Stocks to Help You Save the Planet and Make Money

GE isn't the only company going green. Over the next several decades, billions of dollars will be spent on technologies and products that improve energy efficiency, clean up water systems and reduce dependence on fossil fuels. Most of that money will be coming from the private sector. Although capitalism might not single-handedly halt climate change, that's not stopping thousands of firms from doing their bit to save the planet. The green these firms see isn't just the color of a healthier planet. It's the money to be made helping to stop the potentially catastrophic effects of climate change. And the best news for investors is that there are plenty of companies turning a profit through environmentally friendly products and services.

Many of these "green wave" stocks have already seen big gains, so they are not cheap. And since this sector changes fast, companies that have spectacular sales now could be left behind if a more promising technology comes along, especially if there are more government mandates and subsidies to combat global warming. While experts still differ over the pace of global warming, some 2,000 scientists from around the world agreed last year that climate change is real and man-made. The only other thing that can get that type of scientific consensus is "that the world is round," quips Jeremy Grantham, investment strategist at GMO.

Environmentally friendly investing isn't limited to buying into solar cells and other forms of alternative energy. More than 300 million energy-efficient lightbulbs were sold in North America in 2007, a 50% increase from 2006. Meanwhile, utility companies around the world are investing in superconducting ceramic wire, which can carry electricity far more efficiently than a conventional copper wire. And water is one of the biggest areas of environmental investment. The U.S. Environmental Protection Agency says the nation has to spend more than $250 billion over the next two decades to stabilize or improve water quality. That's just a drop in the bucket compared with the amount the rest of the world needs to spend. "We've seen a lot of excitement already, but it's just beginning," says Jens Peers, head of eco-investing for KBC Asset Management and portfolio manager for the Calvert Global Alternative Energy fund.

To find the most promising green-wave investments, SmartMoney researched environmentally friendly products and services that customers are buying now. Then we looked for companies that get a large percentage of their sales or profit from these products. The result: companies that should help not only the planet but also their investors.

At Philips, lighting accounts for 23% of the company's $37 billion in annual sales but brings in more than 35% of the $3.0 billion annual operating profit. The newer energy-efficient bulbs are more profitable for the Dutch company than conventional bulbs, even though prices of the energy-efficient bulbs have dropped. And the recent energy law signed by President Bush phases out sales of traditional incandescent lightbulbs by 2014.