Tom Konrad, CFA
My annual mini-portfolio of clean
energy stocks which I expect to outperform in 2011.
This is my fourth annual list of renewable energy and energy efficiency
stocks since I began the series in January 2008.
The Purpose of this List
For myself, these lists serve as a record of my thinking on the market
which I can look back on and learn from over the following year.
When I publish the list, I state my reasons for selecting each stock,
and then track the portfolio's performance over the following year in
quarterly updates. This allows me to not only track how well the
portfolio performed, but to check that performance against what I
expected over the previous year.
For the reader, these annual lists are meant as a mini-portfolio of
individual stocks that a small investor can buy to get exposure to
clean energy without the
high expenses of clean energy mutual funds
, or the historical
poor performance of clean energy Exchange Traded Funds (ETFs)
Each year, I have measured my success at stock picking against two
benchmarks: a broad market index, and a clean energy index fund.
My strategy has changed somewhat since the first list in 2008, as I
have gained in my understanding of the sector (I have only been
following clean energy closely since the end of 2005.)
The period over which I have been publishing these lists has been a
very bad one for clean energy. All the public clean energy
are down since the start of 2008, and all but one of the clean
energy mutual funds
are also down.
my ten picks fell 55%, compared to the clean energy index, which fell
. In 2009,
my picks were up 57%, compared to the benchmark which was only up 12%
while the most recent list
in 2010 was up 3%, compared to the benchmark, which fell 7%
All told, if you'd invested in the ETF benchmarks, you would still be
down 66%, while an investor in my ten picks would only be down 27% over
the same period.
As I told Stephen Lacey in a
recent Renewable Energy World podcast
, if the overall stock market
does not collapse and drag clean energy with it, I believe that 2011
has the potential to be an excellent year for clean energy stocks after
these three years of heavy selling. Yet I continue to worry that
a broad market decline would hold the sector down or drag it lower.
Clean Energy Sector Selection
As long-time readers know, I favor the less exciting clean energy
sectors (and enabling technologies) that make few headlines but have
higher current profits. Chief among these are energy efficiency
and conservation (where the greatest short-term potential for reducing
the reliance on fossil fuels lies), the electric grid (an enabler for
variable renewable resources such as wind and solar), and alternative
transportation technologies that can reduce the use of the electric
I prefer the most
cost effective renewable energy technologies
, which are biomass,
wind, and geothermal. Wind and Geothermal power are particularly
interesting this year, because the sectors have fared particularly
badly in recent years. I'm putting more emphasis on renewable
energy sectors (as opposed to efficiency and the electric grid) in 2011
than I have in the past because I'm more bullish about clean energy in
general. While not as volatile as renewable energy's poster boy,
solar power, Wind and Geothermal tend to be more volatile than the
relatively defensive efficiency and supporting technology sectors.
When picking individual stocks, I gravitate towards value stocks with
low Price/Earnings and decent dividends, where available. Since
financing is still hard to get in the current climate, I also like
companies that can fund their operations and investment plans from
internal resources if they are not currently profitable. Finally,
I tend to gravitate towards companies with charts that look like they
Without further ado, here are my picks, with prices as of the 2010
close (December 30.)
Energy Efficiency and Smart Grid Stocks
Renewable Energy (WFI.TO, WFIFF.PK US$24.77)
is a long time
favorite because it's the only pure-play geothermal heat pump stock I
know. David Gold made
the case for geothermal heat pumps
as an investment in October, so
follow the link if you'd like the details. This is the third year
running that Waterfurnace has been in my list, and while it has not
appreciated much in that time, it has consistently paid a dividend over
3% (C$0.22 per quarter, or 3.6% annually) while the business has
continued to grow.
is a leader in providing Demand Side Management
solutions to electric utilities, both in the form of Demand
Response(DR), and energy efficiency. Demand Response allows
utilities to maintain less peak capacity while still maintaining a
stable grid (see Drawing
the Right Lessons from the Texas "Wind" Emergency
) while Comverge's
energy efficiency solutions allow utilities to build less base load
capacity. Both DR and Efficiency can be delivered at much lower
cost than new baseload or peaking plants, and have the added advantage
of no carbon emissions.
The stock has been badly beaten up since its 2007 IPO and can now be
bought for one third of the IPO price, and less than one fifth the
smart-grid euphoria induced 2007 peak. While Comverge is still
not profitable, they have enough cash on hand to fund the current level
of operations for three years, giving them time to raise future funds
while negotiating from a position of strength.
also provides Demand Response to electric utilities,
but unlike Comverge, they are currently (if marginally)
profitable. With no net debt and plenty of cash in the bank,
EnerNOC has not been beat up quite as badly as Comverge since they both
IPO'd in 2007, so this is a safer pick than Comverge with somewhat less
Electric Grid and Clean Transportation
Group (CVT.TO, CVTPF.PK $1.30)
provides electricity system
construction and maintenance to electric utilities, as well as
efficient continuously variable vehicle transmission systems for small
vehicles such as the Tata Nano. The company is profitable and
pays a C$0.02 annual dividend, for a yield of 1.5%.
Git S.A. (TLVT, $26.42)
provides management solutions to
infrastructure markets including electric utilities, pipeline
operators, and transportation authorities. Better management in
these sectors has great potential to lead to large cost and energy
I covered both of these stocks in considerable detail in my Best
Peak Oil Investments
series. The article about CVTech
, and the article about Telvent
. The reason neither of these stocks made my list
of four top peak oil stocks
but are included here is that most of
those four have since risen considerably, and I also wanted to limit
this list to stocks that are easily purchased by a North American
Corp (PCH, $32.55)
is a US Timber REIT which is a leader in seeking
stringent FSC sustainability certification for its timberland. I
wrote about Potlatch in late 2009 in an
article highlighting the role of forestry in a clean energy portfolio
Potlatch has a 6.3% forward annual dividend yield.
Geothermal exploration and production stocks seem to have bottomed in
the fall of 2010, but they have not yet really taken off. I think
that could easily happen in 2011, so I include two of my favorites
Geothermal Power (NGP.V, NGLPF.OB $0.76)
and Ram Power
Corp. (RPG.TO, RAMPF,PK $2.22.)
I've recently written about
both of these companies in my
and in Three
Top Geothermal E&P Companies.
Superconductor Corporation (AMSC, $28.59)
, despite its name, is
largely a wind component supplier to Chinese wind manufacturers.
Yet it also has an
intriguing electricity transmission business based on its eponymous
. The company is profitable, although
it trades at a fairly hefty multiple of 45x trailing earnings based on
widespread expectations of continued high growth.
Environnement SA (VE, $29.36)
is a global conglomerate providing
water, waste water, energy systems (including renewable energy), and
transportation system management. As such Veolia provides
services in a wide variety of clean energy sectors, and is a good
balance to the usual volatility of a clean energy portfolio with its
relatively stable earnings and high 4.1% dividend yield.
As usual, I'll provide quarterly updates on this list throughout 2011.
DISCLOSURE: Long WFIFF.PK, CVTPF.PK,
DISCLAIMER: The information and
trades provided here are for informational purposes only and are not a
solicitation to buy or sell any of these securities. Investing involves
substantial risk and you should evaluate your own risk levels before
you make any investment. Past results are not an indication of future
performance. Please take the time to read the full disclaimer here.