Tom Konrad CFA
Worries including the conflict with ISIL, Ebola, and economic slow-down in Europe, sent the stock market down in the month to October 3rd, with small cap stocks and clean energy stocks falling even farther than the large cap S&P 500. My 10 Clean Energy Stocks for 2014 model portfolio weathered the storm relatively well because of its emphasis on defensive and income stocks.
Since the last update, the model portfolio was down 4.8%, compared to 5.5% for small cap stocks (as measured by the Russell 2000 index ETF, IWM) and a 9.8% decline for clean energy stocks, as measured by PBW, the Powershares Wilderhill Clean Energy Index. The relative strength of the model portfolio was in spite of significant weakness in foreign currencies. The Canadian Dollar, Euro, and South African Rand fell 3.3%, 3.4%, and 5.8% for the month, dragging the model portfolio down 2.8% more in US Dollar terms than in local currency terms.
Since portfolio inception on December 26th, 2013, the model portfolio is up 1.5% in dollar terms, and 3.8% in local currency terms. The small cap stock index was down 3.9%, while the clean energy stock index eked out a tiny gain of 0.3%.
Individual Stock Notes
The chart and discussion detail the performance of individual stocks in the 10 Clean Energy Stocks for 2014 model portfolio, along with relevant news items since the last update.
(Current prices as of August 5th, 2014. The “High Target” and “Low Target” represent my December predictions of the ranges within which these stocks would end the year, barring extraordinary events.)
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/26/2013 Price: $13.85. Low Target: $13. High Target: $16. Annualized Dividend: $0.88.
Current Price: $13.77. YTD Total US$ Return: 4.2%
Sustainable Infrastructure REIT Hannon Armstrong paid its regular $0.22 dividend for the third quarter. The REIT has a goal of paying dividends equal to 100% of distributable income, which were $0.20 in the first quarter, and $0.22 in the second quarter. I expect third and fourth quarter distributable income to be sequentially higher as the company deploys capital from its $75 million April secondary offering. This implies that we can expect a small increase in December’s fourth quarter dividend, which I expect to be approximately $0.24.
2. PFB Corporation (TSX:PFB, OTC:PFBOF).
12/26/2013 Price: C$4.85. Low Target: C$4. High Target: C$6.
Annualized Dividend: C$0.24.
Current Price: C$4.32. YTD Total C$ Return: -7.2%. YTD Total US$ Return: -11.7%
Green building company PFB re-authorized its normal course issuer bid to purchase up to 50,000 shares of its own stock over the next year. Over the past year, the company repurchased 19,500 of its shares at an average price of C$4.92. Given the current price of C$4.32, I would expect it to step up these purchases.
3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/26/2013 Price: C$4.44. Low Target: C$3. High Target: C$5.
Annualized Dividend: C$0.30.
Current Price: C$4.21. YTD Total C$ Return: 27.0%. YTD Total US$ Return: 20.9%
Independent power producer Capstone Infrastructure announced strong second quarter operating results based on higher wind production and increased income from its British water utility, Bristol Water. The results were generally in line with analysts’ forecasts, but Scotiabank increased its price target for the company to C$4.50 from C$4.00 while keeping its “Market Perform” rating.
Last week, Capstone closed C$76 million financing for its 25 MW Goulais wind farm which is under construction in Northern Ontario.
4. Primary Energy Recycling Corp (TSX:PRI, OTC:PENGF).
12/26/2013 Price: C$4.93. Low Target: C$4. High Target: C$7.
Annualized Dividend: US$0.28.
Current Price: C$5.54. YTD Total C$ Return: 16.7% . YTD Total US$ Return: 11.1%
Waste heat recovery firm Primary Energy Recycling did not release any significant news since the last update.
5. Accell Group (Amsterdam:ACC [formerly ACCEL], OTC:ACGPF).
12/26/2013 Price: €13.59. Annual Dividend €0.55 Low Target: €11.5. High Target: €18.
Current Price: €12.99. YTD Total € Return: -0.04% . YTD Total US$ Return: -9.2%
Bicycle manufacturer and distributor Accell Group continued to decline because of worries about the European economy and the declining Euro. I think the current weakness is leading to an excellent buying opportunity, especially since the company has been diversifying its revenue geographically with a significant push into the United States. The company signed a deal with US sports and outdoors retailer REI to distribute its Ghost bikes in the US, and E-bikes, one of Accell’s strengths, seem to be accelerating on this side of the Atlantic.
6. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/26/2013 Price: C$10.57. Low Target: C$8. High Target: C$16.
Annualized Dividend: C$0.585.
Current Price: C$13.23. YTD Total C$ Return: 29.3% . YTD Total US$ Return: 23.1%.
Leading transit bus manufacturer New Flyer paid its regular monthly dividend of C$0.0475 but did not release any significant news.
7. Ameresco, Inc. (NASD:AMRC).
12/26/2013 Price: $9.64. Low Target: $8. High Target: $16. No Dividend.
