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Analyst report
Corporate America embracing renewable energy
December 12, 2007
Brendon Lau, ShareAnalysis
An emerging trend in the US that could find its way to our shores is corporate America's growing interest in renewable energy technologies.
An increasing number of US companies are not only willing to pay a premium to power part (if not all) of their facilities from renewable energy sources, but some have also started to make direct investments into renewable energy technologies - even though this initiative takes them away from their core competencies.
Google is the most high-profile example. The Internet search giant recently announced it would spend hundreds of millions developing new solar and wind technologies, while investing in renewable energy start-ups.
The objective behind Google's drive is to make renewable energy cheaper than coal. The project, code-named REC (Renewable Energy cheaper than Coal), aims to power a city the size of San Francisco at a price that will undercut coal-powered utilities.
Google is not alone. PC maker Hewlett Packard is also doing its part, albeit on a smaller scale, by building a one-megawatt solar power plant at its San Diego facility. These programs are not all about PR either. Corporate America's interest in renewables is also a hedge against rising energy prices. Regardless of their intentions, all this attention is good for the renewable energy industry.
This trend could well carry over to Australia. Already, the newly installed Rudd government has bolstered its green credentials and announced additional funding for R&D in this area. Public support for such initiatives worldwide is unlikely to wane in the foreseeable future, and this could prompt more green energy companies to list on our markets.
Meanwhile, some believe that sentiment towards biotechs could be improving, if high-profile US investor Carl Icahn's big bet on Biogen Idec is anything to go by. However, we remain circumspect as the risks inherent in investing in the sector have not lessened, but may have even increased.
Icahn, who already owns 1% of Biogen, has offered to pay US$23B (US$80/share) for the rest of the company. He is betting that large pharmaceuticals (called big pharma), flushed with cash and desperate to fill dwindling product pipelines, will be compelled to make a counter bid.
Large biotech firms like Biogen certainly look attractive, but size is not necessarily the issue. While gaining economies of scale is a nice bonus, pharmaceutical companies are really valued on research. From that perspective, big is not always better. This is why the merger-mania of the 1990s did not pay big dividends for many drug companies.
The need for big pharma to replenish dwindling R&D pipelines could bode well for promising biotech companies around the world, including Australia, where a record number of listed biotech firms are close to bringing their products to market.
However, recent high-profile drug failures, such as Vioxx, could make bringing new drugs to market more expensive and challenging. US medical regulators (FDA) were roundly criticised for not doing enough to prevent the medical disaster. The embarrassment forced the FDA to take a hard look at toughening its standards for approving drugs, and this will likely mean higher compliance costs and longer development times.
Investors should not forget that investing in promising biotech stocks is still a speculative venture, regardless of how desperate big pharma might appear to be in trying to buy growth.
Brendon Lau is the editor of ShareAnalysis, a premium retail investment service offered by Aegis Equities Research. Click here for your free trial.
More articles from this edition of CompareShares:
Investing: A share portfolio for all seasons
Stocks: Stocks for the long haul: hot European stocks
Resident Trader: How stops can cut a profit run
Trading: The ultimate guide to trading shares for beginners - final part
Stocks: Corporate America embracing renewable energy
Markets: Fed rate cut no heart-starter for US sharemarkets
Stocks: Stock to watch: Uranium Exploration Australia
Companies: Bell Financial shines on debut
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
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