Welcome to Progressive Investor!


In this issue we examine some of the recent events relevant for sustainable investors: the sale of Horizon Organic to Dean Foods and the effect of the North American blackout on alternative energy stocks.

Our News Highlights cover important general news sustainable investors should be aware of and news related to SB20 and related companies.

Do you read the Daily News on SustainableBusiness.com? We are including more and more investor-oriented news there ... with you in mind!

I hope you know that all the back issues of Progressive Investor are freely available to you as part of your subscription. I encourage you to read those that interest you - the information is still very relevant. Here's the Table of Contents for all of them. Just email me and I will email them to you.

The Ethical Investors Group (EIG) / Groupe d'investissement éthique (GIÉ) is a 50 member, a social investing club based in Montreal. Do you know of others?

Fall is the conference season - here's just a partial list (see our Events Section for the full list) that may be of particular interest to you:

The 2nd annual "Green Mountain Summit on Investor Responsibility"
for institutional investors is going on now in Stowe, Vermont.

The 8th Grove Fuel Cells Symposium 2003, the major fuel cell conference, takes place September 24- 26 in Oxford, UK.

ICCR's 17th Annual Fall Event: "Pushing the Envelope of Corporate Change," October 2 in New York City.

The American Solar Energy Society's annual Solar Tour, October 4. Homes and businesses around the country that use solar energy open their doors to visitors. 26,000 people toured 1,222 solar buildings
in 44 states last year.

On October 7-10 is UPEx 2003, held by the Solar Electric Power Association and the Solar Energy Industries Association, in
Scottsdale, Arizona.

Then on October 11-12 is the first "Hydrogen Education Tour" in Denver, Colorado.

The 14th annual "SRI in the Rockies Conference", where SRI professionals get together, takes place October 19-22 near Lake Tahoe in California.

CleanTech Venture Forum in NYC, October 21-23. Where venture capital and clean tech companies meet.

The British Wind Energy Association conference, BWEA 2003, is October 27-30 in Glascow, UK.

November 2-4 in Cambridge, MA. is Investors’ Circle National Conference: Sustainable Communities: From Philanthropy to Venture Capital.

The 5th annual "Triple Bottom Line Investing Conference" has quickly grown into the world's largest SRI conference ... November 6-7 in Amsterdam, The Netherlands.

November 17-19, 16th NREL Industry Growth Forum, Austin, Texas. Brings investors together with clean tech companies.

Whew!

General News

As of September 1, companies listed on the Johannesburg Securities Exchange (JSE) must comply with codes known as King II (created in the second King Report on Corporate Governance for South Africa in 2002). The codes address corporate governance issues (eg., director independence) and, for the first time, require Global Reporting Initiative (GRI) reports on social and environmental performance.

10 South African companies already use GRI reports and over 100 S. African companies use at least some of the guidelines to create their sustainability reports.

Morningstar Japan launched the first SRI index for the Japanese market, giving social investing a big boost in Japan. About 200 companies passed the screens of corporate governance, social and environmental performance. 150 companies passed after liquidity and tradeability measures were added. The FTSE4 Good Global Index, which is a worldwide index, includes 60 Japanese stocks.

The various sustainable stock indexes put companies through a yearly review, adding some companies and deleting others. Last week, the Dow Jones Sustainability Index (DJSI) announced it would add 50 companies, including Toyota (TM) and Hewlett-Packard (HPQ). DaimlerChrysler (DCX) and Bank of America (BAC) are among the 40 companies deleted.

TM got the top spot in the automotive sector because of its environmental performance, such as leading hybrid and fuel cell technologies, eco-efficiency performance, and high fuel efficiency. VW scores significantly higher on social concerns such as supplier standards, and human rights issues. DaimlerChrysler scored lower on all the measures.

DJSI analysts removed Bank of America because progress on their sustainability strategy stalled. HP was removed temporarily because of concerns about its merger with Compaq. Although the Japanese tech companies score higher on environmental performance, say DJSI analysts, HP is very strong on all social criteria and most economic criteria.

