PBW is a Buy

Thanks to my wonderful wife I have discovered a possibly hidden gem. Renewable energy investments have been absolutely clobbered since the market crash of 2008-09. PBW is a fund of environmentally sustainable companies, most of which are largely hated on Wall Street. Names like Tesla Motors and First Solar, stocks that have been largely held down because of pro fossil fuel energy policy.

I like the renewable energy space for many reasons. First, I think its an absolute necessity for the future of the world's and our health to encourage the use of renewable resources. Potentially favorable future policy by governments should encourage more investment and growth throughout the industry. Ok, enough with the pie in the sky, touchy feely stuff! The other part of my interest in renewable energy investments is the investments!

Just looking through the top 10 holdings within the PBW fund I can see that the names are heavily shorted(being bet against) by investors. This negative positioning by a large number of investors could create a huge upside move should this fund get some buying momentum behind it. Speaking of momentum, this is another huge plus for this space. Two widely used momentum indicators MACD and RSI are showing whats called a positive divergence. This is where the price of the fund has continued to make new lows but the momentum has not. Basically momentum is hinting that a possible change in trend is building under the surface.

Now, a divergence by itself does not guarantee that the stock will go higher but it is a good sign of strength building. This is a chart showing weekly price bars, so you can see that this is a long term development and will require some patience to play out completely. It is generally not a great idea to try to bottom pick a falling stock, known as "catching a falling knife", you usually end up getting cut.

However because of the divergences present and near term relative strength I dont feel like we are not trying to bottom pick this too much. Also important, price has retaken the 200 Day Moving average(price average for the past 200 trading days) for the first time since the crash in 2008.
Plus other moving averages (20 and 50 Day averages) have begun to flatten out and turn higher indicating the beginning of a trend change

All this being said, I think it is only reasonable to look at a pick like this as a LONG term investment and make sure you don't blow your whole wad in one purchase. You will want to spread out your buys of this stock over time. The renewable energy movement will not explode overnight and neither will this investment. But it is important to look around and see all the sustainable changes going on all around us. The gas-hog loving, mainstream auto industry is making hybrid cars at the highest rate ever. Solar and Wind renewable energy farms are growing and gaining popularity. Even through our daily diets we are moving toward more sustainable, organic foods.

This is a hated investment space and since the funds inception in 2005 the current value of the fund is down roughly 70% and more than 80% from its all-time high in 2007. Remember what I said about everyone leaning in the same direction in the market? The market rarely rewards that type of behavior for long. And when the trend change does come you get a huge tailwind due to all of the under-invested and wrongly positioned players who have to reverse their position. 

While an investment can always go lower, I feel that the hate is overdone in renewable energy and we could be seeing a generational buying opportunity unfolding right now. I am buying this fund and will continue to do so for the future. Now, I don't want you to make this holding your entire portfolio or even too large of a percentage of your total holdings. But I do think its prudent to begin looking at the renewable space for profits now and in the future.