The smartest money in global warming stocks may be scurrying to the exit just when the enthusiasm for alternative-energy companies is at an all-time high.
While SunPower Corp. and Theolia SA are among more than 180 companies whose shares have surged as much as 240 percent this year -- buoyed by efforts to curtail the observed increase in the average temperature of the Earth's atmosphere and oceans --the market's nimblest investors already are hedging their bets.
D.E. Shaw & Co., Tudor Investment Corp., Citadel Investment Group LLC, Caxton Associates LLC, SAC Capital Advisors LLC and Pequot Capital Management Inc. reduced their stakes in solar- power and ethanol producers in the fourth quarter, according to filings with the U.S. Securities and Exchange Commission. The hedge funds manage about $86 billion.
``As an investment play,'' global warming is ``a bubble'' and ``social short-term craze,'' said Ken Fisher, who oversees $35 billion as chairman of Fisher Investments Inc. in Woodside, California.
Anyone looking for corroboration of that assessment may find it in the so-called short selling of U.S. alternative-energy stocks last month, which climbed 45 times faster than the average for Standard & Poor's 500 Index members.
SunPower, the biggest U.S. producer of solar energy, had the largest jump in short sales relative to shares outstanding in the Nasdaq Stock Market. Short sellers sell borrowed stock on the bet price declines will let them to buy back the shares at a lower price and profit from the difference.
Hedge Funds
Hedge funds, whose managers are among the highest-paid professionals on Wall Street, have turned away from the group, including solar-and wind-power producers, ethanol and biodiesel makers and fuel-cell manufacturers, as their shares trade at a record relative to earnings.
Hedge funds are loosely regulated investment partnerships tailored to institutions such as pension funds and endowments, as well as people with typically at least $1 million in net worth. They manage an estimated $1.4 trillion in assets.
Alternative-energy stocks became more costly as the United Nations said global warming is ``very likely'' caused by humans, President George W. Bush called for a fivefold jump in the U.S. use of renewable fuels over 10 years, and California Governor Arnold Schwarzenegger signed legislation to install a million solar roofs in the state by 2018.
Arise, SunPower
A group of alternative-energy stocks has risen 18 percent on average this year globally, according to data compiled by Bloomberg. The 183 companies, with a combined market value of $92.3 billion, exceeded a 3.7 percent advance in the Morgan Stanley Capital International World Index.
Arise Technologies Corp., which sells solar-powered battery rechargers, had the group's biggest gain. Shares of the Kitchener, Ontario-based company surged 240 percent.
The Bloomberg World Energy-Alternate Sources Index, composed of 27 stocks, jumped 22 percent this year. SunPower, based in Sunnyvale, California, reached a record last week, while Theolia, a wind-energy company, gained 113 percent in 2007.
Theolia rallied on an agreement to sell a 15 percent stake to General Electric Co., the biggest power-plant equipment maker. GE will pay 20 million euros ($26.3 million) and hand over 165 megawatts of wind farms in Germany to the Aix en Provence, France-based company.
Kyoto Treaty
The European Union and 35 countries have agreed to cut emissions by 5.2 percent below 1990 levels, starting next year, through 2012 under the UN's Kyoto treaty on greenhouse gases.
Even the U.S., which has refused to ratify the Kyoto treaty, said the human role in climate change is no longer debatable after the UN released its Feb. 2 report. The country is the largest emitter of greenhouse gases.
Speculation that demand for alternative energy will soar has made the industry's shares more expensive. The Bloomberg World index is valued at 44 times estimated earnings, up from 28 times in June and about triple the ratio for the MSCI World.
Companies in the Bloomberg U.S. Energy-Alternative Index are even pricier. Based on forecast earnings, their shares are valued at an average of 60 times. Five of the 12 members of the index reported losses in 2006.
Shares of SunPower, which have risen 158 percent since the company's initial public offering in November 2005, trade at 49 times forecast profit. S&P 500 companies on average are valued at 15.7 times estimated earnings.
`Through the Roof'
``In the solar-energy universe, you can see how all the shares have gone through the roof,'' said Rajesh Varma, manager of the $141 million Carmignac Innovation fund in Paris. ``People have made a lot of money, and now you need to stand back.''
Varma, who started looking at alternative-energy stocks two years ago, sold his stakes of Conergy AG and Solarworld AG, Germany's two largest solar-power companies. He also dumped his shares of Suzlon Energy Ltd., India's biggest builder of wind turbines, in December.
D.E. Shaw founder David Shaw, who advised former President Bill Clinton on science and technology and made an estimated $340 million in 2005, sold 146,692 shares of SunPower last quarter. The sales at the firm, which manages about $25 billion, reduced its stake by 84 percent.
