How to Profit from Energy Efficiency

Written By Nick Hodge

Posted January 27, 2010

Have you had your encounter yet?

Unless you’re a complete shut-in, energy efficiency has undoubtedly penetrated your day-to-day activities in some way.

From utility bill inserts to presidential pleas, it’s hard to escape the efficiency mantra that has swept the nation — and the world.

And while small steps are helping millions of homeowners save on their energy bills, few realize the cumulative effect the trend toward efficiency is having on billion-dollar corporations and the broader public markets.

Indeed, the New York Stock Exchange (NYSE) has literally adopted energy efficiency, issuing the following statement after a big switch in its approach to data management:

Today’s announcement means that NYSE Technologies and Voltaire can now offer customers the lowest latency and most energy efficient solution for accelerating market data applications. The performance and cost savings this solution provides is critical for financial services firms that rely on speed and performance to gain competitive advantage but also need to keep a close eye on data center power requirements and spending.

Obviously, the NYSE paid Voltaire for its services, as have numerous other companies looking to lower the power bill associated with data storage and processing. That’s what I mean by the ‘cumulative effect’ of the trend toward efficiency…

The companies providing the solutions stand to make a killing. Look what Voltaire returned to investors as it racked up contracts in the IT efficiency space:


And that’s just one company in one small sub-sector of energy efficiency. There are plenty more companies offering equally impressive gains as the layers of energy efficiency are peeled away.

Profiting From the Energy Efficiency Onion

If you think about efficiency as an onion, there are many layers from which to profit, some easily identifiable and others more hidden.

In addition to data storage efficiency, investors can profit from efficient lighting, cogeneration, insulation, smart glass, digital meters, smart thermostats, Energy Star appliances, and so on. And that’s just off the top of my head.

The business world is currently in a frenzy to reduce energy usage, led by policy, incentives, and shareholder demand. Companies realize they can improve their bottom lines — and, therefore, value for shareholders — by reducing operational costs. And they’re willing to pay upfront to do so.

Last week, I touched on the efforts of giant corporations like Wal-Mart, Johnson & Johnson, and Morgan Stanley to streamline their operations and reduce energy costs. Each example represented a unique layer of the efficiency onion… and each one had a unique profit angle for investors.

But this trend is only now embarking on a years-long journey.

PepsiCo just announced that seven of its plants went to zero waste in 2009 as part of the company’s goal to shrink its footprint worldwide. Not sending tons of garbage to the dump adds to the bottom line.

And UPS recently added 245 compressed natural gas trucks to its fleet, bringing the total up to 1,900. Paying less to fuel a fleet of trucks adds to the bottom line.

Those are two more examples of efficiency layers. Of course, there are plenty more. But to drive home the point, take a look at the plays that benefit when Pepsi produces less waste or UPS adopts CNG vehicles:

Westport Casella

Westport Innovations (NASDAQ: WPRT) develops heavy engines that run on natural gas and Casella Waste Systems (NASDAQ: CWST) offers solid waste management and recycling services. Expect these efficiency-related sectors to gain even more attention as fleets and factories try to optimize their operations.

Low-Hanging Layers

Right now, the low-hanging layers of the efficiency onion are being peeled away: replacing old diesel trucks, improving energy-hungry data centers, etc.

But there is plenty more to come. Nearly every building and electronic device on the planet is a target for efficiency. There are plenty of companies ready to make it happen… and they’ll be profiting — as will their shareholders — for years to come.

An easy way to get in on the action is to buy the First Trust Smart Grid Infrastructure Index Fund (NASDAQ: GRID). It’ll give you access to dozens of companies making money by making the use of energy more efficient.

For a more concentrated way to profit from this trend, you’ll want to read my new report on the one company that could triple as its sales explode, thanks to the efficiency trend. Those who got on-board early have doubled their money in just a few weeks time…

But there’s much more to come as this company’s unique energy-saving device is installed in millions of homes across the country.

Call it like you see it,

Nick Hodge


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