Tom Konrad CFA
For both the stock market and the weather, March was more lion than lamb. My broad market benchmark fell 2.2% to end up 1.5% for the quarter. Volatile clean energy stocks were down 4%, to end the quarter up 15.7%. My annual Ten Clean Energy Stocks model portfolio is designed to avoid much of the sector’s notorious volatility, and fell only 0.6%, ending the quarter with a 3.9% total return.
In dollar terms, the first six (income oriented) picks returned an average of 3% in March and 9% for the quarter, while the last four (growth oriented) picks fell 8% in March and 4% for the quarter. The two speculative picks gained 21% in March and 17% for the quarter. Local currency returns were slightly higher due to the weak Canadian dollar so far this year.
Two of the companies in the portfolio, Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF) and Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF), announced long-awaited contracts, as did speculative pick Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) which is not included in the model portfolio due to its speculative nature. Offsetting the gains from these announcements were disappointing earnings and forward guidance from Ameresco, Inc. (NASD:AMRC).
I discuss Ameresco’s setback and other companies’ progress after the performance chart.
Individual Stock Notes
(Current prices as of February 3rd, 2014. The “High Target” and “Low Target” represent the ranges within which I predicted these stocks would end the year, although I expect a minority will stray beyond these bands due to unanticipated events.)
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
Current Price: $14.04. 12/26/2013 Price: $13.85. Annual Yield: 6.3%. Low Target: $13. High Target: $16.
YTD Total US$ Return: 1.4%
Sustainable Infrastructure REIT Hannon Armstrong rallied strongly for the first three weeks of March, only to fall back as quickly at the end of the month, all without any news. Eventually investors are going to recognize that HASI is a stable income stock which can be left in the back of a portfolio to gather dust and dividends. Until that time, the volatility is giving late-comers a chance to acquire this income stock at a very attractive price.
2. PFB Corporation (TSX:PFB, OTC:PFBOF).
Current Price: C$5.60. 12/26/2013 Price: C$4.85. Annual Yield: 4.5%. Low Target: C$4. High Target: C$6.
YTD Total C$ Return: 16.7%. YTD Total US$ Return: 12.9%
Green Building company PFB did not report any news of significance during March.
3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
Current Price: C$3.84. 12/26/2013 Price: C$4.05. Annual Yield: 7.4%. Low Target: C$3. High Target: C$5.
YTD Total C$ Return: 18.3% . YTD Total US$ Return: 14.4%
Independent power producer Capstone announced the long-awaited contract for its Cardinal co-generation facility with the Ontario Power Authority (OPA). I discussed my expectation for this contract in detail last November in Capstone Infrastructure: The Bad News Is Priced In. The actual contract seems to fall somewhere between my low estimate (the “Bad News”) of the title and my “Expected” estimate.
The crucial variable will be the plant’s capacity factor (the percentage of time it is running and producing power), which will in turn depend on electricity and natural gas market conditions. A fixed payment will cover Cardinal’s fixed operating costs and return of capital, while the plant will operate whenever the spread between electricity prices and natural gas prices is sufficient for it to operate profitably. Cardinal’s relative efficiency will allow it to operate more frequently than other natural gas turbines, and its capacity factor is likely to increase as Ontario’s Nuclear refurbishment program periodically takes much of that capacity off the market.
While there are clearly many moving parts, management is confident enough about the long term profitability of the new contract to maintain the current C$0.075 quarterly dividend. This will next be paid at the end of April to shareholders of record on March 31st.
4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
Current Price: C$5.44. 12/26/2013 Price: C$4.93. Annual Yield: 5.5%. Low Target: C$4. High Target: C$7.
YTD Total C$ Return: 18.4% . YTD Total US$ Return: 14.4%
Waste heat recovery firm Primary Energy also announced a long awaited contract for its Cokenergy energy recycling plant. There was not much doubt that this contract would be extended, and so the stock would not have moved much, except that that management also raised the quarterly dividend to US$0.08 from $0.06. The next dividend payment is planned for May.
On an ongoing basis, this new dividend will amount to approximately 45% to 55% of distributable income, and so there may be room for further dividend increases after the end of Primary Energy’s current investment program to refurbish the Cokenergy plant and increase its efficiency to take advantage of incentives in the new contract.
5. Accell Group (Amsterdam:ACCEL, OTC:ACGPF).
Current Price: €14.86. 12/26/2013 Price: €13.59. Annual Yield: 3.7%. Low Target: €11.5. High Target: €18.
YTD Total € Return: 9.3% . YTD Total US$ Return: 9.5%
There was no significant news for bicycle manufacturer and distributor Accell Group.
6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
Current Price: C$11.33. 12/26/2013 Price: C$10.57. Annual Yield: 5.2%. Low Target: C$8. High Targe
YTD Total C$ Return: 8.1% . YTD Total US$ Return: 4.5%.