The firm trimmed its holdings in VeraSun Energy Corp., a Brookings, South Dakota-based company that's the second-largest U.S. ethanol producer, by 14 percent and in Headwaters Inc., a South Jordan, Utah-based coal processor, by 13 percent.
D.E. Shaw, Tudor
New York-based D.E. Shaw also sold all of its 179,100 shares in Aventine Renewable Energy Holdings Inc., the fourth-largest U.S. ethanol producer, located in Pekin, Illinois. Kari Elassal, a spokeswoman for D.E. Shaw, declined to comment on its holdings.
Tudor Investment, the hedge-fund firm headed by Paul Tudor Jones that oversees $16.1 billion and is located in Greenwich, Connecticut, also cashed out its stake in Aventine. Tudor spokesman Steve Bruce wasn't immediately available for comment.
Kenneth Griffin's Citadel, a $13.4 billion hedge fund based in Chicago, and Bruce Kovner's Caxton, a New York-based fund that oversees more than $12 billion, sold out of SunPower.
Bryan Locke, spokesman for Citadel, declined to comment, while Caxton's spokeswoman Toby Young was not immediately available for comment.
`Thematic Bet'
SAC, a $12 billion hedge fund run by Steven Cohen, sold all of its 216,413 shares in Pacific Ethanol Inc. last quarter. The Stamford, Connecticut-based fund bought the stock in the third quarter. Pacific Ethanol, based in Fresno, California, counts Bill Gates as its largest holder.
Pequot Capital, a $7.6 billion fund manager based in Westport, Connecticut, sold its shares of Headwaters. The firm also reduced its stake in Covanta Holding Corp., a Fairfield, New Jersey-based company that produces energy from municipal solid waste, by almost half.
Jonathan Gasthalter, a spokesman for SAC, and Christopher Kittredge, a spokesman for Pequot, both declined to comment.
``The unwinds in those positions were probably somewhat correlated to the reduced demand and pricing pressures in oil,'' Talbot Stark, BNP Paribas SA's global hedge fund relationship manager, said in London. ``It was a thematic bet, so if you see oil prices come off and they dip down to $52 or so, the whole momentum in alternative energy sources abates for a moment.''
Crude-oil futures, which reached a record $78.40 a barrel in July, fell to as low as $54.86 in the fourth quarter.
More Shorts
This quarter, hedge funds and other investors that can profit from share-price drops have increased their bets against U.S. alternative-energy stocks, industry statistics indicate.
The total short interest on the companies in the Bloomberg U.S. index of alternative-energy stocks surged 68 percent last month on average. First Solar Inc., a Phoenix-based maker of solar modules that sold shares to the public on Nov. 16, had the biggest increase in short interest with a 626 percent jump.
Excluding First Solar, short interest climbed 12 percent, compared with a 1.5 percent increase for S&P 500 companies, calculations by Bloomberg show.
Almost half of SunPower's float, or shares available for trading, was borrowed and sold as of mid-January. The short interest rose 15.4 percentage points from mid-December, the biggest increase for any Nasdaq-listed company. This month's figures are due this week.
``By itself, I don't know that global warming is a viable investment theme,'' said Malcolm Polley, who oversees $1 billion at Stewart Capital Advisors LLC in Indiana, Pennsylvania. ``It's largely Wall Street's answer of trying to create something where there really isn't anything that exists.''
Citigroup, Lehman
Citigroup Inc., the biggest U.S. bank, Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, and UBS AG, the world's biggest money manager, each published 100-plus page reports this year on how investors can capitalize on efforts by governments and companies to combat global warming.
``We're approaching a perennial `tipping point,''' Ed Kerschner, Citigroup Investment Research's chief investment officer and the author of the firm's report, said from New York. ``You're going to get some imminent responses. These things are going to happen in 2008 and 2009, not 20 years from now.''
SunPower was among 74 companies identified by Citigroup that stand to profit from demand for clean-energy technologies. The list also included Q-Cells AG, a solar-cell maker based in Thalheim, Germany, and Cropenergies AG, an ethanol producer located in Mannheim, Germany.
Ian Scott, Lehman's global equity strategist in London, included two wind-turbine makers among his firm's 15 picks: Randers, Denmark-based Vestas Wind Systems A/S, the world's biggest, and Clipper Windpower Plc, based in London.
Ethanol Shares
Alternative-energy stocks have slumped before. Since surging to a record in May, Pacific Ethanol has lost more than half its value on concerns the stock price had outstripped demand for the fuel and that prices of corn, used to make ethanol, are rising.
Some solar-energy companies have slid because of their inability to turn a profit even as demand increases. Marlboro, Massachusetts-based Evergreen Solar Inc. said this month that its fourth-quarter loss was $5.5 million, wider than a year ago, as revenue almost tripled. The stock had the biggest decline in seven months after the results were announced.
