Even alternative energy stocks like FuelCell Energy Inc. (NASDAQ: FCEL) and Clean Energy Fuels Corp. (NASDAQ: CLNE) show the same track as crude oil. Only FuelCell Energy can boast a positive gain over the past few days, and that was nearly entirely due the company’s earnings beat on Monday. Look at the chart at the end of this article and the pattern is clear.
Oil prices dominate the energy market the way that Intel dominates the CPU market. And the price of oil’s influence, even on stocks of non-hydrocarbon energy sources like solar and fuel cells, is unmistakable. We’ve said before, and we’ll say again, that alternative energy stocks have proved to be a leveraged trade on oil, especially when the price of crude is falling.
Pacific Ethanol jumped more than 300% in the first eight months of the year, before dropping more than half that gain in the three and a half months since then. The reason is simple: ethanol prices are falling to keep pace with gasoline prices. If ethanol costs more than gasoline, distributors and blenders can drive a tougher bargain with ethanol makers.
Whether the bets are long or short, a play on an alt energy stock reflects an investor’s view of the entire energy market. There can and will be unusual events among the alt energy companies, and these will affect the stock prices just as hurricanes in the Gulf of Mexico generally push up crude oil and gasoline prices. In this case, it is best to be guided by the chart.
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