Opinion: These 4 solar-power stocks will leave fossil fuels in the dust
Solar power usage is also growing rapidly. The U.S. solar industry installed a record Gigawatts (GW) of solar photovoltaic in , and that volume is poised to grow % in , with installations projected to reach 16 GW. China added GW of new solar capacity in the first quarter of alone.
To be sure, shares of solar companies have been whipsawed over the past 18 months by the chaos of the “Energy Trade.” Case in point: SunEdison US:SUNEQ , which filed for bankruptcy protection earlier this year. Meanwhile, projects have been delayed or halted due to the hostile investing environment.
But overall, renewable investments have been growing, with % of all new electricity generating capacity in globally coming from wind and solar.
What makes solar so compelling? First, solar and fossil fuels are fundamentally different as energy sources. Fossil resources are commodities. The more demand, the more expensive they become. Solar is a technology-based energy source. Anyone who purchased a mobile phone or a TV knows that technology becomes cheaper as demand for it grows. The same is true for solar.
Moreover, fossil fuels are in the early stages — and perhaps not so early in the case of coal — of a structural decline in demand. A recent forecast by Bloomberg New Energy Finance contends that expanding demand for fossil fuels will come to an end in less than a decade because the world is finding cheaper alternatives to coal and gas. Fossil fuels may not be abandoned completely, but there is no credible scenario where they are able to resume growth, economic superiority or a reliable pattern of risk-adjusted or even absolute returns.
For investors looking to take advantage of sweeping changes to our energy infrastructure, the team at Green Alpha Advisors likes these solar stocks. All of these companies are undervalued relative to their prospects, despite having earnings, momentum, and revenue growth:
• First Solar: FSLR, Tempe, Ariz.-based First Solar is the market leader in thin-film solar photovoltaic technology. From a fundamentals point of view, the company has a wide moat around its IP and technology. And leadership has been smart about executing on business and growth plans, adding capacity without taking on an undue amount of debt and building a dominant position.
• SunPower:SPWR, SunPower is the most technologically advanced panel manufacturer. The San Jose, Calif.-based firm manufactures a panel that converts about 24% of sunlight into electricity. And its panels are warranted for 25 years, while the company expects them to last 40 years — longer than any other manufacturer’s claim in the industry. SunPower has a healthy balance sheet and is adding capacity prudently to meet growing demand.
• 8Point3 Energy Partners LP: US:CAFD 8point3 is a growth-oriented limited partnership formed by First Solar and SunPower to own, operate and acquire solar energy generation projects. It is a “YieldCo,” which distributes income from renewable energy projects as dividends to shareholders. 8Point3’s current dividend yield is a healthy %. While some YieldCo have declined in value because they don’t have strong parent companies, that hasn’t been a problem for this firm because its parents are two leading solar companies in America, and they don’t need to attract new capital to continue growing.
• Canadian Solar Inc.: CSIQ, Canadian Solar, headquartered in Guelph, Canada, is for all intents and purposes a Chinese solar company. As one of the largest and most cost-competitive photovoltaic panel producers in the world, Canadian Solar has grown both top- and bottom-line revenue at 20% a year over the past five years. While there is some international risk in investing with a Chinese firm, Canadian Solar is a great way to add diversification to a renewables portfolio.
Garvin Jabusch is portfolio manager of the Shelton Green Alpha Fund NEXTX, , which as of this writing owned the four stocks profiled in this article. Shelton Green Alpha Fund focuses on stocks that Jabusch and co-portfolio manager Jemery Deems identify as potential solutions to climate change and other systemic risks.
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Solar investors join list of those smarting from $30 per barrel oil
By Nichola Groom
3 Min Read
(Reuters) - Add solar energy investors to the list of those smarting from crude oil’s latest price dive.
Shares of solar power companies enjoyed a huge bounce at the end of thanks to the lengthy five-year extension of a key solar tax credit in the United States and a major global accord to combat climate change that promises to spur development of renewable energy.
But a sharp slide in the price of oil to year lows this week has rekindled long-held worries that low fossil fuel prices will sap demand for renewable energy sources. Many say those worries are misplaced, yet they have affected share prices.
“There is very little rational reason for this,” said Shawn Kravetz, president of Boston-based Esplanade Capital, which has a fund focused on the solar industry. “However, in the short term fear trumps all.
“In , solar investors worried about dropping oil prices, an oversupply of new equity issues and concern that a U.S. interest rate hike by the Federal Reserve could curb the appeal of investing in bundles of solar assets with long-term utility contracts known as “yieldcos.” Still, the MAC Global Solar Energy Stock index soared 17 percent in the last month of , a strong ending to a volatile year.
