Coming Clean on Green

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Los Angeles has the people and the climate to be a world-class leader for clean tech companies.

So it should be easy to name one green energy company from Los Angeles that makes money for its shareholders.

I’m waiting.

There isn’t one.

It is not just Los Angeles. Green energy companies all over the country are creating a lot more press than profits. And it will get worse before – if ever – it gets better.

That is not what most of us heard from the streets and media of Los Angeles recently. Thousands of people were in town for an alternative energy conference whose main message was “Time to invest in green tech.”

I will save you the trouble: If you are thinking about buying green energy stocks, don’t.

Not if you need the money for retirement, college or anything besides impressing your friends with good intentions.

Most people touting new energy products at the green gathering were probably unaware that Los Angeles is one of the most energy-rich areas in the country. Los Angeles was into oil when oil was alternative energy.

Many of the great cultural and educational institutions of this area were built with the profits from oil stocks. Getty, anyone?

The oil fields of Wilmington contain at least 3 billion barrels of oil – the third largest field in the country. And they are just one of 50 oil fields in the area. There may be many more containing many more billions of barrels of oil.

But we will never know as long as large portions of Los Angeles remain off-limits to companies that want to explore for oil.

Owners of oil rigs feel they need to disguise their wells. That is how bad it is.

But oil companies like L.A.-based Occidental Petroleum Corp. cannot disguise their energy profits. Over the last 10 years, total returns have averaged 25 percent a year. This far outperforms other stocks of such iconic L.A. companies as the Walt Disney Co., whose 4 percent average return over 10 years has left some investors wondering if it should be drilling for oil instead of making movies.

Northrop Grumman, SoCal Edison: Their story is the same – good companies with average stocks.

People in the investment business only have two sources of information about how to value a share of stock: We can listen to what the company says. Or watch what it does.

If you choose the former, you probably like all the pretty pictures of windmills and solar panels featured so prominently in so many television commercials about green energy. Maybe you own a few shares of the company that makes Ed Begley Jr.’s solar-powered toaster.

No amount of subsidies or green happy talk can change this fact: Energy from solar still costs 22 cents a kilowatt hour. Coal costs 6 cents.

Prospects are not profits. Talking is not doing. Betting on prospects is gambling. Betting on performance is investing.

Little noted in the green frenzy of the last few years are the companies that drill, pump or mine for oil, natural gas or coal: They are making money. They never stopped – even during the financial tsunami. Their stocks reflect that.

What they say is not that sexy. What they do is. CSX makes money running railroads. Its stock is up 40 percent in three years. Caterpillar makes money building trucks. Its stock is up 50 percent in three years. Golar makes money carrying liquefied natural gas. Its stock is up 55 percent in three years.

And they are doing so despite one of the most challenging regulatory environments any business can imagine.

Now compare that to two alternative energy funds that are investing in the best of the best: TAN and FAN. They went public three years ago and have since gone down 30 percent and 27 percent, respectively. While the market in the same period is down 1 percent.

It is not in the least political to say our leaders in Washington are losing their appetite for – and ability to – heap subsidies on expensive energy while ignoring abundant domestic supplies – like good, old-fashioned L.A. black gold – in times of record scarcity.

Already, some big funds are getting out of green energy because investors want something that actually makes money.

So should you.

Bill Gunderson owns Gunderson Capital Management in Oceanside. He also hosts a show on KCEO-AM (1000) about investing and is the author of “The Best Stocks Now!”

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