Tom Konrad CFA
June was a month of recovery for the stock market in general and clean energy stocks to a somewhat lesser extent.
The Russell 2000 index (^RUT, which I use as a broad market benchmark in this series) was up 9% in June, while the Powershares Wilderhill Clean Energy ETF (PBW) gained 5.3%. So far for the year, ^RUT has produced a total return of 9.5%, while PBW shows a loss off 12.2%.
My model portfolio introduced in January of 11 equally-weighted clean stocks lost ground yet continues to outperform the clean energy index fund PBW, down only 3.8% for the year (up 2.4% for the month.) Since the broad market is up for the year and the month, the hedged portfolio trails, down 9% for the year and is flat for the month.
I continue to believe that my model portfolio’s out-performance of the sector is largely due to my avoidance of the moribund solar sector, which has declined 40% since the start of the year, even after a 63% decline in 2011, as measured by the Guggenheim Global Solar ETF (TAN). I don’t expect a significant solar stock revival until at least 2013, so I think avoiding solar will remain a good strategy for the second half of 2012.
Among the individual stocks in the portfolio, my investment in solid European companies with global sales Veolia (VE, +9%), Rockwool (RKWBF, ROCK-B.CO, +12%), and Accell Group (ACCEL.AS, +4%) continues to pay off, especially in June which saw some easing of concerns about a European breakup, when the three returned 0%, 8%, and 6%, respectively.
In the last month, Rockwool announced a new factory in North America in response to robust demand for their fire-resistant insulation, Veolia continued to make progress in its restructuring with the sale of it’s UK water business and discussions with buyers over its US waste business and a stake in its transportation unit.
Relatively weakly capitalized companies Lime Energy (LIME, -30%), New Flyer Industries (TSX:NFI / NFYEF, +20%), Western Wind Energy (TSX:WND, WNDEF, -32%) and Finavera Renewables (TSX-V:FVR, FNVRF, -58%) were mixed in June (-6%,-3%,-2%, and +6% respecitively) but these companies have declined so much in previous months (or the previous year, in New Flyer’s case), that all currently look like they are bottoming.
As I wrote in May, I expected a buying opportunity in LIME after the market had digested a first quarter earnings disappointment. I purchased shares a couple weeks ago at $3.23, near where the stock is currently hovering.
New Flyer gave notice of its long-indicated intent to redeem its 14% subordinated notes in August, the redemption of which will be funded with the proceeds from the much cheaper 6.25% convertible debentures. The exchange will greatly strengthen New Flyer’s cash flow and should make the company more attractive to new investors, especially income investors attracted by New Flyer’s 9% forward dividend yield.
Western Wind Energy has still not received an overdue Federal cash grant which had several readers asking me what was going on with the stock. The company remains confident that the grant is just delayed, and I could find no reason to think otherwise when I looked into it.
Finavera recently received the construction permit for its Tumbler Ridge project, but a real recovery of the stock will probably await the announcement of financing for the project.
Alterra Power (TSX:AXY / MGMXF) had the strongest gain in June, up13% after an unsolicited offer for its Icelandic HS Orka geothermal plant and the first equity payment from its Dokie wind farm. Alterra is up 18% for the year.
Waterfurnace Renewable Energy (TSX:WFI / WFIFF) posted a solid 4% return in June, for an 11% total return for the year. Waterfurnace recently launched the world’s most efficient commercially available heat pump based on variable speed technology. I’m currently talking to contractors about installing a geothermal system in the oil-heated home I bought in January, and Waterfurnace’s Series 7 will definitely be one to consider.
I expect the stock market to continue to be rocky through the second half of the year, but so far I’m happy with the additions to my holdings of New Flyer, Accell, Waste Management, and Waterfurnace I wrote that I’d bought in May.
With the market strengthening in June, I made fewer purchases from this list, only Waterfurnace at $15.48, Western Wind at $1.15 and 1.20, and Lime at $2.24.
I sold my shares in Veolia at $12.3-12.50 early in the month, as I had indicated I would probably do when I wrote about trash stock in early May. Veolia is currently trading at $11.17, and I’ll consider repurchasing it if it goes much lower, since I like the progress the company has made on its restructuring since I sold.
The Western Wind purchase was just speculation that the tax grant would come through, and put me over my target allocation, so I took the opportunity to sell the extra shares for a quick profit when the stock got to $1.32 on Friday, even though we have not yet seen the tax grant. Part of the reason for the quick turnaround was that this pair of buy/sell trad
es had the benefit of effectively moving part of my Western Wind position out of my IRA and into my taxable brokerage account. I’d initially bought the Western Wind in the IRA because that’s where I had cash when I was buying the stock last October, but I generally prefer to hold income style investments in the IRA and speculative equity investments in the brokerage account because of differences in tax treatment.
DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF.
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.