We spoke with analyst Steve O’Rourke of Deutsche Bank in our special focus on Alternative energy this week. He had two picks  in the Solar Energy space that he thought we key players in the U.S. market:

Mr. O’Rourke: Two key [companies] here in the US are First Solar (FSLR) and SunPower (SPWRA). Each of those companies has clear technology differentiation, First Solar with cadmium telluride and SunPower with high efficiency crystalline silicon. They are the technology leaders in the industry, and often differentiation does come down to technology. All that said, I think they have sustainable competitive advantages that translate to a lower cost of energy all the way down the value chain. If a company can maintain that cost of energy advantage, and maintain a strong balance sheet, they can weather the storm and build upon an already strong market position. Leveraging technology and market-based advantages will drive market share gains and set up the company to come out the other side much stronger.

For the complete Alternative Energy report, including a full interview with Mr. O’Rourke and a roundtable discussion of the space, click here.  

In our special focus on Alternative Energy, we spoke with analyst Theodore O’Neill of Kaufman Bros., who talked to us a little bit about Investing in Green Technology. O’Neill felt that Solar Technology isn’t in a position to be economically feasible without subsidies any time soon. Here’s what he feels the industry would need to reach that:

Mr. O’Neill: If the solar industry is really going to get to parity, the production facilities that we have are going to have to improve pretty dramatically. Solar cells are semiconductors. If you look into a modern semiconductor factory, you see a process that is highly tuned to produce a particular yield in a particular product and the equipment used to tune the process is not in place at any of the solar manufacturers. So the solar industry is going to have to embrace bringing in a lot of the methodology and inspection equipment that you would find in a traditional semiconductor fab. Management will have to bring that into the solar business to really get to the professional level in order for this to become a real business.

For the complete Alternative Energy issue, including a full interview with Mr. O’Neill, other analysts in this space, and a wide variety of CEOS, click here.

In his interview with TWST, portfolio manager Craig Stone recommends the energy resource company EQT Corporation (EQT). Here’s why:

Mr. Stone: EQT is a fully integrated energy company, focusing on the Appalachian natural gas region. We like EQT because this is Appalachian’s largest exploration and production company and they own about 3.4 million acres of low-risk resource plays in multiple zones. All the acreage is held by the company with no expiring leases. EQT has one of the lowest cost structures in the industry. The company’s three-year F&D costs (finding and development costs) are some of the lowest in the industry at below $1 per Mcfe (million cubic feet per equivalent) and the company is also a technological leader in air drilling, which over time has helped the company to further lower total operating expenses.

For the complete Investing Strategies report, including a full interview with Mr. Stone, his associate Jon Christensen and a series of full interviews with other portfolio managers, click here.

Collin Gerry of Raymond James in a recent interview as part of our Oilfield Services report gave us his views on deepwater;

Mr. Gerry: The only side of the energy complex that we are bullish on right now is deepwater. If you take a step back and you look at the global picture for oil supply, we’ve picked all the low hanging fruit. A lot of highly prolific areas of the world have seen peak production, areas that now include Russia and Mexico. The North Sea and the US have been in a state of decline for a while now. The next frontier is deep water. The reason I say that is because we’ve had some geological success there. Brazil has certainly made some pretty significant finds off their coast. The US Gulf of Mexico is a very prolific deepwater market, as is West Africa, and now you’re starting to see places like India and China bid for deepwater rigs and try to explore some of their opportunities. Thematically, I would say it’s deep water, because it’s an oilier play, and from an oil service perspective, it’s a less volatile play. Deepwater development can take five to 10 years, so you don’t care if front month oil goes from $60/bbl to $40/bbl. It’s a long-term investment perspective — you are looking at what oil will average over the next 10 years. It’s not as volatile as some of the shallower stuff or some of the land drilling in North America. The deep water is where we are positioning our recommendations.

Deepwater isn’t as volatile as land or shallow drilling. With a 5 to 10 year development process you are looking at a more longterm less erratic investment with deepwater companies.

We recently spoke with Nathan Judge of Atlantic Equities LLP about the Gas Transmission space as part of our Oilfield Services/Pipelines & Distributors Report. With the new administration in place one thing is for sure some changes are coming;

Mr. Judge:  Generally, the Administration has emphasized the need for energy independence, and energy independence is a pretty broad statement. The Administration has also been looking at things like reducing carbon or actually regulating carbon emissions, perhaps putting some type of penalty on emitting carbon. Those have very different effects on the gas transmission, gas pipeline business, but generally there is an underlying supportive environment from the Administration to promote additional gas transmission infrastructure in the country. Policies to limit carbon could also provide an additional boost to natural gas demand. That said, there have also been some changes implemented by the Administration that would reduce the amount of tax breaks that E&P producers get. That potentially could lower the amount of gas being provided from some unconventional basins. So we have a mixed bag as far as that is concerned. There is also this big question mark around changes in personnel at the FERC, the Federal Energy Regulatory Commission. The previous Chairman has recently resigned and there is an interim Chairman who could potentially be the permanent Chairman. That’s important because we have historically seen some fairly robust returns over the life of these projects, and if there is a change of returns allowed by the FERC on these pipelines, it potentially could be lower than it has historically, which would be a very big negative for the group.

This still seems like a developing story so gather as much information as possible and pay attention.

