Love is a fickle thing. When oil prices surged past $100 a barrel in 2008, investors fell madly in love with alternative energy stocks. But when oil prices crashed, and when signs emerged that government budget problems would curtail the industry-friendly subsidies, so did investor ardor for this young industry. The PowerShares Wilderhill Clean Energy Exchange Traded Fund (NYSE: PBW) slid from $28 in early 2008 to below $10 today.

These ups and downs are par for the course in any young industry. Sales initially soar, then the key companies raise loads of cash to aggressively boost capacity — often times to a point where supply exceeds demand. Prices for items — such as solar panels and wind turbines in this case — then plunge, leading investors to assume that profits will never be robust.

But it usually just takes time. Eventually, the industry learns to keep capacity expansion at a minimum, demand keeps rising, and prices eventually firm. And that’s just what looks to be happening in the field of alternative energy.

And even as the industry works out these growth kinks, global policy makers are looking for a fresh round of industry support. U.S. Energy Secretary John Chu is heading up a Washington D.C. conference this week with government ministers and corporate executives from more than 20 countries to accelerate the deployment of clean-energy technologies. Participants are expected to announce new renewable energy and energy efficiency partnerships on Tuesday afternoon.

To be sure, some of yesterday’s hot stocks won’t return to their 2008 heights. That’s because they lack a technological edge that will give them the room to boost prices and profit margins. So even as this industry looks set for a rebound in coming years, it pays to stick with the best-of-breed. Here are four companies that are emerging as the leaders in their respective spaces.

American Superconductor (Nasdaq: AMSC)

This maker of wind turbines and the electronic systems that are the heart of every wind farm has been on a growth tear. Sales have risen at least +60% in each of the past three years, thanks largely to a supply agreement with China’s Sinovel, one of the world’s largest builder of wind farms.

But shares have taken the occasional hit from concerns that Sinovel might stop placing orders.
So American Superconductor is now pursuing deals in India, Korea and elsewhere in Asia. Management has recently started to ink new deals, even as Sinovel signed on for another $445 million long-term deal with AMSC in mid-May.

Analysts had been lowering their growth assumptions, but have recently started to boost them back up, as Sinovel and other customers step up to the plate. They think sales can rise more than +30% in fiscal (March) 2011, and another +20% in fiscal 2012. That’s fueling +30% annual profit growth.

Shares, which had moved back up above the $33 mark when the Sinovel new contract was announced, have since shed about -20%. And they now trade for a very reasonable 17 times projected 2012 earnings.

First Solar (Nasdaq: FSLR)

First Solar is the global leader in the production of thin-film solar, which captures less of the sun’s energy than traditional silicon-based solar panels but can be made far more cheaply and also can be deployed in a wider variety of applications. Over the years, the company has managed to steadily cut production costs, pushing prices down below levels where rivals could make money, even if those rivals’ technological approach yielded more energy from each solar panel. In 2007, the company was able to build modules for roughly $1.40 per watt of power. That figure breached the $1 mark late in 2008, and could approach $0.75 sometime later this year. The company now spends roughly $100 million per year on research and development.

That leading-edge approach led to fast-rising market share. Sales doubled or tripled every year from 2003 to 2008, and “only” grew +66% in 2009. Annual revenue now tops $2 billion. But the “laws of bigness” are starting to bite. Sales growth should cool to +25% this year and next. More important, a shift in the business model toward the development of massive solar power farms is leading to an apparent reduction in gross margins. So those sales gains are likely to lead to flat profit results.

But this is simply a functioning of accounting. Once these near-term projects are completed, margins should rebound. So although earnings per share are stuck in the $7 range in 2009, 2010, and 2011, they should soar above $10 by 2012 as margins return to normal on a much higher sales base. Shares have lost half of their value during the past two years as investor enthusiasm toward the industry has waned. But as investors start to look out a few years, they can see a path toward far higher profits, and perhaps, a rebounding stock price.

EnerNoc (Nasdaq: ENOC)

We profiled this energy efficiency play back in April, concluding that “thanks to favorable tax breaks for smart-grid investments, the utility industry is expected to keep deploying (the company’s) grid-enhancing solutions for the foreseeable future.” Yet we cautioned that profits are unlikely to look robust until 2012 or 2013.

But investors should stay focused on the top-line, where sales have grown at least +74% in every year since the company began operating in 2004. They should grow close to +50% again this year, and forecasts of +19% growth next year look too conservative in light of sharply rising backlog.

Clean Energy (Nasdaq: CLNE)

If you’re looking for a timely play on the current legislative plans brewing in Washington, then check out Clean Energy, which runs a network of natural gas fueling stations. Just last week, we touched on the company in our “Winners” roundup, suggesting that “if legislation is passed, shares would quickly move into the $20s.” On Monday CLNE closed at $15.59 a share.

Natural gas legislation is a double-edged sword for this company. It would love to see demand for natural gas as a transportation fuel meaningfully build. But not to the point where it becomes expensive. Part of the charm of this business model is that it is relatively clean burning and very inexpensive relative to gasoline. The first factor will remain in place, and Clean Energy’s boosters hope the second factor will as well.

Action to Take –> Alternative energy is not a fad. It just seemed that way the last 18 months. We don’t need to see $100 oil for these business models to really shine. But that wouldn’t hurt, either.