Growth Stocks Shrivel; Income Stocks Grow
Ten Clean Energy Stocks For 2014: June Update
Tom Konrad CFAWhile the major market indexes were hitting new highs in May, small capitalization stocks and clean energy stocks (most of which are small cap) continued to lag. The broad market benchmark IWM gained just 0.2% and is down 2.3% for the year, while my clean energy benchmark PBW fell 3.2% cutting its gains for the year to a slim 1.2%. Meanwhile my 10 Clean Energy Stocks for 2014 model portfolio managed to eke out a 0.3% gain. All of that gain was in the form of dividends paid, without which it would have been flat for the month. For the year to date, the model portfolio has edged ahead of both benchmarks with a total return of 2.8%.
The key to this relative out-performance has been my focus on income and value stocks. Growth stocks had a particularly painful two months in April and June, and growth stocks dominate the clean energy indexes and most clean energy mutual funds. The trend can also be seen in my model portfolio, as I pointed out last month when I contrasted the first six income oriented stocks with the remaining four, which I lumped together as "growth."
I was a little too casual about calling Power REIT (PW) and Alterra Power (MGMXF, TSX:AXY), "growth" stocks, however. While both do have expansion plans, the main reasons they are in the list are Alterra's low valuation compared to the value of its assets, and Power REIT's potential for a large legal windfall. Hence, if I were to categorize the investment theses more precisely, I would call Power REIT a "special situation" and Alterra a value stock. I make these distinctions because it re-emphazies the pummeling growth stocks have taken recently- Ameresco (AMRC) is down 33% and MiX Telematics (MIXT) is down 17% so far this year. These two are the only stocks in the portfolio which are down at all. The other eight picks are up an average of 10%, as you can see in the chart below:
Individual Stock Notes
(Current prices as of June 2nd, 2014. The "High Target"
and "Low Target" represent my December predictions of the ranges
within which these stocks would end the year, barring
Sustainable Infrastructure REIT Hannon Armstrong announced first quarter
normalized earnings of $0.20 a share, slightly lower than analyst
expectations, but re-affirmed full year guidance. The main
cause of the temporarily lower earnings was the timing of maturing
investments and the issuance of HASI's first "Sustainable Yield
Bond" (SYB) at the end of December. By issuing the
fixed-rate SYB, HASI reduced its exposure to the interest rate
fluctuations on the balance of its bank line of credit, better
matching the interest rate profile of its assets and
liabilities. This comes at the cost of higher interest
payments and lower earnings in the short term.
HASI also announced the
purchase of a $107 million portfolio of land under wind and solar
farms, along with the associated leases to the renewable energy
2. PFB Corporation
12/26/2013 Price: C$4.85. Low Target: C$4. High Target: C$6.
Annualized Dividend: C$0.24.
Current Price: C$5.25. YTD Total C$ Return: 10.7%. YTD Total US$ Return: 8.8%
Capstone Infrastructure Corp (TSX:CSE.
12/26/2013 Price: C$4.05. Low Target: C$3. High Target: C$5.
Annualized Dividend: C$0.30.
Current Price: C$4.46. YTD Total C$ Return: 29.9% . YTD Total US$ Return: 27.6%
Independent power producer Capstone Infrastructure reported
very strong first quarter performance, with adjusted funds
from operations up 46% from a year earlier due to the additions to
its wind portfolio. This and the financings
for its Skyway 8 and Saint-Philémon wind power developments
underline Capstone's successful diversification away from reliance
on its Cardinal gas cogeneration facility. While Cardinal is
currently immensely profitable, its copious cash flow will be
greatly reduced under the recently finalized agreement with the
Ontario Power Authority, which commences at the start of
2015. Knowing this was coming, management has spent the last
couple years investing the profits from Cardinal in renewable
energy development. That strategy is now beginning to pay
off for investors.
Capstone insiders seem to think these investments will continue
paying off. Three
of them bought a total of 15,300 shares in May, while
another sold C$29,000 worth of (safer) preferred shares and bought
$42,000 worth of (riskier but with higher potential for gain)
4. Primary Energy
Recycling Corp (TSX:PRI,
12/26/2013 Price: C$4.93. Low Target: C$4. High Target: C$7.
Annualized Dividend: US$0.28.
Current Price: C$5.17. YTD Total C$ Return: 12.5% . YTD Total US$ Return: 5.7%
Waste heat recovery firm Primary Energy fell back a bit after the
initial enthusiasm last month over the recontacting of its
Cokenergy facility and dividend increase to US$0.07
quarterly. It paid its first 7¢ dividend on May 30.