The DJSI World Index outperformed the mainstream market over the past year. The DJSI World increased by 23.1%, compared to 22.7% for the DJ World Index and 21.2% for the MSCI World Index.

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The Social Investment Forum reports that 3 out of 4 SRI mutual funds got the highest scores from Lipper and Morningstar for one- and/or three-year periods ending June 30, 2003. And socially screened funds substantially outpaced unscreened funds in general. 32.5% of all mutual funds Morningstar tracks received a four- or five-star ranking, while 42% of screened funds received that ranking.

The Winslow Green Growth Fund, a Progressive Investor Contributing Partner, and the Parnassus Equity Income fund scored the highest. Winslow invests in small companies and is more volatile, with higher ups and downs. Parnassus invests mostly in dividend-paying stocks, and thus gets lower, but more consistent performance. "Our 3-year performance was negatively impacted by a decision to overweight alternative energy stocks," said Matt Patsky, Winslow portfolio manager. "We believed that increased Middle East tension combined with higher oil prices would push the current administration toward a policy that supported the development of alternative energy."

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Organic Industry News

Sales of natural/organic foods strengthened in July and August. The organic food sector continues to grow at a very robust 20% a year. Adams, Harkness & Hill (AHH), Progressive Investor's contributing research partner, maintains a "strong buy" rating on Whole Foods Market (WFMI), a "buy" rating on United Natural Foods (UNFI), Hain Celestial Group (HAIN), Wild Oats Markets (OATS), and Stake Technology ((STKL) to be called SunOpta by year-end).

Whole Foods Markets reported strong gains in third-quarter sales and earnings. Quarterly sales rose 15% to $749 million and comparable store sales rose 7.6%. WFMI expects sales growth for 2003 and 2004 to be at the low end of 15 - 20%.

Wild Oats Markets announced that second quarter net income increased 45.7% on sales of $242.2 million (up 2.6%), as compared to the same period last year. In-store expenses were reduced, which offset a decline in gross margin. For the first half of 2003, net income increased by 67.3% compared to the first half of 2002. Comparable store sales for the second quarter were negative 0.1% compared to 5.2% last year, which they attribute to continued store remodeling and resetting activity.

AHH believes OATS is on the precipice of the turn-around it has been working on for several years. "We believe OATS is on the cusp of a long-term growth phase and accelerating results. They have raised capital, closed or sold unproductive units, dramatically decreased SKUs, changed distributors, and developed a successful new store model (albeit with limited experience so far). Success with the new store prototype portends a $17 stock price in 12 months," they write in a recent report.

Green Mountain Coffee Roasters (GMCR) announced third quarter net income is up 19.2% and sales increased 14.6% to over $26 million. The growth was mostly due to two customers, Wild Oats and Costco.

AHH calls Stake, a runner-up for our SB20, the best way to play soy. Its ticker is STKL on Nasdaq and SOY on the Toronto (TSX) exchange. STKL had record revenues for the past six months (72%) and record net earnings (100%). This is its 23rd consecutive quarter of record revenue growth and the first quarter with revenues over $50 million. AHH projects 20 - 30% annual revenue growth for this small company ( $296 million market cap). Expanding margins with deliver even faster earnings growth over the next three years. Stake announced a public offering on August 11.

Stake started with the belief that sustainability is a better way of doing business. It has been on Profit magazine's 'Profit 100' list of the 100 fastest growing Canadian companies for the past five years. It has contracts with the leaders in the fast growing soy market: Dean Foods’s Silk brand and Hain Celestial’s Westsoy line.

Although Stake currently has 3 fairly disparate divisions, all environmentally and health focused, 85% of its revenue comes from the organic foods division and the company is considering divesting the other units. "With a favorable regulatory environment (health claims on soy and new organic standards), we see no near-term catalyst to change the current favorable growth environment. In fact, with the population across North America aging, obesity reaching epidemic proportions, and organic foods as the consumer’s only alternative to genetically engineered foods, Stake appears well positioned," writes AHH. www.staketech.com

Read a recent Winslow article on Stake.