Leading transit bus manufacturer New Flyer announced its annual results on March 19th. Last quarter earnings were very strong, but first quarter 2014 earnings will be very weak due to some contracts signed during the extremely weak bus market in the couple of years after the financial crisis. Going forward, management feels the current bidding environment is “normalizing” and they have been able to raise their prices in some cases.
Overall, the company seems to be setting the stage for long term growth, as they consolidate their acquisitions and roll out new products, such as their recently developed mid-sized (“MiDi”) bus for private shuttle fleets. Several insiders made significant purchases of stock following the annual report, reconfirming my view that short term weakness is providing a buying opportunity before what I expect to be strong performance in the coming few years.
7. Ameresco, Inc. (NASD:AMRC).
Current Price: $7.67 12/26/2013 Price: $9.64. Annual Yield: N/A. Low Target: $8. High Target: $16.
YTD Total US$ Return: -20.4%.
Energy performance contracting firm Ameresco announced its annual results on March 13th. Ameresco had disappointing Q4 earnings due to a low margin mix. More importantly, management’s outlook for 2014 does not anticipate improvement this year. They may be being cautious, but after two years of saying that a turn around in the performance contracting climate is just around the corner, it’s no surprise the stock sold off sharply on the weakened outlook.
Even if investors have been losing faith in the company, founder, Chairman, CEO, and largest shareholder George Sakelleris bought 246,000 shares of stock between $7.50 and $8 following the earnings announcement, demonstrating he still has faith in the firm’s long term prospects.
8. Power REIT (NYSE:PW).
Current Price: $9.09 12/26/2013 Price: $8.42. Annual Yield: N/A. Low Target: $7. High Target: $20.
YTD Total US$ Return: 8.0%
Solar and rail real estate investment trust Power REIT successfully listed its series A preferred shares (NYSE:PW-PA.) The funds will be used to fund the equity portion of an acquisition of land under a solar farm which was announced in January.
9. MiX Telematics Limited (NASD:MIXT).
Current Price: $10.73. 12/26/2013 Price: $12.17. Annual Yield: N/A. Low Target: $8. High Target: $25.
YTD Total US$ Return: -11.8%
Global provider of software as a service fleet and mobile asset management, MiX Telematics, continued to fall along with other emerging market stocks. I continue to feel the decline is unwarranted due to the global nature of MiX’s revenues. Declines in the South African Rand help the company more than hurting it because they reduce expenses much more than revenue.
10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
Current Price: C$0.31 12/26/2013 Price: C$0.28. Annual Yield: N/A. Low Target: C$0.20. High Target: C$0.60.
YTD Total C$ Return: 10.7% . YTD Total US$ Return: 7.0%.
Renewable energy developer and operator Alterra Power announced 2013 annual results. There were few surprises. Going forward, the company will be focusing its development efforts on a recently acquired Texas wind farm rather than its British Colombia hydropower projects, where BC Hydro has been working to reduce its commitment to new power projects rather than bring projects on line.
Two Speculative Penny Stocks for 2014
Ram Power Corp (TSX:RPG, OTC:RAMPF)
Current Price: C$0.065 12/26/2013 Price: C$0.08. Annual Yield: N/A. Low Target: C$0.20. High Target: C$0.60.
YTD Total C$ Return: -18.8% . YTD Total US$ Return: -21.5%.
Geothermal power developer Ram completed the remediation of its San Jacinto-Tizate project on January 22nd, and stated it would to complete a plant capacity test in March. We’re still awaiting the results of that test, and the stock has been selling off because of the delay.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF).
Current Price: C$0.12 12/26/2013 Price: C$0.075. Annual Yield: N/A. Low Target: C$0.20. High Target: C$0.60.
YTD Total C$ Return: 60% . YTD Total US$ Return: 54.7%.
Wind project developer Finavera announced the execution of agreements with BC Hydro to transfer the Electricity Purchase Agreement for its Meikle Wind Energy Project to Pattern Energy Group (NASD:PEGI.) This was excellent news for Finavera’s long-suffering investors, not the least because the project had been re-designed to accommodate 184 MW of wind turbines, a configuration which will ensure the largest possible payment from Pattern.
I looked into the details of this deal here, estimating that the company was worth between C$0.21 and C$0.40 a share, most likely somewhere in the lower half of that range.
I’m disappointed that Ameresco’s investors will likely need yet more patience before we see significant signs of life return to the company’s stock. However, Primary Energy, Capstone Infrastructure, and Finavera Wind Energy all showed this month that long patience is sometimes rewarded.
Disclosure: Long HASI, PFB, CSE, ACCEL, NFI, PRI, AMRC, MIXT, PW, AXY, RPG, FVR.
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.