But the euphoria did not last long. The index has dropped more than 16 percent so far in January, due in no small part to oil’s 20 percent slide so far this year. Oil briefly fell below $30 a barrel on Tuesday for the first time in 12 years, [O/R] and was trading just above $30 on Wednesday.
The solar index was down percent on Wednesday morning.Oil and solar do not directly compete with one another, because oil is rarely used to generate power, and demand for solar is largely driven by government mandates and incentives.
“They are not substitutes,” Raymond James research associate Angelica Jarvenpaa said of crude oil and solar energy. “However there is probably an impact on market psychology.”
Some investment funds, Jarvenpaa said, have sold off their energy holdings altogether as the oil market carnage has intensified and caused financial pain to oil producers across the world. Solar and renewables, as energy stocks, are often dumped along with other energy shares even though solar installations are expected to log a 30 percent increase for and the cost of solar has come down so much that it remains cost competitive with traditional energy sources in many places.
Zevin Asset Management LLC, a Boston-based investment firm, has studied the correlation between oil prices and the value of solar stocks and found it typically lasts months, but not years.
“We are seeing a bit of a short-term correlation, but we don’t think it affects the fundamentals of the companies and we continue to see strong demand for solar,” said Amber Fairbanks, a portfolio manager at Zevin, which owns shares of U.S. solar companies SunPower Corp and First Solar Inc.
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3 Solar Stocks That Could Skyrocket in
Solar stocks have been beaten up over the past year, primarily because investors have sold off all energy stocks as oil has fallen. Solar was thrown out with the rest of the industry despite the fact that solar energy rarely competes with oil markets directly.
SCTY data by YCharts
Given the tremendous growth potential of the solar industry, now may be a great time to jump into solar stocks. Here are three I think have high potential over the next few years.
The list of solar companies that have differentiated technology, serve diverse segments and geographies, and are profitable is a short one. In fact, the list may be a single company: SunPower(NASDAQ:SPWR).
Over the past year, SunPower has reported $ million in GAAP net income and adjusted earnings of $ per share. This is while stashing hundreds of MW of projects on the balance sheet in preparation to launch a yieldco in
What separates SunPower over the long term is that it has technology that's fundamentally different from that of competitors. SunPower's X-Series panels are % efficient, and next generation panels are expected to reach 23%. This is at a time when most solar panels are still 14% to 16% efficient. Higher efficiency lowers the cost of each kW-hr of electricity, because you can squeeze more energy from a smaller space. Less land, fewer wires, and fewer labor hours are needed to install each system.
SunPower is also diversified across all markets. It competes with SolarCity(NASDAQ:SCTY.DL) and Vivint Solar(NYSE:VSLR) in the residential space, and is building the largest solar plant in the world, a MW project being sold to Warren Buffett's MidAmerican Energy. The company is also diversified around the globe. You can see below that management has a 10 GW power plant pipeline building across diverse locations.
Image source: SunPower presentation.
On top of trading at a value of 16 times non-GAAP earnings and adding about MW of project to the balance sheet each quarter (hiding value from the income statement), SunPower is expecting to triple production over the next five years, so the company is growing quickly. The question is when the market will realize this potential.
Image source: SolarCity.
The company that's taken the solar industry by storm over the last few years is SolarCity(NASDAQ:SCTY.DL), the residential and commercial solar installer. The Elon Musk company is planning to install as much as 1 GW, or enough solar energy to power , homes, in , and expects to have 1 million customers by mid
Where SolarCity is differentiating itself is in building scale in the distributed solar market and standardizing installations across hundreds of crews. The next phase is vertically integrating to cut costs and to become more competitive in more states. The acquisition of Zep Solar brought racking in-house, and the Silevo acquisition last year also brought module manufacturing under SolarCity's umbrella.
Over the next two years, SolarCity will be building a 1 GW manufacturing plant to build modules using Silevo's technology. If successful, it should further reduce installation costs below the $ per watt cost today.
Unlike SunPower's diverse business, SolarCity is a concentrated bet on the U.S. residential and commercial markets growing over the next five years to nearly all 50 states. The company has a hurdle ahead with the reduction of the solar investment tax credit from 30% to 10% of a system's cost set to take place in , but given SolarCity's ability to lower costs and get into new markets, like energy storage, I think it will navigate the solar industry's future better than most competitors.
People often forget that First Solar(NASDAQ:FSLR) is still a leader in the solar industry. In the last twelve months the company has reported $ million in net income, making it one of the most profitable solar companies in the world.
But First Solar has been discarded by investors because it lags the market in technology at the moment. Management is expecting to end with % average module efficiency, but it has plans to increase efficiency to about % by early Long-term, it hopes to reach low% efficiency, making it more efficient than commodity silicon-based solar panels.
