It's Not Easy Being Green

OUR PORTFOLIO OF green stocks has left us a little green around the gills this year. Picked with an eye toward firms that seemed ahead of the curve on everything from solar power to energy-efficient electricity, our March "Riding the Green Wave" selections got off to a roaring start, returning 18 percent in six months — only to drop into red territory in just four days. Now it's back up on top — up 8 percent, compared to the market's 3 percent loss — but it's still keeping us on edge.

Indeed, green may be the right way to go in life, but it can take a strong stomach if you're investing in it. In a rough market, investors are quicker to lose confidence in smaller companies that sell new technologies and have short track records. We had some bad luck, too: One of our picks was hit with an accounting probe. Still, analysts are optimistic about these firms for the long term.

The biggest bright spot was American Superconductor, which returned 104 percent. Investors are excited at the prospects for the company's high-temperature superconductor wire, an energy-efficient electricity conductor designed to replace copper wire and save utilities firms millions. The business is young and hasn't turned a profit yet, but Jesup & Lamont analyst Brian Yerger says sales from this wire could be profitable as early as 2010.

The worst news came from Zoltek, which makes industrial-grade carbon fiber used in windmill blades. The stock fell 34 percent after the Securities and Exchange Commission investigation into the firm's accounting practices in May. A Zoltek spokesperson says that the probe was focused on the firm's chief financial officer, who has since left. Yerger says the problems won't last and that Zoltek is "correctly positioned on carbon fiber" long-term. Not all analysts agree: Stuart Bush of RBC Capital Markets acknowledges that the worst is already reflected in the stock but is skeptical of Zoltek's ability to outsell its competitors.

French water- and waste-systems company Veolia Environnement lost 31 percent, thanks in large part to rising energy prices. Managing municipal waste and water infrastructure demands an enormous amount of gasoline, says Brean, Murry, Carret & Co. analyst Michael Gaugler, though he adds that global water-supply shortages and the more water-intensive industrial projects abroad will benefit the stock. Solar-panel producer SunPower returned 4 percent, even as investors worried that energy subsidies in the U.S. and Spain may get cut. The firm expects 70 percent growth in 2008, but Friedman, Billings, Ramsey analyst Mehdi Hosseini says that's too optimistic for a subsidized commodity business. He expects the stock to fall as growth estimates come down to earth. Commercial construction, which drives Philips's "green" lighting business, has also been slowing, though analysts expect that company's health care division, which contributes half the company's profits, to thrive on recession-proof demand for medical devices.