Alternative energy ``is all the rage,'' said Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1 trillion. ``That does not mean that as an investor you'll be able to make money.''
While SunPower Corp. and Theolia SA are among more than 180 companies whose shares have surged as much as 240 percent this year -- buoyed by efforts to curtail the observed increase in the average temperature of the Earth's atmosphere and oceans --the market's nimblest investors already are hedging their bets.
D.E. Shaw & Co., Tudor Investment Corp., Citadel Investment Group LLC, Caxton Associates LLC, SAC Capital Advisors LLC and Pequot Capital Management Inc. reduced their stakes in solar- power and ethanol producers in the fourth quarter, according to filings with the U.S. Securities and Exchange Commission. The hedge funds manage about $86 billion.
``As an investment play,'' global warming is ``a bubble'' and ``social short-term craze,'' said Ken Fisher, who oversees $35 billion as chairman of Fisher Investments Inc. in Woodside, California.
Anyone looking for corroboration of that assessment may find it in the so-called short selling of U.S. alternative-energy stocks last month, which climbed 45 times faster than the average for Standard & Poor's 500 Index members.
SunPower, the biggest U.S. producer of solar energy, had the largest jump in short sales relative to shares outstanding in the Nasdaq Stock Market. Short sellers sell borrowed stock on the bet price declines will let them to buy back the shares at a lower price and profit from the difference.
Hedge Funds
Hedge funds, whose managers are among the highest-paid professionals on Wall Street, have turned away from the group, including solar-and wind-power producers, ethanol and biodiesel makers and fuel-cell manufacturers, as their shares trade at a record relative to earnings.
Hedge funds are loosely regulated investment partnerships tailored to institutions such as pension funds and endowments, as well as people with typically at least $1 million in net worth. They manage an estimated $1.4 trillion in assets.
Alternative-energy stocks became more costly as the United Nations said global warming is ``very likely'' caused by humans, President George W. Bush called for a fivefold jump in the U.S. use of renewable fuels over 10 years, and California Governor Arnold Schwarzenegger signed legislation to install a million solar roofs in the state by 2018.
Arise, SunPower
A group of alternative-energy stocks has risen 18 percent on average this year globally, according to data compiled by Bloomberg. The 183 companies, with a combined market value of $92.3 billion, exceeded a 3.7 percent advance in the Morgan Stanley Capital International World Index.
Arise Technologies Corp., which sells solar-powered battery rechargers, had the group's biggest gain. Shares of the Kitchener, Ontario-based company surged 240 percent.
The Bloomberg World Energy-Alternate Sources Index, composed of 27 stocks, jumped 22 percent this year. SunPower, based in Sunnyvale, California, reached a record last week, while Theolia, a wind-energy company, gained 113 percent in 2007.
Theolia rallied on an agreement to sell a 15 percent stake to General Electric Co., the biggest power-plant equipment maker. GE will pay 20 million euros ($26.3 million) and hand over 165 megawatts of wind farms in Germany to the Aix en Provence, France-based company.
Kyoto Treaty
The European Union and 35 countries have agreed to cut emissions by 5.2 percent below 1990 levels, starting next year, through 2012 under the UN's Kyoto treaty on greenhouse gases.
Even the U.S., which has refused to ratify the Kyoto treaty, said the human role in climate change is no longer debatable after the UN released its Feb. 2 report. The country is the largest emitter of greenhouse gases.
Speculation that demand for alternative energy will soar has made the industry's shares more expensive. The Bloomberg World index is valued at 44 times estimated earnings, up from 28 times in June and about triple the ratio for the MSCI World.
Companies in the Bloomberg U.S. Energy-Alternative Index are even pricier. Based on forecast earnings, their shares are valued at an average of 60 times. Five of the 12 members of the index reported losses in 2006.
Shares of SunPower, which have risen 158 percent since the company's initial public offering in November 2005, trade at 49 times forecast profit. S&P 500 companies on average are valued at 15.7 times estimated earnings.
`Through the Roof'
``In the solar-energy universe, you can see how all the shares have gone through the roof,'' said Rajesh Varma, manager of the $141 million Carmignac Innovation fund in Paris. ``People have made a lot of money, and now you need to stand back.''
Varma, who started looking at alternative-energy stocks two years ago, sold his stakes of Conergy AG and Solarworld AG, Germany's two largest solar-power companies. He also dumped his shares of Suzlon Energy Ltd., India's biggest builder of wind turbines, in December.
D.E. Shaw founder David Shaw, who advised former President Bill Clinton on science and technology and made an estimated $340 million in 2005, sold 146,692 shares of SunPower last quarter. The sales at the firm, which manages about $25 billion, reduced its stake by 84 percent.
The firm trimmed its holdings in VeraSun Energy Corp., a Brookings, South Dakota-based company that's the second-largest U.S. ethanol producer, by 14 percent and in Headwaters Inc., a South Jordan, Utah-based coal processor, by 13 percent.
