By Garvin Jabusch

In spite of overwhelming evidence pointing to ongoing changes in our climate, the "debate" on climate change continues. Climate, despite what you may have heard from some quarters, is indeed changing. And while the basic high school physics of "carbon dioxide traps infrared heat" seems to make this change inevitable, all the politically driven wrangling is a sideshow to what's going on all over the planet. And what's going on with climate is having very real impacts all along the economic value chain.

Whatever the direct cause, ice is melting, water is becoming more scarce, and global agriculture struggles to keep pace with increasing demand and climactic obstacles to supply, to cite just a few examples. Extreme weather is also hammering us: 2011 has already set records--in both dollar and absolute terms--for most weather related disasters ever in the U.S. That has big implications for future economic growth.

Consider this quote: "In July, reinsurance giant Munich Re predicted that 2011--on the evidence of the first six months alone--will be the costliest year ever for disasters triggered by natural hazard. Total global losses by June had reached $265 billion, far outstripping the $220 billion record set for the whole of 2005." In case you forgot, that year included $82 billion for Hurricane Katrina alone.

Our fossil fuel economy got us here, and that economy has to change. We can debate the speed of that change perhaps, but further major economic and climatic events are an inevitable consequence of the fossil fuel driven economy. When and where future events will take place is unknowable. But knowing they're coming, and that change in general is occurring, provides an advantage in that we can invest early in the best "next economy" remedies. This approach could perhaps be best described as "Anticipating (versus reacting to) the next black swan." Or as Walter Gretzky famously taught his son Wayne, "skate where the puck's going, not where it's been."

Careful Stock Picking Required
So how do you invest for that? For us, the answer is to get in front of the primary problems. Namely, to identify the most pressing issues facing civilization--the ones that will need to be addressed first and at the largest scale--and then look for the technologies, systems and approaches that have the best chance of mitigating those problems at the lowest economic cost.

This sometimes leads us to what many investors think of as "green stocks," such as renewable energy companies.

But simply buying "green" stocks is no panacea. Just as with today's economy, the new economy requires careful stock picking. The companies and technologies may be new, but the tools of valuation remain the same. The basic questions still stand:  Does the company make money? Is it growing? Is it in a rapidly expanding sector? Do we think management is solid? If all of these things appear worthy, do we think the company is a good value at this price?

This approach will be quickly recognized by most as the value-focused Graham-Dodd-Buffett school of company valuation. It's a philosophy to which we've very closely hewn.

For example, consider Chinese solar manufacturer Canadian Solar (CSIQ), a vertically integrated solar firm--meaning it has superior cost control and less margin risk--providing everything from raw polysilicon to installed PV systems. Canadian Solar expects to net US$.61 per share in 2011, and $.80 in 2012. It's a nicely profitable and growing little company, yet its value metrics make it look like it's burning rather than making money: price-to-earnings is 2.9; price-to-sales is 0.01; price-to-book is 0.29 and it's trading at only 23% of cash on hand. A ridiculous valuation in anyone's book.

Or look at Chinese solar manufacturer JinkoSolar (JKS), equally cheap in that it expects to net US$1.84 in 2012 (down from $4.47 in 2011; of course we prefer to use the long-term guidance in our net-present-value calculations, so we effectively discount the current exceptional year), but has extreme value metrics such as price-to-earnings of 0.64, price-to-sales of 0.09, price-to-book of 0.24, and it's trading at 45% of cash.

So these companies are cheap. Do we think solar is a growth industry? As I wrote in our blog "Green Alpha's Next Economy:"

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