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Renewable Energy News
Legend: kW = Kilowatt; MW = Megawatt; 1 MW = 1000 kW; 1 MW = energy for 1000 homes



July 14 was a historic day in the UK
. The Department of Trade and Industry gave the green light to a set of offshore windfarms that will produce six gigawatts of energy - enough to power one in every six households there. That's 15% of all households ... 3.5 million households ... nine million people! The windfarms should be in place by 2010, supplying half the power needed for the UK to meet its commitment to generate 10% of its energy from renewable sources by that year. And 20,000 new wind industry jobs will be created.

The latest British Wind Energy Association (BWEA) opinion poll shows that 74% of UK residents surveyed support increased used of wind power and back the government's target of generating 20% of electricity from renewables by 2020.

California also marked a watershed. Renewable energy resources supplied 23% of the electricity used by Southern California Edison in May and June, achieving the state's 20% renewable energy target 14 years early!

The U.S. used 11% more renewable energy in 2002, according to DOE's Energy Information Administration. Most of it comes from hydropower, but wind power increased by 56%, solar by 21%, biofuels by 17% and methane from municipal solid waste and landfill gas by 15%.

The market for PV in Australia grew by 27% last year. "If this rate of growth continues, the global market for PV will be more than US$20 billion annually five years from now," says the Australian Business Council for Sustainable Energy (BCSE). BCSE recently received a A$145,000 grant to create a roadmap for the Australian PV industry. Japan leads the world in solar capacity with 637 MW, followed by Germany (277.3 MW) and then the U.S. (212.2 MW).

Wind News:

Robert Preston, Craig Millar Energy, reports on NEG Micon's (Danish wind turbine manufacturer) New York City presentation this summer:

NEG's message was that they expect to maintain their 15% market share in the wind industry going forward. They expect wind will continue to grow at over 20% a year but for wind to generate just 4% of total world demand by 2010, growth will have to be around 30%. The offshore wind market is just beginning and their competitor, Vestas, now has a one year reference. NEG expects to get their first offshore deal soon.

When I arrived at the NEG meeting room, set up for 40 people, I was fortunate to have the CEO's full attention because no one else showed for the presentation. By the time you read this, I may have bought NEG's stock. Maybe I can sell it when the meeting room becomes full.
NEG is posed to restore its profitability and maintain its market share in a growing market. Its capitalization relative to its earnings potential is at a discount to other wind stocks. In fact, I believe all the wind stocks may be undervalued right now.

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Royal Dutch/Shell entered the European wind energy market by buying 40% of the 99 MW La Muela Wind Park in northeast Spain. The purchase from TXU Europe Energy Trading BV "marks the beginning of commercial-scale wind operations in Europe for the Royal Dutch/Shell group of companies". Shell owns four wind parks in the U.S., and is building its biggest to date in Texas - the 160 MW Green Mountain Wind Farm. Constructed as a joint venture with Padoma Wind Power, it will be completed by the end of 2003. Cielo Wind and Orion Energy are the developers; Green Mountain Energy and TXU Energy are buying all the power from it. It consists of 160 Mitsubishi turbines.

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A recent surge in U.S. wind project announcements prompted the American Wind Energy Association (AWEA) to revise its 2003 forecast for industry growth upward. AWEA expects 1,400 - 1,600 MW of new capacity to be installed, bring the total U.S. wind power capacity to over 6,000 MW.