What First Solar lacks in solar panel efficiency, though, it makes up for in efficiently building solar plants. The company's focus is on utility scale projects, and it has lowered costs enough that it can sell projects for less than $2 per watt and still generate nearly a 20% gross margin. Even if First Solar's panels prove too inefficient to be competitive in the future, it can become a power plant builder, similar to SunEdison.
The upside for First Solar investors is that management is executing on technology improvements. If efficiency increases without increasing costs, it would allow management to increase margins and also expand production in the future. If that happens, the stock could skyrocket.
How to invest in solar energy stocks
What you need to know about the solar energy industry
Global energy demand is growing, but so is the reluctance to invest in energy sources that damage the environment and contribute to climate change. This is why investment has grown in areas of sustainable energy, such as solar, wind, hydroelectricity and tidal. The solar energy industry has grown at a rapid rate since , increasing by approximately % by – from , workers to , The industry is expected to grow at a compound annual rate of % until , at which point it will have an estimated worth of $ billion.1
According to the US Energy Information Administration, non-hydro renewable energies – mainly wind and solar – made up 10% of US electricity sources in but will increase to 12% by The solar sector works in what is known as a feast and famine cycle. The fluctuations in growth stem from the capacity of companies to supply materials, as well as the demand from consumers – both of which can change from year to year.2
When there are large scale projects and investment in the industry, companies benefit and revenues go up. But when there isn’t enough demand to keep production steady, or an abundance of cheap supply floods the market, it prevents companies being able to grow. The industry has seen its fair share of ups and downs, especially after the Trump administration slapped tariffs of 30% on solar panels imported to the US. This move was part of a larger effort to promote US manufacturers over competitors in China, Malaysia and elsewhere. Some companies and products were exempt from these tariffs, which led to increased share prices for some US-based companies.
While many US companies came out in favour of the tariffs, there was a large amount of criticism as some believed they would lead to job losses and uncertainty about the renewable energy’s future. However, the solar energy industry has still grown by approximately 7% in , up to a workforce of ,3
What are the different types of solar stock investments?
There are three main categories of companies that investors focus on in the solar industry. These are:
- Solar panel manufacturers. The companies that produce components of each panel including inverters, batteries and software
- Solar panel installers. The companies that sell solar panels and components directly to consumers
- Solar financing companies. The companies that fund solar projects for companies, or provide consumers with loans to pay for solar installation
How to take a position on solar stocks
There are two ways to take a position on solar stocks depending on your overall strategy and personal preferences. You can:
- Invest in solar company shares by opening a share dealing account
- Speculate on the prices of solar company shares by opening a trading account
If you don’t feel ready to trade on live markets, you can build your solar trading strategy in a risk-free environment first by creating an IG demo account. Alternatively, you can learn more about financial markets by exploring IG Academy’s range of online courses.
How to invest in solar stocks
When you invest in a solar stock, you’d do so by buying shares in a company outright in the hope that they increase in price and you could then sell them at a later date for a profit. When you buy shares, you would gain shareholder rights such as dividend payments and voting rights.
Normally, you would invest if you have a much longer-term view of the market and want to profit from annual dividends as well as changes in the share price.
Find out more about IG’s share dealing service
How to trade solar stocks
Alternatively, you could speculate on the price of solar stocks by using derivative products, such as spread bets or CFDs. When you trade solar stocks, you’d never take ownership of the underlying shares – although this means you wouldn’t gain any shareholder rights, it does mean that you can take advantage of price movements in either direction. Being able to go short as well as long gives you a much wider range of opportunities than would be available with traditional investing.
When you spread bet, you’re placing a bet on which direction the market price of a solar stock will head. The profit or loss you make is dependent on how far the market moves in your chosen direction. Spread bets are completely free from stamp duty and capital gains tax.
Learn more about spread betting
If you trade CFDs instead, you would be entering into an agreement to exchange the price of a solar asset from when your position is opened to when it is closed. CFDs are particularly useful for hedging a share portfolio, because you can offset any losses against profits for tax purposes.4
Learn more about CFD trading
Top 10 solar energy stocks to watch
As there are so many different solar energy stocks you can trade or invest in, and so many different kinds of solar companies, we’ve taken a look at the top ten solar stocks by market capitalisation.5 These are:
- Brookfield Renewable Energy Partners (BEP)
- First Solar (FSLR)
- SolarEdge Technologies (SEDG)
- Enphase Energy (ENPH)
- TerraForm Power (TERP)
- Pattern Energy Group (PEGI)
- SunPower Corporation (SPWR)
- SunRun Incorporated (RUN)
- Canadian Solar (CSIQ)
- Vivent Solar (VSLR)
These companies have gained market interest over the course of their lifespan, not just for positive market movements but for negative periods too. When traders open a position to sell a company’s shares in a period of economic downturn and declining industry interest, it is known as shorting a stock.
