Ten Clean Energy Stocks For 2015: Marching Ahead
Tom Konrad CFA
The six income stocks continue to lead, with a gain of 5.9% for the month and 10.2% for the year. This compares to a miserable performance by my income benchmark of global utility stocks (JXI), which was down 3.1% for the month and 5.5% for the year. The fossil free Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), which I co-manage, also outperformed the global utility trend and turned in a 0.6% gain for the month, and 5.3% gain for the year to date.
The four growth and value stocks gained 6.3% for the month, but remain down 1.0% for the year. This compares to their clean energy ETF benchmark (PBW), which rose 1.6% for the month and is up 5.9% for the year.
The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of March news for each stock.
The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.
1. Hannon Armstrong
Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
3/31/2015 Price: $18.28. YTD Dividend: $0.26 YTD Total Return: 30.3%.
The stock of sustainable infrastructure financier and
Real Estate Investment Trust Hannon Armstrong continued its
The market price is now above the $17 "High Target" I gave it at
the start of the year. That means that it is higher than I
expected it to go by the end of 2015, and while I revised my
expectation upward when Hannon Armstrong increased their core
earnings per share growth target from its previous 12% to 15%
range to its current 14% to 16% range, I now feel the company is
near its fair valuation. While I am happy to hold the
company for its dividend and dividend growth prospects, I have
begun trimming my position for rebalancing. It was already
my largest holding at the end of 2013; it's time to bring the
stock back in line with the rest of my positions.
Although I am trimming my holdings, I think HASI retains
significant upside potential. While I feel it is near its
fair valuation now, there is no reason to believe it cannot become
overvalued. That has certainly happened with many of the
conventional YieldCos: NRG Yield (NYSE:NYLD)
and NextEra Enegy Partners (NYSE:NEP),
for example. These boast similar growth prospects to HASI,
but much lower dividend yields. To bring HASI's yield down
to 4%, which is in the middle of the range for YieldCos today, the
stock would have to rise to $26. While I believe many
YieldCos are overvalued at current levels, I see no reason why
Hannon Armstrong can't join them.
Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
3/31/2015 Price: $17.23. YTD Dividend: $0. YTD Total Return: 15.6%.
International manufacturer of electrical and fiber optic cable,
General Cable Corp.'s stock
spiked on March 17th based on rumors that it might be
bought by larger Italian rival Prysmian (OTC:PRYMF).
Prysmian later said in a statement that it had consulted with its
advisors about the possibility of buying General Cable or France's
Nexans, but had had no direct discussions with either
company. General Cable's stock held on to most of its gains
as investors revalued the company as a possible acquisition
Renewables Inc. (TSX:RNW,
12/31/2014 Price: C$11.48. Annual Dividend: C$0.77. Low Target: C$10. High Target: C$15.
3/31/2015 Price: C$12.55. YTD Dividend: C$0.19 YTD Total C$ Return: 11.0%. YTD Total US$ Return: 1.6%.
Canadian yieldco TransAlta Renewables,
agreed to invest C$1.78 billion in a portfolio of Western
Australian assets owned by its parent, TransAlta (NYSE:TAC), with
the purchase funded mostly by issuing stock on the public market
and to TransAlta at C$2.65 a share. TransAlta will own
76-77% of the yieldco after the transaction closes.
TransAlta Renewables will use the increased cash flow per share
enabled by the acquisition to increase its monthly dividend to
C$0.07 (an increase of 9%) and intends a further 6% to 7% increase
after the completion of the South Hedland gas power plant, which
is part of the acquisition. After the first dividend
increase, the annual dividend will be C$0.84, or 6.7% at the
Although I'm a fan of dividend increases, and think this is a
good transaction for current shareholders, the gas pipeline and
gas power plant included in the transaction mean TransAlta
Renewables will no longer be completely fossil fuel free.
That means that all the accounts I manage with Green Alpha
Advisors using the Green
Alpha Global Enhanced Equity Income Portfolio will need to
sell TransAlta Renewables when the deal closes or soon after,
which I expect in May. We will be holding on to the stock
for the now, however, because I expect the dividend increase
should increase the share price once the market absorbs the stock
from the secondary offerings.
In fact, I bought the company in some accounts which are managed
to a green, but not strictly fossil fuel free, mandate. For
my non-fossil fuel free accounts, I consider a company to be green
if it would benefit from increased action to combat climate change
and other environmental problems. I believe this will still
be the case for TransAlta Renewables after the transaction closes.
In practice, I tolerate some natural gas assets in managed
accounts which are not strictly fossil fuel free as long as they
are not large compared to the clean energy assets of the same
For readers who do not follow a strict fossil fuel free mandate
themselves, I consider the pull-back caused by the secondary
offering to be a buying opportunity.
Capstone Infrastructure Corp (TSX:CSE.
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
3/31/2015 Price: C$3.55. YTD Dividend: C$0.075 YTD Total C$ Return: 13.6%. YTD Total US$ Return: 4.0%.
In addition to the high yield (which alone seems sufficient reason to own the stock), there is potential for upside if the Bristol Water appeal is successful. Even if this appeal fails, I expect the high yield to cause the stock to appreciate as investors gain confidence that the dividend will not be cut.
5. New Flyer Industries
12/31/2014 Price: C$13.48. Annual Dividend: C$0.585. Low Target: C$10. High Target: C$20.