Some of the massive new wind projects are:

* 160 MW Shell/ Padoma project mentioned above.
* The 37.5 MW Sweetwater Wind Project (also in Texas) is under construction and consists of 25, 1.5 MW GE turbines. It is the first phase of a 400 MW project.
* FPL Energy is preparing to build, own, and operate a 144 MW facility in Wyoming that should be operating by year-end. Orion Energy is the developer and Vestas is supplying 80 1.8-megawatt wind turbines.
* FPL Energy is also constructing a 30 MW windfarm in southwestern Pennsylvania.
* Spanish wind developer Gamesa Energia is building its first U.S. plant in Illinois, a 50.4 MW project.
* In Wisconsin, We Energies signed 20-year power purchase agreements with developers of three wind projects totaling 214 MW.
* A locally- owned 100 MW windfarm in southwestern Minnesota,TRIMONT Area Wind Farm
* Caprock Wind plans to build an 80 MW farm in eastern New Mexico. Xcel Energy will buy all the power.

On the other side of the world, Australia’s largest windfarm just came on-line. Pacific Hydro's 53 MW Challicum Hills Windfarm in western Victoria consists of 35 NEG Micon turbines. There are preliminary plans to increase output to 75 MW. The company plans to begin construction on a 67.5 MW wind farm in South Australia in mid-2004.

Solar News:

The saga continues at AstroPower. According to Gilbert Steinberg, a board member, the company is looking ro raise working capital to offset the costs of its current legal and accounting expenses. Even without the cash, he claims the company can operate indefinitely and hasn't laid off employees. Management is still completing its 2002 financial report, which will make it easier to raise capital and keep it listed on Nasdaq.

David Schoenwald of the New Alternatives Fund, an environmental investment mutual fund, says they aren't sure if they should add to or sell some of their 205,000 shares. Small investors aren't sure what to do either. In a DelawareOnline.com article, John Ellis, who owns 400 shares, says "If AstroPower would tell me whether all the accusations were true and explain the problems, I might be willing to stick with them." Another small investor says he likes the company's products so much that he bought shares at the low end and is willing to hold them.

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SolarMission Technologies (formerly traded as Energen Global Inc), plans to bring Solar Tower technology to the US. - large-scale solar thermal capable of generating 200MW of grid-connected electricity. Enviromission Lmt. (ASX: EVM) is developing the technology in Australia (SolarMission owns 39% of EnviroMission).

ARISE Technologies (TSX: APV), a Canadian solar company, began trading on the TSX Venture Exchange in late July. The company has sales of about C$1.2M and sells solar energy solutions from small portable Plug and Play systems to customized homes.

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Private Company News:

Solar Millenium (Germany) is building the world's largest - and Europe's first - commercial solar power plant. The EUR380 million project will cover 1.1 million square metres in southern Spain. Two power plants of 50 MW of capacity each will consist of 624 collectors and 200,000 mirrors, resulting in a 40- fold concentration of the solar radiation.

Spectrolab, a division of Boeing, achieved a solar cell efficiency of 36.9% using concentrated sunlight. The goal is to cut costs by minimizing the use of expensive semiconductor material in solar modules. Spectrolab stacks up to three solar cells - each tuned to different light frequencies - in one device.

Konarka Technologiesreceived a $2 million line of credit. The U.S. Army is also funding Konarka to develop lightweight, flexible, scaleable PV technology for military applications.

Advent Solar (Albuquerque, NM) received seed funding from founders and Angels with Attitude (Seattle, WA). Advent is working on advanced, cost effective PV cells, modules, and integrated products. The first products they introduce are based on patented technology developed by James Gee at Sandia National Labs, who just joined Advent as Chief Technology Officer. www.adventsolar.com

First Solar (Phoenix, AZ), a thin film module manufacturer, won a 2003 R&D 100 Award.

The Dynamic Shading Window System, developed by researchers at Rensselaer Polytechnic Institute, is the first "solar window." Miniature PV cells are integrated into windows transferring excess heat for air conditioning, motors, and lighting through wiring that's embedded in the walls.

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Other Renewable Energy News:

A 185 MW geothermal power plant, Salton Sea Unit 6, is in the final approval stages. If approved, it will be the largest geothermal power plant in the U.S.

