But the rally will be “within the context of a continued bear market”. Bank analyst Steven Milunovich said earnings revisions from the sector in 2009 are likely to remain negative, as funding remains difficult to secure and competition heats up.
Meanwhile, he expects the flurry of government spending – much of which is to be directed at environmental infrastructure – “to prove as ineffective as it was during the Depression/New Deal” and that sustained improvement is unlikely before 2010-11.
The Cleantech Perspective report published on Tuesday cited several reasons for the bounce: optimism regarding US President-elect Barack Obama’s support of renewable energy, a bounce back from extremely poor performance, clean-tech being inexpensive relative to the market average price/earnings and price/earnings-to-growth ratios, and technical support based upon many sectors breaking above their 50-day moving average – which is often interpreted as a bullish signal.
Solar energy stocks delivered the worst performance of the clean-tech sectors in 2008 – falling 69%, according to the bank’s index – but solar is now expected to lead the rally. Candidates for a snap-back include Q-Cells and REC, Milunovich suggested.
He is also over-weighting geothermal energy, “a more promising renewable than many perceive” and energy efficiency, for its quick project payback in a tough economy and relatively low correlation with other sectors.
However, Milunovich is less optimistic about the prospects for alternative fuels, water and energy storage. “Little good is likely to happen until second-generation biofuels arrive,” he said, while the water sector will suffer from poor earnings revisions, and it is “too soon” for the technologies of energy storage to make an impact, he added.
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