2015 stocks solar power
5 solar stocks that should be on your radar
The past nine months have given most energy investors pause to consider whether the oil and gas industry is the best place to park their money right now.
While the last month has seen an appreciable rise in regular stalwarts like ExxonMobil(XOM), Chevron(CVX) and BP(BP), as the price of crude has lifted to $60 a barrel, oil and gas stocks are still dangerous waters to navigate for the average investor. Short-term supply and demand dynamics for crude oil are tough to read.
As an alternative, energy investors could take a look at solar stocks.
Skeptics will remember the beating that solar companies took in when the Chinese flooded the market with cheap solar panels. Of course, the last few months have been no picnic for solar investors, either. As the price of oil has dropped, the competitive advantage of solar versus fossil fuels has also been negated somewhat, leading some observers to advise investors to short solar.
Related: The Greenest Oil Companies In The World
Looking at the sector as a whole, however, it appears that now might not be a bad time to get back into solar; two of the most popular solar ETFs are indicating an uptrend. While the Market Vectors Solar Energy ETF(KWT) is nowhere near the dizzying heights of its $ a share peak in Feb , the ETF is now trading at a respectable $, near its week high of $ The fund is up nearly 30% year to date. The Guggenheim Solar ETF(TAN) has done a little better, gaining 38% since January 1.
The real money though, is likely going to be made in companies that outperform expectations. For those looking to place their bets on specific solar companies rather than an index fund, here are five to follow.
1. First Solar, Inc.First Solar(FSLR) develops, engineers, constructs and operates some of the world's largest grid-connected PV plants in the world. The Arizona-based company has over 10 gigawatts installed globally. First Solar is known for the efficiency of its solar modules, with the company's best production line now shipping solar modules with % efficiency.
First Solar is forming a yieldco with SunPower called 8point3 Energy Partners, which will hold long-term contracts separate from the parent companies. (A yieldco is a publicly-traded company formed to own operating assets that produce cash flow, which is then distributed as dividends). First Solar also recently announced a strategic alliance with Caterpillar to manufacture a package for microgrid applications featuring the Caterpillar brand.
Related: What Is Holding The Green Revolution Back?
2. SunPower Corp.SunPower(SPWR) is a U.S. solar panel maker that has high-efficiency panels featuring SunPower's Maxeon cell technology. Based in Silicon Valley, SunPower generates over 18 million mega-watt hours of solar energy. In April SunPower announced a partnership with Apple that will result in two solar power projects totalling 40 megawatts in China's Sichuan province. SunPower has beaten Wall Street consensus and management guidance over the past eight quarters, and analysts are expecting the firm to reach price targets of $35 to $36 per share.
3. SolarCity Corp. SolarCity(SCTY) is not a panel manufacturer, but rather, installs the panels made by companies like SunPower and First Solar, tying together financing and installation to bring solar power to residential and commercial buildings. SolarCity announced on May 2 it is offering to lease Tesla Motors' solar-powered home battery storage unit, Powerwall, beginning in October. Analysts at Deutsche Bank AG said on May 1 that the battery announcement by Tesla is among catalysts that could drive the stock higher. The analysts placed a buy recommendation and set a price target of $
Related: Warren Buffett Betting Big On Wind Energy In Nebraska
4. SunEdison Inc. Based in California, SunEdison(SUNE) develops and operates hundreds of solar plants, representing a global PV capacity of MW. The company specifically provides opportunities for Ontario firms to leverage rooftop space and vacant land for installation of solar systems, through purchase or lease. SunEdison recently reported the interconnection of two new solar plants in Ontario, the MW DC Bruining plant, and the MW Solar Spirit. SunEdison is up 48% year to date after a big bounce last week.
5. SunTech Power Holdings Co., Ltd. Chinese company SunTech Power(STPFQ) supplies PV panels in the multicrystalline and monocrystalline categories. SunTech has over 8GW installed PV power in over 80 countries, the company states. Investors hoping to take advantage of the growth of solar in China should consider SunTech as an investment vehicle.
In China announced a plan to more than quadruple its solar capacity to 35GW this year, including GW in Year to date, SunTech's stock (which is traded over-the-counter) is up a whopping %, with most of the appreciation happening in the last three months. As an over-the-counter stock, the risk is obviously higher than the previous four picks which trade on the NASDAQ and the NYSE.
Andrew Topf is a journalist for Oilprice.com. He is not invested in any of the above-mentioned securities.
(New York) First published May 11, AM ET
The 3 Best Solar Stocks of the Decade
What is it that makes a stock a "solar stock?" What is it that defines "best?"