D.E. Shaw, Tudor
New York-based D.E. Shaw also sold all of its 179,100 shares in Aventine Renewable Energy Holdings Inc., the fourth-largest U.S. ethanol producer, located in Pekin, Illinois. Kari Elassal, a spokeswoman for D.E. Shaw, declined to comment on its holdings.
Tudor Investment, the hedge-fund firm headed by Paul Tudor Jones that oversees $16.1 billion and is located in Greenwich, Connecticut, also cashed out its stake in Aventine. Tudor spokesman Steve Bruce wasn't immediately available for comment.
Kenneth Griffin's Citadel, a $13.4 billion hedge fund based in Chicago, and Bruce Kovner's Caxton, a New York-based fund that oversees more than $12 billion, sold out of SunPower.
Bryan Locke, spokesman for Citadel, declined to comment, while Caxton's spokeswoman Toby Young was not immediately available for comment.
`Thematic Bet'
SAC, a $12 billion hedge fund run by Steven Cohen, sold all of its 216,413 shares in Pacific Ethanol Inc. last quarter. The Stamford, Connecticut-based fund bought the stock in the third quarter. Pacific Ethanol, based in Fresno, California, counts Bill Gates as its largest holder.
Pequot Capital, a $7.6 billion fund manager based in Westport, Connecticut, sold its shares of Headwaters. The firm also reduced its stake in Covanta Holding Corp., a Fairfield, New Jersey-based company that produces energy from municipal solid waste, by almost half.
Jonathan Gasthalter, a spokesman for SAC, and Christopher Kittredge, a spokesman for Pequot, both declined to comment.
``The unwinds in those positions were probably somewhat correlated to the reduced demand and pricing pressures in oil,'' Talbot Stark, BNP Paribas SA's global hedge fund relationship manager, said in London. ``It was a thematic bet, so if you see oil prices come off and they dip down to $52 or so, the whole momentum in alternative energy sources abates for a moment.''
Crude-oil futures, which reached a record $78.40 a barrel in July, fell to as low as $54.86 in the fourth quarter.
More Shorts
This quarter, hedge funds and other investors that can profit from share-price drops have increased their bets against U.S. alternative-energy stocks, industry statistics indicate.
The total short interest on the companies in the Bloomberg U.S. index of alternative-energy stocks surged 68 percent last month on average. First Solar Inc., a Phoenix-based maker of solar modules that sold shares to the public on Nov. 16, had the biggest increase in short interest with a 626 percent jump.
Excluding First Solar, short interest climbed 12 percent, compared with a 1.5 percent increase for S&P 500 companies, calculations by Bloomberg show.
Almost half of SunPower's float, or shares available for trading, was borrowed and sold as of mid-January. The short interest rose 15.4 percentage points from mid-December, the biggest increase for any Nasdaq-listed company. This month's figures are due this week.
``By itself, I don't know that global warming is a viable investment theme,'' said Malcolm Polley, who oversees $1 billion at Stewart Capital Advisors LLC in Indiana, Pennsylvania. ``It's largely Wall Street's answer of trying to create something where there really isn't anything that exists.''
Citigroup, Lehman
Citigroup Inc., the biggest U.S. bank, Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, and UBS AG, the world's biggest money manager, each published 100-plus page reports this year on how investors can capitalize on efforts by governments and companies to combat global warming.
``We're approaching a perennial `tipping point,''' Ed Kerschner, Citigroup Investment Research's chief investment officer and the author of the firm's report, said from New York. ``You're going to get some imminent responses. These things are going to happen in 2008 and 2009, not 20 years from now.''
SunPower was among 74 companies identified by Citigroup that stand to profit from demand for clean-energy technologies. The list also included Q-Cells AG, a solar-cell maker based in Thalheim, Germany, and Cropenergies AG, an ethanol producer located in Mannheim, Germany.
Ian Scott, Lehman's global equity strategist in London, included two wind-turbine makers among his firm's 15 picks: Randers, Denmark-based Vestas Wind Systems A/S, the world's biggest, and Clipper Windpower Plc, based in London.
Ethanol Shares
Alternative-energy stocks have slumped before. Since surging to a record in May, Pacific Ethanol has lost more than half its value on concerns the stock price had outstripped demand for the fuel and that prices of corn, used to make ethanol, are rising.
Some solar-energy companies have slid because of their inability to turn a profit even as demand increases. Marlboro, Massachusetts-based Evergreen Solar Inc. said this month that its fourth-quarter loss was $5.5 million, wider than a year ago, as revenue almost tripled. The stock had the biggest decline in seven months after the results were announced.
Alternative energy ``is all the rage,'' said Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1 trillion. ``That does not mean that as an investor you'll be able to make money.''
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