Investors Only -- Pickens' Picks -- One Surprise -- Nothing To Do With The Bakken

Updates

March 27, 2012: Wow, the news for A123 keeps getting worse. Now, they have a $55 million bill to fix faulty batteries.  Data points from the article:

• 2nd time in three months that A123 found a flaw in its automotive batteries, used in several cars, including hybrid BMWs and the all-electric Karma, manufactured in Finland; Fisker headquarters in Anaheim, CA
• company's stock peaked above $25/share in 2009; now below $1.50
• A123 already shaky after Fisker announced it would be building fewer Karmas; the loss of business there resulted in several hundred Michigan employees being laid off
• Fisker Automotive recent cut off from hundreds of millions in federal funding
• an A123 plan in Livonia, Michigan, received nearly $250 million grant from the government; has not turned a profit since its IPO in 2009
• A123 burning through cash, and probably will need to borrow more money to cover most recent bill

Original Post

At first I was not going to link this article. There were no surprises in the list compiled by an oilman.

Then I took a second look. Look what's missing. There are no -- nada, zip, zilch -- unless I missed them -- no renewable companies in this list. This list was compiled by one of the most vocal advocates for wind energy back in 2008, or whenever it was. No, nothing.

There's a difference between renewables as a significant energy source for the world's needs and the opportunity for a retail investor to make money investing in renewables. It is obvious that renewables will have minimal effect on meeting global energy needs in my investing lifetime, but that doesn't mean investing in small renewable growth companies can't be very rewarding.

So, it's surprising that there are no companies in the renewable energy business on the Pickens list.

One of his very few (only one?) non-oil-related company was A123, and that took a huge hit, down almost 20 percent so far.

A123 is in the electric battery business, particularly for hybrid vehicles. Recently their share price plunged (not my word; "plunged" was used by Motley Fool.com). Motley Fool suggested the plunge was due to financial reasons (dilutive stock offering, and other matters). With 100 million shares outstanding, another 18 million shares is a significant offering. But when oil companies in the Bakken announce a public offering, their share price appreciates as often as not. What Motley Fool failed to note was that simultaneously with the dilutive stock offering, news was coming out of Japan that the automobile industry is in a world of hurt due to rolling blackouts following loss of 30% of their electrical capacity. And correct me if I'm wrong, on top of that, the vast majority of hybrid vehicles are coming out of Japan. And as long as I'm piling on, Motley Fool also failed to note something else (see below).

Incidentally, the headquarters for A123 in Watertown, Massachusetts, is just down the street from where I am typing.

I don't particularly like linking "advertisements" for one's products, but the message in this MarketWatch story is worth the link:

The underlying thesis is that a country in which public unions are starting to strike at the state levels and the federal government is cutting services and welfare for the poor and elderly can no longer afford to subsidize many of these so-called alternative/green companies like A123. And while that thesis continues to play out, one of the other primary tenets behind our bet against A123 specifically is that this Company is nowhere near generating real cash flow and that the Company will have a very hard time surviving without a major dilution or debt raise — or a miracle — in its current iteration. Indeed, on the company’s most recent earnings call, they told analysts to expect their EBITDA loss would widen again this year.

The title of the link from "A123 Headlines" was: "Alternative Energy Is Doomed and How To Profit On the Collapse" and is in the Wall Street Journal.

It will be interesting to hear tomorrow morning whether the president reiterates that oil is yesterday's energy in tonight's energy "security" speech. As one listens to the speech (which I won't hear) keep in mind that his economic czar is the CEO of GE, a huge proponent of wind energy, but a company that has been rapidly diversifying into oil; his Secretary of the Interior formulated the "permitorium" in the Gulf; and his Secretary of Energy is a nuclear physicist who advocates nuclear energy.