In one sense, I suppose you could say that Elon Musk's Tesla(NASDAQ:TSLA) has been the best solar stock of the decade. After all, even if it's best known for its Model S, Model X, and Model 3 electric cars, Tesla also owns a solar energy business, building and selling equipment to harvest (solar panels) and store (electric batteries) energy from the sun. And if you're defining "best" as "producing the biggest stock profits," Tesla has been by far the best performing solar stock of the decade, growing 1,% in value since its IPO on June 29, at an offer price of $17 a share.
But even as a lawyer, I was never a huge fan of open and shut cases. (Too obvious. Too boring.) So instead of focusing on Tesla, let's examine three companies that fit the bill as "solar stocks" in more interesting ways, and that have also done pretty well for their shareholders over the past decade: Synopsys(NASDAQ:SNPS), Applied Materials(NASDAQ:AMAT), and SolarEdge Technologies(NASDAQ:SEDG).
Based on a screen of several solar power-related companies and comparing their performance over the last 10 years, it turns out that -- aside from Tesla -- these three have been the best performers.
Image source: Getty Images.
I first became familiar with Synopsys some two decades ago while doing legal work for the company. I was intrigued by the business, and I've kept tabs on Synopsys off and on ever since as it evolved from a relatively simple play on the software used to operate machinery manufacturing computer chips into a bona fide play on the solar energy market.
As a maker of software products used to design and test integrated circuits, Synopsys is best recognized as a supplier to the computer chip and LED industries. But semiconductors are integral to the operation of solar cells as well, and Synopsys offers multiple products supporting this industry, including:
- Its "Solar Cell Utility", which performs optical and electronic simulations for solar cell devices;
- A Solar Tracking Utility that simulates and analyzes the performance of solar collection systems; and
- The Sentaurus Technology Computer-Aided Design (TCAD) "for simulating solar cell characteristics to improve performance."
Synopsys doesn't break out its financial results by industry, but even what it does tell us indicates that the business is growing nicely. Revenue grew nearly % over the past decade, from $ billion in to $ billion over the past 12 reported months. Net income has more than tripled to $ million. And free cash flow is coming along for the ride -- up more than % from $ million in cash profit generated in to more than $ million over the past year.
And the stock price? Since the end of , Synopsys stock has recorded a gain of %, closing above $ a share last week.
Another perhaps below-the-radar solar play worth highlighting here is Applied Materials. If Synopsys is far up the solar supply chain -- supplying the software that runs the machines that make the photovoltaics that form the cells that convert sunlight to energy -- then Applied Materials, which makes chip manufacturing machines, is at least one step closer to the solar end user.
It's also been a pretty terrific stock for investors to own this past decade. From to the last 12 months, Applied Materials nearly tripled its sales to $ billion, and moved from a net loss ($ million in ) to a net profit -- $ billion. Free cash flow has risen in tandem, from about $84 million in cash generated a decade ago to just over $ billion over the last four reported quarters.
Stock-wise, Applied Materials shares have also performed well -- up %. And yet, at a price-to-earnings ratio of less than 20, they remain significantly cheaper than Synopsys (which trades for more than 38 times earnings). That's surprising, given that analysts polled by S&P Global Market Intelligence have both companies growing earnings at roughly the same rate over the next five years -- % annually for Synopsys, and 5% for Applied Materials.
It may also mean that over the coming decade, Applied Materials has the better chance of delivering above-average profits to investors.
Last but not least, we come to SolarEdge -- incidentally, the only one of these three stocks that I own in my personal stock portfolio. Also incidentally, SolarEdge is the only one of the three that hasn't actually been publicly traded for a full 10 years.
SolarEdge held its IPO in March -- but it's already giving other solar stocks a run for their money. Despite having half the time to work with, it's up % in less than five years, and neck and neck with Applied Materials in delivering profits to investors.
How has SolarEdge done this? The maker of inverters that convert direct current solar-generated electricity into the alternating current that charges your iPhone has nearly quadrupled its sales since , pulling down $ billion in revenue over the last 12 months. Profits are up 5x in the same period -- $ million -- and free cash flow has gone from barely breakeven to nearly $ million generated over the past year.
Going forward, Wall Street analysts see SolarEdge continuing to outgrow other solar stocks. Its earnings are projected to grow 22% annually over the next five years. Whether that will be fast enough to justify the stock's heady 38x P/E ratio remains to be seen. But given the fabulous returns SolarEdge has already generated for stockholders, there's no arguing the company hasn't delivered in spades already -- and earned its place among the best solar stocks of the decade.