DOE released a 25-year plan that includes clean coal and nuclear, but also supports renewable energy and energy efficiency. Some of its goals are:

• bring down the cost of the hydrogen equivalent of a gallon of gas to $1.50 by 2010;
• achieve the FreedomCAR technical milestones by 2010;
• renewable energy sources (excluding hydropower) double energy production by 2025

The DOE Inventions and Innovation Program awarded $1.5 million for nine energy-saving inventions out of 252 entries. Winners include inventors of high-temperature fuel cell components, a variable-length wind turbine blade and an utility-interactive inverter for distributed power. http://www.oit.doe.gov/cfm/fullarticle.cfm/id=775
http://www.oit.doe.gov/inventions

The U.S. Department of Agriculture (USDA) awarded $21 million in grants for rural renewable energy systems and energy efficiency improvements. 35 wind power projects won $7.4 million; 30 anaerobic digestion projects won $7 million; and 6 solar projects won $1.1 million. http://www.usda.gov/news/releases/2003/08/0295.htm
http://www.usda.gov/news/releases/2003/08/energylist.htm

USDA and DOE funded 19 biomass R&D projects for a total of US$23 million.

New Jersey awarded $2.7 million in grants to 10 renewable energy companies to explore wave energy, develop various solar energy technologies and ways to produce hydrogen from renewable energy.

New York awarded $14.5 million ($90.5 million when all funding sources are included) for 36 distributed generation and combined heat and power (CHP) projects. Recipients include fuel cell technologies, flywheels, bio-fueled engines, microturbines, and tidal power companies.

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Fuel Cell Industry News

FuelCell Energy (FCEL) reported a loss for the third quarter 2003 compared to the previous year ($7.3 million compared to $12 million) - a net loss of $15 million. Revenue for the first three quarters of 2003 was $26.5 million, compared to $27.5 million for the same period in 2002. FCEL attributes the loss to decreased revenues and increased expenses associated with government and internal R&D.

Quantum (QTWW) reported record revenues of $7.9 million for its first quarter 2004. CEO Alan Niedzwiecki stated, "Our Fuel Cell Systems segment was profitable for the second straight quarter and we were near cash break-even for the quarter on a consolidated basis. Quantum's revenues are being driven by an increase in shipments of hydrogen storage tanks, pressure regulators, and associated hardware to Asia-Pacific based automakers for their fuel cell vehicle programs."

Ballard Power Systems (BLDP) issued second quarter results in late July. Revenue was $29.1 million, up 36% compared to the same period in 2002. Net loss for the quarter was $32.5 million, compared to $21.5 million in 2002. The loss was due to the write-off of an equity investment and $1.8 million in restructuring costs. Cash used by operations and capital expenditures for the quarter was $0.03 million compared to $14.3 million for the same period last year. Dennis Campbell, CEO, noted they delivered 30 fuel cell bus engines for the European Fuel Cell Bus Project on-time and on-budget. They also completed the acquisition of Coleman Powermate’s AirGen™ product line.

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Plug Power (PLUG) received a $3.9 million award from the National Institute of Standards and Technology (NIST) Advanced Technology Program (the company receives about half in net funding during the two year, cost-shared program). The award will help PLUG enhance performance and reduce the cost of its stationery fuel cell systems. For example, PLUG is developing hydrogen supply techniques to address intermittent power demands and incorporating carbon nanotube materials to improve fuel stack performance.

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Palcan Fuel Cells Ltd. (TSX-V: PC) (British Columbia) has developed a stationary PEM fuel cell system that uses renewables to generate hydrogen for back-up power to the telecommunications industry. Goodings Environmental and Fuel Cells Canada are development partners.