Current Price: $4.44 YTD Total US$ Return: -22.8%.
The stock of energy performance contracting firm Ameresco fell in sympathy with other small cap stocks, reversing gains from the previous month. I continue to think AMRC presents an excellent buying opportunity at the current price.
8. Power REIT (NYSE:PW).
12/26/2013 Price: $8.42. Low Target: $7. High Target: $20. Dividend currently suspended.
Current Price: $10.12 YTD Total US$ Return: 20.2%
Solar and rail real estate investment trust Power REIT advanced strongly during the month. Norfolk Southern Corp. (NYSE:NSC) and its subleasee Wheeling & Lake Erie Railway filed motions for summary judgment in the civil case in which they are trying to prevent Power REIT from foreclosing on their lease of 112 miles of track from a Power REIT subsidiary. Power REIT also filed a motion for summary judgment, and both motions (along with many other court documents in the case can be found on the Power REIT website.
The stock action seems to imply that some investors expect that something of substance may come out of the summary judgment, or from the mediation which the parties have entered into at the Court’s urging. The parties are extremely far apart in the case, and so there remains a good chance of going to trial in early 2015. In any case, the judge seems to be pushing for as quick a resolution as possible, which gives shareholders good reason to believe that the case will come to some sort of conclusion in months rather than years.
9. MiX Telematics Limited (NASD:MIXT).
12/26/2013 Price: $12.17. Low Target: $8. High Target: $25.
Current Price: $8.93. YTD Total ZAR Return: -19.3%. YTD Total US$ Return: -26.6%
Global provider of software as a service fleet and mobile asset management, MiX Telematics stock decline for the month was entirely due to the declining South African Rand. The was not any significant news about the company, but a good, in-depth article on the company appeared on Seeking Alpha with the thesis that the stock is near a bottom. Note that Seeking Alpha Pro articles are only available for free for a month, so if you plan to read the linked article, you should do so in the next week. The author provided excellent background and detail about the company.
[Note: I’ve reversed the order of Power REIT and MiX Telematics in the chart above in order to group the two growth stocks (MIXT and AMRC) together.]
10. Alterra Power Corp. (TSX:AXY, OTC:MGMXF).
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: 5.4%.
Renewable energy developer and operator Alterra Power acquired ownership of 684 thousand shares of Greenbriar Capital Corp (TSXV:GRB) and a similar number of warrants in payment for a US$1 million debt owed to Alterra as the result of a previously terminated joint venture.
Two Speculative Clean Energy Penny Stocks for 2014
Ram Power Corp (TSX:RPG, OTC:RAMPF)
12/26/2013 Price: C$0.08. Low Target: C$0.00. High Target: C$0.22. No Dividend.
Current Price: C$0.015 YTD Total C$ Return: -81.3% . YTD Total US$ Return: -82.1%
Terminal US$ Return -57% (when I said to sell on June 3rd.)
Geothermal power developer Ram Power’s stock fell further in very active trading. The decision to take our losses in June continues to look like a good one.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF).
12/26/2013 Price: C$0.075. Low Target: C$0.00. High Target: C$0.22. No Dividend.
Current Price: C$0.14 YTD Total C$ Return: 86.7% . YTD Total US$ Return: 77.7%.
Wind project developer Finavera held its annual general meeting (AGM), but did not release more details about its plan to purchase California residential solar installation marketing firm Solar Alliance of America prior to the meeting. I checked in with CEO Jason Bak by email on September 18th, and this is what he had to say about the meeting:
We couldn’t publish anything in advance of the AGM because of the stage of DD [due diligence] that we’re at – I don’t feel confident presenting accounts or projections until the audit in complete (ETA end of [September]). We did however, discuss the opportunity with shareholders at the meeting and had a vote on a motion from the floor for the approval of the acquisition, based on the successful completion of DD and the approval of the stock exchange. The resolution passed with ~85% approval of approximately 12MM shares voting (~32% of shareholders, which is a good turn out).
I will be putting out a company update on the transaction shortly. Things are progressing well and the projections look impressive, though they are continuing to be refined.
I have not seen the promised press release about the annual meeting or any more details on the the results of due diligence. Given Bak’s track record, it would have been surpising if the press release about the AGM had materialized. It’s also likely that he was being overly opti
mistic about how long the due diligence would take. I expect that the timeline for the deal to buy Solar Alliance will also slip significantly before it closes.
The recent declines in a number of clean energy stocks are creating buying opportunities. In this list, I think Accell, Ameresco, MiX and PFB are currently very attractive. I’m also seeing buying opportunities elsewhere in the sector, such as biodiesel producer FutureFuel Corp (NYSE:FF), which I recently wrote about here.
Disclosure: Long HASI, PFB, CSE, ACC, NFI, PRI, AMRC, MIXT, PW, AXY, FVR, FF.
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.