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Ten Clean Energy Stocks For
marks my seventh annual list of ten clean energy stocks. An equal weighted portfolio of the ten stocks in each years list has outperformed my industry benchmark every year except was no exception, but it was a bittersweet victory in that the model portfolio was slightly down while the benchmark lost considerably more in a very challenging year for clean energy stocks.
Find my wrap-up article for the list here.
Again this year, I will be providing a high and low target for each stock. These are the range within which I expect the stocks to end the year. In , three of the picks violated the downside targets, and none violated the upside targets. Ive also included annual dividends and yield, and Beta, a measure of market risk for US stocks. Low Beta stocks generally perform better than high Beta stocks in market downturns; the market average Beta is 1.
Finally, I include a discussion of insider sentiment: company insiders buying or selling the stock. Since company insiders usually receive stock as part of their compensation, insider sales are generally more common than insider purchases. Hence insider buying is almost always a good sign, and I consider it particularly important in the small capitalization stocks I favor. These stocks are more likely to be mispriced than larger, more widely followed stocks for which there is much more information available to investors. Company insiders are the ones most likely to see such mispricing. Since insider trading information is much easier to find for US stocks than foreign stocks, I include links to my sources of information for insider trading.
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
Current Price: $ Annual Dividend: $ (%). Beta: Low Target: $ High Target: $
Insider Sentiment: Mildly Positive. One insider is selling but three are buying; sale was an automatic sale which is unlikely to be a response to market conditions.
Why its green: All financed projects reduce greenhouse gas emissions.
Hannon Armstrong is a Real Estate Investment Trust and investment bank specializing in financing sustainable infrastructure. I consider it a peer of the yieldcos (companies that invest in clean energy infrastructure and use the cash flows to pay a high dividend yield to shareholders, but HASI trades at a substantial discount to most yieldcos because other investors seem to compare it more closely to mortgage REITs. However, Hannon Armstrongs investments are very different from those of other mortgage REITs.
In , management delivered on it promise to increase the dividend by %, something they expect to do again in In , the stock increased only % for a % total return for the year. With the dividend yield now even higher than it was a year ago and more dividend increases likely, I expect even better results in
2. General Cable Corp. (NYSE:BGC)
Current Price: $ Annual Dividend: $ (%). Beta: Low Target: $ High Target: $
Insider Sentiment: Mildly Positive. No trades in last 3 months, but insiders are not selling incentive awards. One officer was buying at much higher prices ($21+) in August.
Why its Green:The geographically dispersed nature of renewable energy resources means they require more wire/connections. Improving the interconnection of our grid also allows utilities to use existing generation more efficiently.
General Cable Corp. is a leading international manufacturer for electrical and fiber optic cable. In , the company disappointed investors because of weak demand for electricity infrastructure, especially in Europe. The company is undertaking a restructuring to focus on its core markets in the Americas and Europe. The company is also searching for a new CEO and expanding its board to include more members with operational experience.
With the company trading near book value with healthy cash per share and in the process of selling its Asia Pacific operations, only a reduction in uncertainty should be needed to bring investors back to the stock.
3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price: C$ Annual Dividend C$ (%). Low Target: C$3. High Target: C$5.
Insider Sentiment: Strongly Positive; , shares bought by 8 insiders over 3 months. Only sale was of preferred stock by an insider also buying common.
Why its green: Capstones energy division sells electricity and heat from gas cogeneration, wind, solar, and hydropower. I consider its utilities climate-neutral.
Capstone was included in the list because I expected the worst possible result in its negotiations with the Ontario Power Authority over the future of its Cardinal gas cogeneration plant had already been priced in. That thesis initially paid off, with the stock rising significantly during the first half of the year. Unfortunately, Britains water regulator OfWat issued a final determination for rates at its Bristol Water subsidiary which fell considerably short of what the utility had proposed and vetted with consultants. Bristol Water is considering appealing the ruling, but will operate under the determination beginning April 1st until at least August , when the final appeal (if it takes place) will be resolved.
A previous appeal by Bristol water in resulted in a significantly improved business plan from the utilitys perspective.
Even without an appeal, Capstones management is confident that they can maintain the current C$ quarterly dividend and increase funds from operations enough to bring that dividend back into line with its 80% target payout ratio by I expect the stock to appreciate when investors regain confidence that the dividend and very attractive % current annual yield is safe. Company insiders seem to share my confidence, with eight of them buying over half a million dollars worth of stock in the week since December 23rd, after a conference call discussing the OfWat ruling and managements outlook for
4. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
Current Price: C$ Annual Dividend: C$ (%). Low Target: C$ High Target: C$
Insider Sentiment: Positive. One recent purchase, no selling.
Why its green: All financed projects reduce greenhouse gas emissions.