Palcan also announced a joint marketing agreement with Nagase & Co., Ltd. of Japan (sales of US$4 billion) to distribute fuel cell systems there. Palcan's 5-100 kW fuel cells replace internal combustion engines and batteries in personal transport and fleet vehicles such as airports, amusement parks, golf courses, malls, and delivery routes.
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Fuel cell component manufacturer NexTech is the first recipient of Ohio's $103 million initiative to back fuel cell research projects. The company doubled in size over the past two years and opened a new 56,000 square foot production facility. Sales are $4 -$5 million, with 110 customers in 25 countries. CEO William Dawson predicts the first fuel cell products will go on sale to the public next year in laptop computers.

Fuel Cell Technologies Ltd. (FCT) installed a pilot fuel cell as part of Ford's 'Fumes-to-Fuel' System at the Michigan Dearborn Assembly Plant. The solid oxide fuel cell (SOFC) transforms waste into energy. FCT's system, developed specifically for the Ford pilot, turns emissions from Ford's vehicle paint shop into electricity and heat for the facility. Volatile organic compounds (VOCs) emitted during the painting process are collected and mixed and then fed into a reformer system that turns it into hydrogen! FCT manufactures small stationery fuel cell systems of 1 - 50 kW. www.fct.ca

Avista Labs, fuel cell developer for the back-up market, raised US$7.5M in its first round of financing. Vancouver-based Chrysalix Energy led the syndication which includes Wall Street Technology Partners (NYC) and Buerk Craig Victor (Seattle).

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Dean Foods Buys Horizon Organic

Many people were surprised when they heard the June 30 announcement that Dean Foods Company (NYSE: DF) would acquire Horizon Organic Holding Corporation (Nasdaq: HCOW). Since Dean already owned 13% of Horizon, the suitor wasn't surprising; it was that Horizon, founded only 11 years ago, would be acquired so early in its growth.

Dean will pay $216 million to acquire the remaining 87% equity interest and will assume HCOW's debt of $40 million. The boards of directors of both companies approved the transaction.

It's a bittersweet transaction for SRI shareholders. On the positive side, shareholders will participate in Horizon's growth so far. Even though HCOW traded at $13-14 when the deal was announced, shareholders will receive $24 a share in cash - a 27% premium. The deal is expected to close in the fourth quarter of 2003.

On the other hand, it's one less pure-play natural products company among the handful available to SRI investors. HCOW would have been a long term holding for many people and its shares would likely have appreciated far more over the next 5-10 years. Horizon will be a tiny part of gargantuan Dean Foods, making it unattractive for most SRI investors.

Horizon is the leading U.S. brand of organic foods and is the market leader in organic dairy in the U.S. and UK. HCOW introduced its first product, organic fat-free yogurt, in 1992. Horizon can now be found on the shelves of 20,000 grocery stores with the full range of organic dairy products, juices, pudding, fruit jels and eggs. In the U.K., it sells organic milk, yogurt and butter under the Rachel's Organic brand. In 2002, Horizon reported revenues of $187 million, and in April 2003, it reached a milestone of $200 million in sales consistent with a 20-25% increase for the year. This month, Horizon plans to introduce the first organic infant formula in the U.S.

Dean Foods is the largest U.S. dairy company, with dozens of company and private label brands around the country covering the range of dairy products: milk, ice cream, coffee creamers, half and half, whipping cream and toppings, sour cream, cottage cheese, yogurt, dips and dressings. Dean also sells pickles and specialty foods like juice drinks and water. It operates 120 plants in 36 U.S. states and Spain, and employs 28,000 people.

Earlier this year, Dean purchased privately held White Wave, maker of SILK brand soymilk, at an even higher premium than HCOW (1.7x revenue vs. 1x revenue because of the higher growth rate for soy milk than organic dairy). With the addition of Horizon, Dean owns the two leading "dairy" organic brands. Dean also owns Morningstar Foods (veggie burgers).

What should investors do?
Since the deal is for cash, investors don't have options. Everyone who owns HCOW will receive $24 a share in cash when the deal closes. Investors can pay capital gains taxes and then buy Dean stock if they want to.

