Tom Konrad CFA
Three professional Cleantech money managers’ top stock picks.
On Tuesday I published Money Managers See Value in Clean Energy Sector, but Hesitate to Call the Bottom based on my correspondence with Rafael Coven, manager of the Cleantech Index (^CTIUS), Garvin Jabusch, manager of the Sierra Club Green Alpha Portfolio, and Sam Healy, a portfolio manager at Lamassu Capital. These three professionals were in strong agreement that many cleantech stocks are currently excellent value plays, even if cleantech and the market as a whole may have farther to fall, especially if the broader market continues to decline.
They like well capitalized stocks in sectors not prone to commoditization, that are not too dependent on government spending and incentives and which are currently trading at great values by traditional discounted cash flow measures. Perhaps most surprising is that value investors can now find stocks worthy of their attention among stocks normally considered for their growth potential.
Here are their picks:
Although solar panel prices have been collapsing from the pressures of commoditization, Jabusch thinks several individual names are great values. Here is what he says about three of his picks:
1. "LDK Solar (LDK) remains very cheap. It’s a profitable company ($2.28 earnings per share (EPS) last year) with above average long-term growth prospects but currently trading at only 70% of its book value, 80% of cash, and just 31% of its annual sales. Numbers like these are usually the domain of companies losing money that are likely to burn through their assets before reaching profitability, so it’s surprising to see this.
2. "Canadian Solar (CSIQ) is profitable ($1.27 EPS) and growing, but trading at 85% of the cash it has in the bank, 78% of its book value and only 23% of its annual sales.
3. "Renesola, Ltd. (SOL) trades at 68% book, 89% cash and 31% sales, yet is profitable (2011 EPS $1.28)."
Energy Services Stocks
I’ve been recently focusing on demand response and energy services companies in a series of articles based on CEO interviews. Sam Healy also likes the space. He says,
4. "I think some of the demand response names, EnerNOC (ENOC) in particular, may be near its bottom, considering the cash on the balance sheet and the revenue visibility the equity price is low. Add in the increasing geographical diversification and increasing traction of the Energy Management businesses and you have a compelling growth story at a reasonable price. ENOC has acquisition integration risk, lingering FERC headline risk, and business risk as it expands its offerings, but at 15- 16 dollars per share I think that risk is already in the price creating an attractive risk reward story."
I recently wrote about EnerNOC here. The other "demand response name" Healy is probably referring to is Comverge (COMV), which I recently looked at here.
One future name I plan to cover in my series of CEO interviews is Ameresco (AMRC), but that may have to wait until the fall, as the CEO travels in the summer. Coven likes
5. "Ameresco, because the market for energy-efficiency performance contracting is increasingly the only alternative that the MUSH market (Municipalities, Universities, Schools, Hospitals) have for energy efficiency improvements given limited state and local budgets. It’s an expensive way to achieve energy efficiency, but the customers have few alternatives."
Coven’s also says he’s particularly bullish on
6. “Enersys (ENS) – still the best company worldwide for motive power batteries. Enersys is making progress in lithium batteries, but its lead-acid batteries are the best and proving far tougher to beat than most people expected.”
I don’t generally follow water stocks, but these cleantech managers do. Jabusch likes
7. “Chinese clean water play Tri-Tech Holdings (TRIT), trades at only two times cash, 92% of book, 77% of next year’s sales, has $1.53 EPS and is reporting 80% sales growth. Access to safe, clean water in China, and everywhere else for that matter, is a big deal and only getting tougher as populations increase and snowpacks decrease. It’s hard to see where TRIT isn’t far too cheap.”
while Coven prefers
8. “Kadant, (KAI) a world leader in paper-recycling systems and technologies as well as industrial process water and energy efficiency is also well positioned to take advantage of Asia’s unquenchable demand for fiber.”
I also asked if they had any recommendations for possible shorts. None of them were willing to name names, but Coven did say, "I think that there are a number of solar PV companies, “clean coal”, grain-based ethanol, and smaller LED companies that will wither away soon. These sectors are capital intensive, have cut-throat pricing, and the products are rarely sufficiently better than the competition. There are major consolidations coming in the wind turbine and solar PV markets to consolidate capacity and push down turbine costs – the market isn’t growing fast enough to support all the production capacity and the IP [intellectual property] and know how is spreading (legally and illegally) at great speed in Asia."
That perhaps explains the great values Jabusch sees in the solar names. When it comes to traditional stock valuation, what matters are not the recent earnings and cash flows, but the future ones. The near future for solar profits looks grim, the only question is if the current stock prices are even more grim than the future will be.
While there are great values currently to be found in cleantech and clean energy, it’s also quite likely that a general market decline will produce even more great values. I think it makes sense to start buying opportunistically, since many individual names have probably already seen their lows. For instance, from my own list of ten clean energy stocks I thought were great buys last month, my long-time favorite New Flyer (NFYIF.PK/NFI-UN.TO) seems to have formed a bottom, and has risen from $7.69 when the article was published to $8.45 at the close on July 20. Ambient Corporation (ABTGD.OB) has completed their expected reverse stock split in preparation for the NASDAQ listing which should allow a large number of new investors to conside
r the stock. Comverge and EnerNOC, mentioned above, were also on the list, and have advanced 8% and 6%, respectively.
Just because these money managers are too cautious to call a bottom, that does not mean we have not already seen one. Given the difficulty of timing the market, it makes sense to buy great values whenever they appear. Yet it also makes sense to keep some cash on the sidelines, as more stocks will fall to great values if the recent decline continues.
DISCLOSURE: Long ABTGD.OB, NFYIF, ENOC, COMV.
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.