TransAlta Renewables is the yieldco created by TransAlta Corporation(NYSE:TAC),Canadas largest Independent Power Producer with facilities in the Canada, the US, and Australia. TAC is the sponsor majority owner of TransAlta Renewables and has stated that it intends to retain a majority stake because the dividend cash flows help it maintain its credit rating.
I believe that TransAlta Renewables trades at a discount to most other yieldcos because it is not listed in the US, and because it has not provided clear guidance regarding future dividend growth through the drop-down of additional renewable facilities.
I do not consider the lack of guidance a serious problem because the market seems to be overvaluing dividend growth compared to the current dividend. Since yieldcos return most of their cash to shareholders, they can only increase their dividends by issuing stock or raising debt to buy new facilities. While many yieldcos have a Right of First Offer (ROFO) on the renewable facilities developed/owned by their sponsor companies, these ROFOs do not confer the right to buy these facilities at below market prices. This competitive market means that no yieldco will be able to acquire new renewable facilities at prices substantially below the others, and so their cash flow and dividend per invested dollar will be capped. Hence, the current % annual growth in dividends that investors expect from yieldcos can continue only as long as investors are willing to provide yieldcos with cheap capital by accepting the low % dividends currently on offer from many yieldcos. When the music stops, all yieldcos will be revalued based on more reasonable future dividend growth. This should have little effect on todays high yield yieldcos (such as TransAlta, Capstone, and Hannon Armstrong) but could cause the stock prices of yieldcos with high expected dividend growth (NYLD, NEP, and TERP, for instance) to fall substantially.
5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price:C$ Annual Dividend: C$ (%) Low Target: C$ High Target: C$
Insider Sentiment: Positive. 81, shares bought by a 10% owner and no selling over last 3 months.
Why its green: Buses produce far fewer emissions, require less parking and road space, and have fewer accidents per person-mile than cars.
Leading North American bus manufacturer New Flyer took advantage of the industry downturn over the last few years to consolidate its lead in the North American bus market as well as expand its product offerings, especially in the fragmented parts and service market. Aging bus fleets are leading to a market revival, and New Flyer is in an excellent position to benefit from this rebound. New Flyer was one of the strongest performers in the list, but improving margins and the possibility of expanded production could drive even larger gains in
6. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price:€ Annual Dividend: Varies: at least 40% of net profits. € in (%). Low Target: € High Target: €20.
Insider Sentiment: Mixed buying ( shares) and selling (10, shares) over 3 months.
Why its green: Bikes and e-bikes are among the greenest forms of transportation.
International bicycle manufacturer Accell remains in the portfolio for the third year in a row. Over the last couple years, the stock has appreciated slightly and paid € worth of dividends, while the business has improved substantially due to the acquisition of additional brands (Such as Raleigh and Currie) and distributors. Business rationalization and increasing adoption of e-Bikes are also driving sales growth. I expect the strength of Accells business to drive some price appreciation and another healthy dividend in
7. Future Fuel Corp. (NYSE:FF)
Current Price: $ Annual Dividend: C$ (%). Beta Low Target: $ High Target: $
Insider Sentiment: Mildly positive. No trades in last 3 months. Previous buying in last year above current price ($$16), selling at much higher price ($20+)
Why its green: Biodiesel has the lowest environmental impact per mile driven (roughly 1/3 of that of gasoline) of any conventional biofuel.
FutureFuel is a combined specialty chemicals and biodiesel producer which has been suffering from the expiration of the blenders tax credit for biodiesel and the uncertainty surrounding the EPAs decision to delay the release of cellusoic biofuel targets for In November, the agency announced that it would not finalize the requirements until next year, when it is expected to announce the targets for , , and together.
FutureFuels specialty chemicals business had also been suffering from some problems with ramp-up of a new product over the summer, but those problems seem to have been largely dealt with. With the biodiesel market in flux, FutureFuel cut its dividend from and annual $ to $ This will free up cash and could potentially finance acquisitions of weaker biodiesel producers if the industry downturn continues.
Over the last few years, the prices for biofuel feedstocks have been set by what biofuel producers can profitably pay for them. This means that, even without government support, biofuel and feedstock prices will reach eventually an equilibrium where the most efficient producers can be profitable. I expect FutureFuel to be one of those, and the current uncertainty is providing an attractive buying opportunity.
I wrote a more in depth article on FutureFuel in October.
8. Power REIT (NYSE:PW).
Current Price: $. Annual Dividend: $0.Beta: Low Target: $5. High Target: $
Insider Sentiment: Mildly poitive. One small buy over last 3 months, no sales.
Why its green: Owns land under solar farms and rail lines (efficient transportation.)