12/26/2013 Price: €13.59. Annual Dividend €0.55 Low Target: €11.5. High Target: €18.
Current Price: €13.70. YTD Total € Return: 4.9% . YTD Total US$ Return: 3.0%
Bicycle manufacturer and distributor Accell Group went
ex-dividend for its 2013 annual distribution of €0.55. The
dividend is set on an annual basis based on last year's
profits. Since sales have been better so far this year, I
expect next year's distribution to be higher.
6. New Flyer Industries
12/26/2013 Price: C$10.57. Low Target: C$8. High Target: C$16.
Annualized Dividend: C$0.585.
Current Price: C$12.30. YTD Total C$ Return: 18.7% . YTD Total US$ Return: 16.6%.
Leading transit bus manufacturer New Flyer announced its first
quarter results, with sales, cash flow, and earnings all
increasing strongly from prior year numbers on both an absolute
and per share basis. The company continues to work through a
backlog of lower-priced orders placed during the downturn, but
sees prices for new contracts normalizing in many markets.
The stock of energy performance contracting firm Ameresco
stabilized after two months of bad performance following
investors' disappointment with management's first quarter
outlook. Insiders maintain faith in the company's long term
prospects, and bought 48,000 shares in May. One reason the
company's growth prospect may pick up will be the likely inclusion
of energy efficiency as a compliance mechanism for the EPA's
proposed rules for new carbon pollution standards from existing
Hannon Armstrong's purchase of land underlying solar and wind farms mentioned above validated Power REIT's own business plan, but also introduces a larger and much better funded competitor. That said, the value of land underlying wind and solar farms is an order of magnitude larger than either company's enterprise value, so I expect the validation of the concept will be more helpful in allowing Power REIT to find investment opportunities than the competition will be in taking them away.
9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17. Low Target: $8. High Target: $25.
Current Price: $10.09. YTD Total ZAR Return: -14.4%. YTD Total US$ Return: -17.1%
The stock of global provider of software as a service fleet and mobile asset management, MiX Telematics continued to decline along with the other stocks in the industry and growth stocks in general. But unlike competitors such as Fleetmatics (NYSE:FLTX), most of MiX's costs are denominated in South African Rand, while revenues are in a broad range of global currencies. Where MIXT was already trading at a much more attractive valuation than FLTX, the recent currency movement should increase its relative attractiveness as its results are boosted by currency changes. Results for the period ending March 31st will be announced on June 5th.
I added to my position when the stock fell to $9.95 during the month.
10. Alterra Power Corp.
12/26/2013 Price: C$0.28. Low Target: C$0.20. High Target: C$0.60. No Dividend.
Current Price: C$0.31 YTD Total C$ Return: 10.7% . YTD Total US$ Return: 7.0%.
Renewable energy developer and operator Alterra Power announced
first quarter results. Revenue and EBITDA increased due to
lower repair costs and currency fluctuations. Construction
continues on its Jimmie Creek run of river hydropower plant in
Two Speculative Clean Energy Penny Stocks for 2014
Geothermal power developer Ram Power reported
the results of the stabilization period and performance test
of its marquee San Jacinto-Tizate project after an extensive
remediation program. In the company's words, the results "did not
meet our expectations." The company is "now in technical default
of the... loan agreements for failure to achieve a minimum MW
I included Ram as a speculative pick on this list because I hoped
the remediation program would produce better results. Since it did
not, I feel the best course of action is to cash in this lottery
ticket rather than taking on a new gamble.
The new gamble in question is the hope that, as a reader put it,
suitors will bid generously for the company."
That's not a gamble I'm interested in taking, although there is a
case to be made for letting the much money ride. At the
current price of C$0.035, the market capitalization is only C$13
million (US $11.7 million). The company recently received
$6.4 in cash for its Geysers Project from US Geothermal
(NYSE:HTM.) Given the low valuation, it would not be hard to
see the stock price multiply if management can capture any value
from San Jacinto or Ram's early stage projects.
Finavera Wind Energy
12/26/2013 Price: C$0.075. Low Target: C$0.00. High Target: C$0.22. No Dividend.
Current Price: C$0.09 YTD Total C$ Return: 20% . YTD Total US$ Return: 17%.
Shares of wind project developer Finavera gave back some of their
gains on a lack of news. Now that the sale of its Meikle
wind project to Pattern Energy Group (NASD:PEGI) has closed,
investors expected an update on the company's strategic plan last
month. This lottery ticket still seems to have a lot more
upside than downside, so I continue to wait. But given the
repeated delays and disappointments, that business plan will have
to be very attractive to persuade me to vote for anything other
than a return of the company's capital to shareholders.
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.