more sustainable demand than the latest Wall Street bubble. The gathering movement to cleaner, more sustainable sources of energy and a healthier consumer lifestyle means there will be long-term stock winners, even if the broader market takes an extended time to find its feet for the next bull run.

Why? There are many reasons. But let me run down three of the most compelling.

1.) The Price of Oil. Ten years ago, oil was $17.50 a barrel. Gasoline averaged $1.03 a gallon in the U.S., cheaper than bottled water on a supermarket’s shelves. It’s hard to believe now. Even though oil has retreated from its high of $147 a barrel hit this summer, it’s still up 300% at the recent price of $70. And that’s before the potential of a cold Northeast winter could send prices rocketing again. Prices may be easing because of concerns over what worldwide demand will do if our economic downturn deepens, but they will never come close to the lows of a decade ago. Consider that U.S. oil imports have risen almost unimpeded since 1986 (but for three years of statistically insignificant dips) to more than 10 million barrels a day. By 2030, the International Energy Agency sees worldwide demand rising 50%, led by Asia and Latin America. Quite simply, alternatives are needed to meet the ever-increasing demand, especially if it turns out to be true what many suspect–that the world has passed it peak production of oil.

2.) Rising Consumer Consciousness. Polls consistently show three-quarters or more of Americans want alternative energy. One reason is the rising cost of energy, seen in $3-a-gallon gasoline and the 15% higher energy bill the average household will have to pay to heat their home this winter. The other reason is environmental concern–a 2007 poll found 76% of Americans believe that the effects of global warming are now apparent and that action needs to be taken, while another survey found 12% of consumers would pay a noticeable premium for Green products, while many more would choose a comparably priced Green product over another conventional option. As evidence of this, just look at the success of the Toyota Prius, Whole Foods Market and the fact even die-hard old-line companies like British Petroleum and Clorox are going Green. Even retailers like Wal-Mart are committing to slash energy usage by 30% and offering once-niche products like organic milk and chemical-free baby products to their customers.

3.) Technology Has Caught Up to the Hype. But having the demand elements present means nothing if the products aren’t there to meet demand. Unlike earlier energy crises, the technology to transform the way we power our houses, fuel our cars and enjoy our lives is nearing critical mass. Raymond Lane, the venerable venture capitalist who poured start-up money into the likes of Intuit and Google, told the Wall Street Journal last year that he believes green energy technology “will be bigger than the Internet … by an order of magnitude, maybe two.”

Some of the greatest strides are being made in solar. When Jimmy Carter installed solar panels on top of the White House during the 1970s energy crisis, the price per watt of solar was more than $27. No wonder Ronald Reagan had them taken down. Now, solar is leap years ahead–the price per watt is $4.85. Tremendous strides are being made in nanotechnology and in solar panels made from non-silicon sources, which are making the next generation of panels cheaper and easier to use than ever before. Within a few years, solar will achieve price parity with electricity at $1 per watt.

Wind power is even more advanced commercially, and we’re seeing momentum in wind projects in Texas, Massachusetts, New Jersey, New York and elsewhere. And no country on earth possesses more geothermal energy potential than the United States; we’re seeing some smart companies leap early onto geothermal resources ahead of what could be the next energy sector boom. Then there is ocean wave and tidal power to consider–and biofuels, natural gas engine conversions, nuclear power, clean coal, recycling, waste remediation, LED lighting, energy grid optimizers, organic food companies, Green lifestyle retailers and many other exciting sectors. Many of these received tax and financial incentives in the Wall Street rescue bill that will underpin Green sector growth into 2009 and beyond.