Wind power remains mostly hot air
Awful second-quarter earnings from Vestas show that wind power is still a poor investment at the mercy of government spending.
By Jim Cramer, TheStreet
If the government is subsidizing it, particularly if the government is that of Spain or the U.S., you can forget about sales, no matter how hot the product seems to be.
That's my feeling after seeing the stunning earnings miss by Vestas, the Denmark wind turbine company. The second-quarter loss of 119 million euros -- plus a sales forecast that shaves a billion euros off previous guidance, from 7 billion to 6 billion -- is a reminder that spending on alternative energy is a loser if it isn't economical.
Vestas isn't a metaphor for wind. It is a metaphor for everything that doesn't make money but exists because a government wants to wean its country off of carbon. The privilege of doing so is now too expensive, whether it be for switchgrass (really expensive, according to a great piece Tuesday from JPMorgan's "Eye of the Market") or ethanol or solar.
I have been screaming to sell everything solar for months now, given the ridiculous expense of the installation and the inability of most grids to figure the stuff out in a way that can make it profitable to go solar, or at least to get an immediate payback.
I have felt the same way about wind, but it is such a darling that it keeps getting good press.
Vestas shows that the good press is just more of the feel-good variety, not of the payback variety -- which is the only thing that will work unless the government raises the price we pay for carbon fuels.
The only alternative-energy companies I can get behind are those that show an immediate return to the companies that adopt them: mostly smart-grid and energy-conservation ideas. Not production ideas, as production is almost always going to be skewed to coal in this country. That's why I like companies like Eaton (ETN) and United Tech (UTX) and Honeywell (HON) and Emerson (EMR), as they know how to conserve energy and make it go further.
It is why I like Cree (CREE), because it makes light sources that use less energy. It is why I like Owens Corning (OC) for its insulation, although its wind blade composite business certainly needs a pickup in sales, and the Vestas news shows that isn't happening.
What I find most amazing, though, is why anyone who had done any homework would think that Vestas would have anything good to say. The most aggressive country when it comes to wind power is Spain, and the first thing to cut from a government budget is good-deed-doing that doesn't provide new jobs but makes the air cleaner. I would suspect that market would be in long-term decline going forward, given the multiyear problems that Spain faces.
The second country is the United States, and the president implicitly favors a coal-based system with some wind when convenient. Coal is too cheap, though, for any alternative to beat -- even natural gas, which may stay in the doldrums for what looks to be forever.
I reiterate that until wind power is commercially viable in a large scale, not a boutique scale, it will remain, like solar, strictly a government whim. That makes it totally uninvestible in this environment unless we think governments are about to be flush. Much better to make a bet on coal, not wind, as reprehensible and dirty as it is, and stick with the conservation plays when it comes to trying to do good while investing.
At the time of publication, Cramer was long Honeywell.
P.S. Click here to learn how to follow Jim Cramer's trades for his Charitable Trust.
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