The ongoing civil action between rail and solar investment trust Power REIT and its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) looks likely to go to trial in early The case grew out of Power REITs attempt to foreclose on the lease due to WLEs refusal to pay a legal bill which Power REIT believes it is entitled to under a clause of the lease which states that the lessee is responsible for any of Power REITs expenses which are necessary or desirable for maintaining its interest in the track. NSC and WLE commenced the action to prevent the foreclosure on a lease which favors them greatly.
The two sides are very far apart in their interpretations of the lease. Power REITs interpretation seems is mostly supported by the lease itself, which the lessees say should be ignored in favor of how the parties have actually behaved under the lease over the last 50 years. I find it impossible to predict how the judge will rule, but the downside for Power REIT is limited to a return to the status quo, while the upside could easily double the value of Power REITs shares. Even Power REITs legal expanses could be reimbursed under the very broad necessary or desirable language of the lease discussed above.
At the current price, I see significant upside and limited downside potential from the civil action, and I am optimistic that potential will be realized in
9. Ameresco, Inc. (NASD:AMRC).
Current Price: $. Annual Dividend: $0. Beta: Low Target: $6. High Target: $
Insider Sentiment: Mildly positive. One director bought 2, shares with no selling over 3 months.
Why its green: Provides energy efficiency and renewable energy solutions with a service model.
Energy service contractor Ameresco has been suffering for the last two years because its clients, mostly government entities, have been slow to finalize contracts. Over the last two quarters, however, management has indicated that they see signs of improvement in certain markets. They have also worked to diversify Amerescos business into renewable energy development.
Despite these positive signs, the market has failed to reward the stock, which is now trading near book value. Another quarter or two of improving market conditions should be enough to produce a strong price rebound.
MiX Telematics Limited (NASD:MIXT).
Current Price: $. Annual Dividend: $0. Beta: Low Target: $5. High Target: $
Insider Sentiment: Neutral. No trades in last 3 months. Previous trades mixed, but at higher prices.
Why its green: MiXs fleet management solutions reduce fuel use and accidents.
MiX provides vehicle and fleet management solutions customers in countries. The companys customers benefit from increased safety, efficiency and security. Based in South Africa, Mixs stock price has suffered from the general decline of emerging market stocks over the last few months. The falling oil price may also have hurt the stock, since many of its fleet management customers are in the oil and gas industry.
I dont expect the oil price to stay this low for all of , and MiXs emerging market home belies the global nature of its revenues. Considering that MiX delivered 15% subscriber growth in but the stock fell by almost half from what I considered an already undervalued level, this stock is poised for a massive rebound with any shift of market sentiment.
As I have in previous years, I will compare the performance of a model equal-weighted portfolio of these ten stocks against the Powershares Wilderhill Clean Energy ETF (PBW), which is the most widely-held clean energy ETF. For a broad market benchmark, I will continue to use the Russell index ETF (IWM).
Given the heavy income focus of my picks, I am adding income-oriented benchmarks for the six income picks. The first is a fossil free income oriented portfolio I co-manage with Green Alpha Advisors of Boulder Colorado called the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP.) This strategy combines high income green stocks with option selling to provide a high level of current income with a secondary objective of capital preservation. We now have a full years track record managing the strategy: The option strategy complicates return calculations, so I cannot give a precise return yet, but my back of the envelope calculation shows that it has returned approximately 5% after management fees over the past year, most of that in the form of income.
With this record, we will be looking for a mutual company to launch the portfolio as a fund in If we succeed, it will be the first green (in fact, fossil fuel free) mutual fund that produces a significant level of current income, and will provide a natural complement to Green Alphas fossil fuel free growth fund, the Shelton Green Alpha Next Economy fund (NEXTX.)
GAGEEIP is a strange benchmark in that it is an active fund and I am deeply involved in its management, but it does differ from the model income portfolio in its use of options and exclusion of fossil fuels. While it includes five of the six income picks, it excludes Capstone Infrastructure, because of Capstones natural gas fired cogeneration facility, discussed above.
For a more conventional income benchmark, I will also include the S&P Global Utilities Index ETF (JXI), which is also a benchmark for GAGEEIP.
Once again, I have weighted the list heavily towards income and value companies. These tend to be less risky than the growth companies which people generally think of when considering investment in clean energy. This choice will likely serve the model portfolio well if we have another challenging year for clean energy, as we did in and to If we have another blow-out year like we did in , , and , the model portfolio will likely again underperform its industry benchmark.
Rising oil prices and depressed stock prices could easily bring the sun back for clean energy stocks in , but I much prefer to be prepared for a storm.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC. RNW/TRSWF. Short NYLD. Tom is the co-manager of the GAGEEIP strategy.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
This article was originally published on AltEnergy Stocks and was republished with permission.
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