HCOW is trading at $23.90 - very close to the sales price of $24. It makes sense for most people to sell it now and invest the proceeds elsewhere. Small investors might want to wait to avoid paying commission on the sale of the stock.

Sometimes shareholders hold onto a stock in this situation because they believe a higher offer may come in. "We don't think there is any chance of a higher offer because of Dean's close relationship with HCOW - they process and distribute much of HCOW's milk - and because Dean is already a minority owner," says Patrick McVeigh, Lowell, Blake & Associates. "Dean offered to buy Horizon before the public offering. They purchased a 13% share because Horizon didn't want to sell out at that point."

McVeigh doesn't see milk as a very exciting investment opportunity. Although Dean's stock has done well through acquisitions and improving margins, "I would have a very hard time owning Dean," says Eric Becker of Trillium Asset Management. "They sell a tremendous amount of milk produced using conventional farming practices like bovine growth hormone." On Dean's website it says: In 1950 a cow produced 5314 pounds of milk; in 2000 a cow produces 18,204 pounds of milk due to "improved" methods of selection, breeding and feeding.

What are the ramifications of the sale?
"It seems to be the way things go in the natural food sector," says McVeigh, "All the companies sell at some point to a larger company. Hopefully, there will always be smaller companies coming along to invest in." He thinks Whole Foods Market (WFMI) will stay independent, partly because they are too expensive for another supermarket to buy them. Wild Oats (OATS), on the other hand, may not have the same staying power. "The fact that WFMI hasn't shown interest in buying OATS is a signal for me," he says.

"Horizon was our largest holding and we were hoping to participate in its growth for years to come," notes McVeigh. Eric Becker agrees that the continuing consolidation in the natural foods industry is frustrating and makes it harder for concerned investors to find stocks to own. Multinationals like Heinz and Danone are wielding increasing influence through acquisitions of dedicated organic companies. Kraft just announced it would purchase the Back to Nature natural brand of cereals from Organic Milling.

Both McVeigh and Becker believe though that Dean's deep pockets will help Horizon grow. With Dean's marketing muscle and ability to deliver Horizon's milk to every supermarket in the country, Horizon's products will be more widely available. Horizon's distribution costs will be greatly reduced, which could lower the price of their milk. Although Horizon excels at selling organic milk at a price premium, a lower price would really open the market for them.

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What The Blackout Means for Alternative Energy Investors

Shares of many alternative energy companies surged when the largest blackout in North American history renewed interest in distributed energy and a more efficient grid.

American Superconductor Corp. (AMSC), whose superconductor cables eliminate grid inefficiencies, spiked 43%, making it the second highest percentage gainer on Nasdaq for the day. AMSC's competitor, Intermagnetics (IMGC), gained 20%.

Fuel cell company shares spiked too. For example, Proton Energy Systems (PRTN) rose 18%, Plug Power (PLUG) 23%, and Energy Conversion Devices (ENER) 18%. Fuel Cell Energy (FCEL) and Quantum (QTWW), also jumped.

What does this mean for alternative energy investors? We asked our contributing partners, Patrick McVeigh of Lowell, Blake & Associates and Eric Becker from Trillium Asset Management, and Bob Preston of Craig Millar Energy, to give us their take on the situation.

All three experts believe the blackout is a material event and will spur the growth of alternative energy technologies. Eric Becker expects it to result in increased federal funding for energy reliability, which will help the superconductor companies. "The stocks may have gone up more than is appropriate because of the black-out, but I think there's a legitimate reason behind the stocks that went up."

Bob Preston notes that although we may hear about power loss only when it affects 50 million people, it is a recurring, serious issue for businesses now. "Businesses will find ways to insure against loss of revenue and capital from intermittent brittle grid power," he points out. "Companies that have a clear vision of sustainable energy will demand a greater valuation that could reward investors. We've heard a lot about the move toward a hydrogen- based energy structure but it still hasn't garnered the type of enthusiasm it deserves. The blackout is a wake-up call."

