You Guys Sent in a Ton of Stocks

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Wow. So it appears there's more than a little interest in alternative energy investing.

I've written about this sector before and have received a lot of email responses in the past. But you guys really poured it on yesterday and last night. I'm excited about the response rate, and now the question is how to cover everything you sent in.

So this is what I'm going to do. I'll briefly introduce you to some of the more interesting companies that were sent in, then take a closer look at a couple of them next week. The requests keep coming in this morning. So I'll add those to the pile if they look good.

I know that you're all looking for ideas, so I'll cast a wide net and you can have the weekend to check out some ideas. By the way, my office is closed on Monday so you won't receive Small Cap Investor Daily on Memorial Day. Our normal publishing schedule will resume Tuesday.  

***Before I get into these companies however, I'd like to issue a cautionary note. This industry is still young, and there are a lot of early players out there looking to establish a foothold. As with all fledgling industries, there are bound to be far more losers than there will be winners.

As investors, we obviously want to go with the winners.  But since there are so many players vying for investor attention it can be difficult to screen for potential winners. Please don't put your money to work in pre-revenue generating companies, or companies that don't communicate a clear game-plan for becoming successful.

For example, one company I received a request to look at was Sunrise Consulting Group (SNRS.PK). I took a quick look but stopped when I read that the company's mission was "... to get involved in the Solar Industry in the fastest and most productive and profitable way possible."

I've come up with a more definitive game plan for how to assemble burgers for the weekend bar-b-cue! This company's lack of direction is a clear red flag - please don't invest your money.

I'm not saying every good company needs to be profitable before buying shares. It's fun and exciting to take risks when investing, but let's make them calculated risks.

***Ok, so on to the fun stuff.

In the wind power space, Larry asked me to take a look at GC China Turbine Corporation (OTC BB: GCHT). This tiny over the counter traded company makes two bladed wind turbines in China. The company says it has put in over 10 years of technology development and $75 million (from the Swedish Government) to develop its turbines, and has contracts worth over $135 million to date.

It recently reported first quarter 2010 revenues of $11.9 million, and a net profit of $1.8 million, or $0.03 per share. I like the fact that this company is turning a profit, and will take a closer look. The big thing to try to nail down with this company is what earnings will look like after considering the impact of acquisitions, loans, and private placement of stock. The company has been very active in these transactions lately and analysis of the impacts is a bit beyond the scope of today's letter.

In the solar space Pedro asked me to look at SunPower (Nasdaq: SPWRA), a California based $1.3 billion market cap company trading with a forward PE of just 7. This company is profitable, and analysts are projecting sales growth well over 30 percent over the next two years. Earnings expectations have been revised downward recently.

But just yesterday the company announced a joint venture with AU Optronics (NYSE: AUO) to own and operate SunPower's solar cell fabrication facility in Malaysia. The stock is now trading at $13.00, and Macquarie Research has just put at $15 target on the stock, implying 15 percent upside in the near term. That's after a 22 percent rally yesterday, so keep your eye on this one for short term price swings.   

I mentioned the $950 million market cap energy storage company A123 Systems (Nasdaq: AONE) yesterday and had some interest. Despite its lack of profitability, I'll keep the company on the watch list for now. Its recent loss exceeded expectations, and the stock is looking for a bottom. We need to hear more about profits before jumping in.

Requests for more diversified companies (to the extent they exist in this industry) came from John who asked about American Superconductor (Nasdaq: AMSC), and Byron sent in Hoku Corporation (Naskaq: HOKU). May also wrote in asking about a company that I recently added to the Energy World Profits portfolio, you can find out more about that company by clicking here.

I've liked American Superconductor in the past, and would recommend it for investors looking for a somewhat bigger small cap stock. Revenue and profit growth projections are solid, and the company recently beat earnings expectations by delivering $0.12 in the first quarter of 2010. Revenues were up 74 percent year over year, and while the company has a rich forward PE of 20, its four consecutive quarters of profitability clearly have investors thinking good times lay ahead for the stock. 

I'm going to hold off on Hoku for today. I'll return to it next week, along with other strong companies you send in. My address is editorial@smallcapinvestor.com. Keep it to stocks listed on major exchanges, or over the counter. No pink sheets. And please look for companies with market caps under $1 billion.

As we start to look for a rebound in alternative energy stocks, we want to have a watch list ready so we can pounce when the timing is right. Have a great Memorial Day weekend.