Clean Energy Stocks Gone With the Wind
Tom Konrad CFA
After a great January, the last three months have not been kind
to clean energy stocks. While my model portfolios are still
in positive territory (+5.4% and +0.9% for the unhedged and hedged
portfolios, respectively), and are above my clean energy benchmark
(The Powershares Wilderhill Clean Energy ETF, -3.4%), they have
again fallen behind my broader market index, the Russell 2000
|Gone with the Wind trailer, public domain|
Gone With the Wind
April saw the chances of an extension of the federal Production
Tax Credit (PTC) for wind diminish significantly when Congress
failed to attach it to the payroll tax cut extension. In an
election year, the chances of a stand-alone PTC extension getting
through Congress look slim, despite the massive numbers of layoffs
expected in the wind industry without an extension. Even if
the PTC is extended next year, the diminished wind industry
capacity will be felt for years to come. It's already being
felt by wind stocks, and, I believe, other clean energy stocks are
reacting in sympathy.
Clean Energy Developers
- The greatest pain was felt among my group of clean energy
development companies, most likely because developers are the
most direct beneficiaries of clean energy subsidies such as the
PTC. Hardest hit was Finavera
Wind Energy (TSXV:FVR,PINK:FNVRF),
which lost 43%. On April 30, Finavera fell over a third,
although the CEO confirmed
that there had been no change in the company's prospects.
Perhaps some large investor feared some bad news would come out
annual report on May 1, but I found little of note which
had not already been released. It's worth pointing out
that Finavera's prospects should not be hurt and might even be
helped by a failed PTC extension, since Finavera has no US
projects, and the companies projects in Canada might benefit
from cheaper wind equipment which might have been used in the
United States had the PTC been extended.
- Western Wind Energy
also has little exposure to the lack of a PTC extension, since
most of this company's value
is in wind projects which were commissioned before the PTC
expiration, and a solar project the company is developing
in Puerto Rico. Yet Western Wind has also been
experiencing a sell-off on no news, although part of this may be
due to an unsubstantiated
smear campaign on blog comment sections and bulletin
boards. One (also unsubstantiated) rumor has it that a
group of Toronto hedge funds are trying to force a quick sale
far below the company's current valuation, perhaps to Algonquin
Power (TSX: AQN, PINK:AQUNF)
which made a low-ball offer last October.
- Alterra Power
also declined significantly on no news. Alterra also has
little exposure to the US wind market, and operates mostly
internationally and has more of a focus on run-of-river
hydropower and geothermal.
Other News of Note
- Bicycle manufacturer Accell Group (ACCEL.AS) announced a successful conclusion to its talks to buy out Raliegh.
- Waste Management (WM) (along with several competitors) announced disappointing first quarter results. At the time I wrote that the subsequent sell off might lead to another attractive buying opportunity, partly because I liked the reasons earnings fell short. WM has since declined from slightly over $36 to slightly under $34, and I have placed a limit order to add to my position at a little below the current price. If the decline continues, I intend to continue to add to my position. I like WM in the long term for the company's sustainability initiatives and healthy (4.2%) and well-protected dividend.
- Last Thursday, Lime Energy
announced a contract with Central Hudson (which happens to be my
electric utility) to handle the utility's direct install energy
efficiency program. I wrote that this validated
Lime's strategy, but the stock has yet to get any love
from investors as a consequence.
Investor disappointment with the lack of political support of
clean energy seems to be translating into a broader disappointment
with clean energy stocks in general. Values continue to get
better in those clean energy stocks which are not dependent on
subsidies. I think cautious buying is in order, but I also
think it likely that the political climate for clean energy will
continue to worsen this year, so it is probably best to keep the
majority of your funds in cash while waiting for more enchanting
values to blow our way.
DISCLOSURE: Long WFIFF, LIME,
RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, AQUNF, short
IWM and SPY.
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.