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EnerNOC cashing in on trend to reduce energy consumption

Meet EnerNOC (Nasdaq: ENOC). A market leader in the demand response industry, it uses technology to monitor, coordinate and reduce its customers’ electricity usage. (Customers include large factories, department stores, warehouses, malls, etc.) When electricity demand is high, EnerNOC can reduce its customers’ usage, saving utilities from having to power up extra plants at high costs. For that, EnerNOC is paid by utilities and grid operators, passing along a portion of that cash to its customers.

Over the past three years, EnerNOC’s revenue has averaged 66 percent annual growth, and 2010 was its first profitable year. As more utilities deregulate and EnerNOC expands, expect further growth.

EnerNOC has a solid balance sheet, with more than $100 million to invest in its own operations as well as to buy competitors and increase market share.

Better still, its stock has fallen recently, partly due to a rate dispute, the departure of its chief operating officer and an earnings disappointment. This has given long-term investors an opportunity to buy at a good price.

EnerNOC’s business model seems a win-win for utilities and large consumers. But new competitors are arriving, including Honeywell and Constellation Energy. Both have deep pockets and could change the competitive landscape.

Take a closer look at EnerNOC. (It’s a “Motley Fool Rule Breakers” selection, and the Fool owns shares of it.)

Ask the Fool

Q: What are the other major stock indexes, besides the Standard & Poor’s 500? – M.J., Flagstaff, Ariz.

A: The most famous index is the Dow Jones Industrial Average (“the Dow”), which includes 30 American giants, such as ExxonMobil, General Electric, Home Depot and Verizon. The S&P 500 also focuses on large companies, including 500 of America’s leading corporations. Its components account for 75 percent of the total market value of the U.S. stock market. These two indexes are often viewed as proxies for the overall U.S. economy.

Then there’s the Russell 3000 Index, which includes 3,000 of the largest U.S. companies based on market capitalization (current share price multiplied by number of shares outstanding). These 3,000 constitute about 98 percent of the U.S. market’s value. For a measure of small-cap companies, look to the Russell 2000. It’s composed of the 2,000 smallest companies in the Russell 3000.

The Dow Jones Wilshire 5000 is just about the broadest index of American companies, including almost every publicly traded company. For broad international coverage, the Vanguard Total International Stock index represents about 98 percent of the non-U.S. world stock market.

There are indexes for lots of broad or narrow international regions. Other indexes address sectors such as utilities, semiconductors, pharmaceuticals, the Internet, and shoe horns. (Just kidding about shoe horns.) Learn more at mutualfunds.htm.

Q: What are “convertibles” in investing? – C.G., Grand Rapids, Mich.

A: Convertibles are bonds, promissory notes or preferred stock that can be converted (according to specified terms) into regular common stock by their owner. They’ve been described as investments with built-in stock options. They’re best suited only for advanced investors.

My dumbest investment

My dumbest investment decision was selling my shares of Coca-Cola in order to buy shares of Fannie Mae, Freddie Mac and Lehman Brothers. Sigh. – H.U., online

The Fool responds: That was certainly a regrettable move. All investors, including the best, make occasional mistakes. Still, you might have avoided this one had you considered a few things. For starters, if you were parking much of your money in those three stocks, you were putting a lot of faith in just one sector, financial services. That’s not very diversified. Some well-regarded mutual fund managers got whacked by that mistake, too.

Next, you might have looked at what was going on in the U.S. with mortgages. It was no secret that many people were buying homes they could barely afford, and that lenders were making it extra-easy to get a mortgage. While many people jumped on the wagon to profit from this, assuming that housing prices would keep rising, others correctly suspected that it would end badly.

The beauty of Coca-Cola is its dependability. People will always be thirsty, and most can afford a simple drink.

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