As part of our special focus on Water Utilities, we spoke with analyst Timothy Winter of Jesup & Lamont Securities Corporation. He gaves 2 picks that he feels are worth investors attention in the Water Utilities space:

• American Water Works (AWK)- “It trades at 12.5 times 2010 numbers and 118% of book value versus the group, which is at 17 times forward numbers and 175% of book, so on a valuation perspective, it’s very, very attractive. The fundamentals of AWK are just as strong, and one could argue stronger, than some of the others in the group, given that they are in the process of filing rate increases for the neglected systems from the RWE ownership days. So there is going to be some accelerated earnings growth over the next couple of years.”
• Aqua America (WTR)- “The CEO is absolutely fantastic. The company’s track record is second to none. And they’ve grown bigger, they’ve expanded from the Upper Midwest and the Northeast into the Carolinas and Florida and Texas as of recently — when I say recently, I mean the last few years — to continue their long-term strategy, which is to be the best consolidator and the best operator. And I think we have earnings growth returning to their historical 10% per year growth rate that investors enjoyed from about 1992 through 2006 before they had to take some time to digest the strategic acquisitions in the Carolinas, Florida and Texas.”

For the complete Water Utilities report, including a full interview with Mr. Winter, as well as interviews with other analysts in this space, click here.

The April 20th issue of the Wall Street Transcript features a special focus on Oilfield Services. We spoke to analyst Collin Gerry of Raymond James & Associates as part of this issue, to tell us a little bit about where the past quarter has lead the Oilfield Services sector, and where it’s headed. Mr. Gerry estimates that natural gas will be at record lows in Q3. Here’s why:

Mr. Gerry: It’s a combination of things. Yes, the poor economy is decreasing demand, but the bigger problem is we are going to have more than enough gas to fill storage — we believe the market could theoretically end summer anywhere from 500 Bcf to 750 Bcf oversupplied. Just as a framework, gas is a storage market. We use it in the winter and we store it in the summer. The phenomenon that we have had recently is that, if you don’t have enough demand or if you have excess supply, you fill storage too early in the summer and have to shut in production. Then, you have gas on gas competition which just kills the price. In the past, we’ve seen 1-2 Bcf/day get shut in for a month or two. As we look at our model, we think you will have to shut in 500 to 750 Bcf of gas. That’s 10 Bcf/day for a couple months, which is a train wreck! In the past, natural gas prices cratered in the Rockies and Mid-Continent areas. However, shutting in such a large amount of gas could affect prices at Henry Hub, which is the gas price that you see on your screen. So you could see gas prices meaningfully worse than what we have seen in the past couple of years.

For the full Oilfield Services/Pipelines & Distributors report, including a roundtable discussion of the space, and a complete interview with Mr. Gerry, click here.

The Mitchell Group is a portfolio management firm that invests specifically on the energy sector. When we spoke with the company’s President and CIO Rodney Mitchell, he told us about some of the problems that might be coming up down the road for this space:

Mr. Mitchell: The immediate challenge is natural gas supply in the US. I’ve already talked about that. Longer term, we are facing a worldwide problem where companies will not be able to maintain their production of crude oil. For a while, that will be covered up by natural gas liquids, but that only lasts a reasonably short period of time. After that it’s going to be a major problem for the world. The world is using a higher percentage of each barrel of oil each year for transportation fuels. That is the highest and best use of crude. Back in the late 1970s or early 1980s, the US and Western Europe dramatically reduced stationary use of crude oil, that is using crude oil for boiler fuel. The rest of the world will do that as we move along here, and more and more percentage will go toward transportation. Once we do that migration, where you cannibalize your stationary uses to put it into the transportation field, once we complete that, then we’re going to see much higher oil prices. Maybe Matt Simmons is going to be right then.

For the latest edition of our Investing Strategies report, including a full interview with Mr. Mitchell, and a variety of other portfolio managers, click here.  

Our top picks this week come from our special focus on Oil & Gas Exploration & Production. Here’s what the analysts we spoke to picked in this space:

1. Carrizo (CRZO)- “Carrizo, which is a gas-oriented name here…has a fairly dramatic growth profile, which we think is being underappreciated, given financial concerns.”
2. Whiting (WLL)- [Whiting is an oil company with]  “a high cost model but it does have some growth catalysts on the liquid side — carbon dioxide flood activity and some other efforts in the Bakken. And given that it’s a high cost model with a lot of financial leverage, if indeed we start to see some constructiveness in the context of the oil market, that’s going to be a name that has been beaten up badly that could have a nice rebound.”
3. XTO Energy (XTO)- “XTO Energy continues to be a name where we see very good, relative-to-the-industry economic growth.”

For the complete Oil & Gas Exploration & Production issue, including a complete overview of this space, where it’s headed, and more stock picks, click here.

Our special focus this week is on Oil & Gas Exploration & Production. One of the analysts, Phillip Dodge of Stanford Group Company said in our panel discussion of this space that, despite the turbulence and downturn in this space in the last year, we have seen the bottom:

Mr. Dodge: I think we have seen bottom. Many companies have cut back significantly in their budgets for 2009 with the approach that they can stay within their cash flow if prices remain low, but they can keep the flexibility to raise spending later in 2009 if prices recover.

TWST: So it’s like trying to straddle a fence.

Mr. Dodge: Yes, I think it’s probably a good approach. They don’t want to try to forecast prices so they will live within their means unless prices recover.

For the complete Oil & Gas Exploration & Production report, including interviews with analysts covering many parts of this space, stock picks, and a full roundtable discussion, click here.