"I would wait to buy many of the alternative energy stocks because they just had a nice run and will probably come down in price - especially those that jumped based on what may happen over the next 3, 5, or 10 years," says Patrick McVeigh. "FCEL's price is still attractive because it was significantly undervalued prior to the blackout."

When prices tend to jump up on sentiment as they do during an event like a blackout, Preston uses it as a selling rather than a buying opportunity. If you own American Superconductor, for example, you might want to take some profits since it jumped so high.

More than 300 publicly traded companies are working on energy-related solutions. Which companies might sustainable investors focus on?

Among the two superconductor companies, our experts continue to express more confidence in Intermagnetics. "American Superconductor went up more because it's the pure play but I think they are in a precarious position," explains Becker. "They are burning through too much cash and may have a tough time surviving. They may make it with enough government subsidies, but I'm not convinced they have the technology to get to commercialization. IMGC is still relatively cheap because there's still little value being placed on its superconducting power division. Most of the value in the stock reflects the MRI (healthcare) division (see Progressive Investor Issues 4 & 9 for more on IMGC).

"IMGC didn't move as much as AMSC because they have a profitable on-going healthcare business making MRI machines. It gives investors an "option" on the grid technologies. We own IMGC, but not American," says Preston. "It's not clear when utilities will invest in this technology. At a recent utility conference there was no mention of advanced technologies; the focus was on cost-cutting."

"Intermagnetics may have a product five years from now, but I'm much more interested in companies that have products now like Fuel Cell Energy (FCEL)," says Patrick McVeigh. "For some businesses, like hotels, the blackout could be the catalyst to take the leap and purchase a fuel cell now for back-up."

McVeigh thinks fuel cell and wind companies - that have products right now but have been waiting for a market - should benefit the most. The blackout will certainly push the U.S. energy bill along - the key for wind stocks. "We like Vestas much more than the other wind stocks because it has a better balance sheet and its market share is growing in Europe, particularly in Germany. They had a very good quarter in terms of earnings."

Vestas hasn't been doing as well in the U.S. because of the stalled energy bill and because General Electric (GE) is doing so well here. GE has a long-term relationship with Florida Power & Light (FPL) in the conventional energy business, which they are leveraging on the renewable energy side. Instead of selling generators to FPL, they sell wind turbines. McVeigh thinks Vestas will do well in the U.S. when the energy bill passes. Vestas' valuation is still decent at 17, he says.

Fuel cell companies will likely be recipients of increased subsidies, according to Becker. "The blackout raises awareness of the need for back-up power supply and fuel cell products are getting close enough that more subsidies will lead to more installations. This will accelerate the path to commercialization by building demand and production volume to help bring costs down."

Among the fuel cell companies, Preston is impressed with Proton Energy Systems (PRTN), the leading company that converts water into hydrogen through electrolysis. Currently they are in the hydrogen delivery business, not the energy business. They supply hydrogen to industries like the semiconductor industry, where it is used as part of the manufacturing process. Rather than delivering hydrogen in a canister by truck, they make it right at the production line.

"Eventually this is what will be used to fill hydrogen cars but first it will be used in these industrial processes, and next in stationary applications - back-up systems. Many cell phones didn't work during the blackout; telecommunications companies need to upgrade their back-up systems. Proton can provide a system that competes with a battery or a diesel engine," explains Preston.

"Their management is excellent," he continues. Robert Shaw, one of the gurus in distributed energy venture capital invested in them (along with Evergreen Solar).

Hydrogen needs to be stored so it can be used when it is needed. On the storage side, Bob Preston likes Millennium Cell (MCEL), a tiny company that has patented a process to store hydrogen in borax. "The military applications to supply fuel for M2/M3 Bradley Tanks in the field are compelling," he says. "Hydrogen can be dropped in bags from a helicopter! He also likes Quantum Fuel Technologies (QTWW), backed by General Motors, which makes lightweight tanks to store hydrogen.

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