3/31/2015 Price: C$14.08. YTD Dividend: C$0.15 YTD Total C$ Return: 5.5%. YTD Total US$ Return: -3.4%.
Leading North American bus manufacturer New Flyer report 2014
fourth quarter and full year results on March 18th. Revenue
and Adjusted EBITDA were up for the year, but earnings lagged
slightly because of a number of low margin contracts which had
been negotiated during the industry downturn. The company is
currently focusing on consolidation of its model line after the
acquisition of NABI last year. When this consolidation of
models is complete, New Flyer will have more free cash flow to
return to shareholders or make additional investments. There was
some interesting discussion about this at the end
of the Q&A part of the conference call. CEO Paul
I take this to mean that the board is thinking about dividend increases or share buybacks. Nothing is going to happen until the business consolidation is complete; we could hear more on this in the second half of the year.
[W]e continue to look at opportunities where we can acquire and/or invest in new programs. And so we have done that very aggressively and very prudently to look at scenarios that makes sense for us, some inside our space, some adjacent to our space. So as we evaluate some of those scenarios as we look at the leverage of the business, as we execute now on [the consolidation of bus models] for the first part of this year, it's not out of the realm that we would look at shareholder value enhancement, right now we want to get through this next chapter before make a decision on that. But, we are in a way better place as you know to be able to have that conversation today than we were two years ago than we were six years ago. So that one is a little bit of kind of wait and see for a little bit, but very, very pleased about our ability to have the conversation.
Overall, I liked what I heard on the conference call. I wasn't the only one. New Flyer had its price traget raised by analysts at National Bank and BMO Capital Markets. Canaccord Genuity upgraded the stock to "Buy" from "Hold."
12/31/2014 Price: €13.60. Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014. Low Target: €12. High Target: €20.
3/31/2015 Price: €17.31. YTD Dividend: €0. YTD Total € Return: 27.3%. YTD Total US$ Return: 12.9%.
The stock of bicycle manufacturer Accell Group continued to
advance, although US investors will not see as much of an increase
because of the declining euro, which had its worst
quarter against the dollar in the 12 years it has existed.
Part of Accell's appreciation may in fact be due to the declining
euro, since the strong dollar may help sales in North America,
where Accell has its greatest growth potential. But the
rising Euro is mixed news for the Netherlands based bicycle
manufacturer, which had
to raise prices 5% in its core European market because of
higher Euro import prices for components.
12/31/2014 Price: $13.02. Annual Dividend: $0.24. Beta 0.36. Low Target: $10. High Target: $20.
3/31/2015 Price: $10.27 YTD Dividend: $0.06. YTD Total Return: -20.7%.
Specialty chemicals and biodiesel producer FutureFuel, has been hit hard over the last few days since it revealed that Proctor & Gamble had given notice that it would terminate its contract with Future Fuel at the end of 2015. FutureFuel makes a bleach activator for P&G: The little blue specks (NOBS) in Tide detergent, which accounted for 13% of 2014 sales.
Sales to P&G have been declining over the last few years
because of the overall decline in the market for dry laundry
detergents. 2014 sales of NOBS had already declined 27% in
2014 compared to 2013. This announcement is more an
acceleration of the existing timeline for FutureFuel to find
replacement products than a bolt out of the blue.
FutureFuel's chemical business has a natural churn.
The 18% sell-off in the four days since the termination was announced is far out of proportion to the damage to FutureFuel's future prospects. Although the current agreement was terminated, the two companies are in talks about a new agreement going forward. It's likely that FutureFuel will continue to supply some bleach activator to P&G in 2016 and beyond, if at reduced volumes, while it is also likely that FutureFuel will find other products to fill much of the chemical capacity not being used for the bleach activator. I added to my position on the decline.
annual report on March 31st. I have not yet had time to review it, but a first glance shows core FFO per share growing to $0.49 in 2014 from $0.41 a year earlier. FFO is a non-GAAP measure of recurring cash flow used by many REITs as a measure of cash available for distribution to shareholders. Net losses, however, were substantial because of litigation costs, property acquisition expenses, and an unrealized loss on an interest rate swap which is part of the financing for one of its solar farms.
As far as I can tell, there was nothing unexpected in the annual report, and the future value of the stock continues to hinge on the outcome if its civil case with its railway lessees.
Energy service contractor Ameresco released fourth quarter and
full year 2014 results on March 5th. Once again, management
was upbeat about the improvement of its industry. To quote
from the press release, "We anticipate that our traditional U.S.
energy services segments, which have tempered our financial
performance the past few years, will experience broad-based
revenue growth in 2015."
The market failed to react to the news, but Obama's executive
order on March 19th for Federal agencies to greatly increase
their efforts to reduce Greenhouse Gas emissions seems to have
galvanized investors. The stock gained 18% for the month,
with almost all of the gain coming after the executive order.
Much of Ameresco's business comes from cost-effectively helping
government agencies meet goals like these.
10. MiX Telematics
12/31/2014 Price: $6.50. Annual Dividend: $0. Beta: 0.78. Low Target: $5. High Target: $20.
3/31/2015 Price: $6.98. YTD Dividend: $0. YTD Total South African Rand Return: 12.9%. YTD Total US$ Return: 7.4%.
There was one interesting news story about how many companies struggle to make use of the data collected by the spread of telematics devices to more vehicles. MiX is a leader in providing the sort of sophisticated solution which helps customers with this problem, and its relatively inexpensive South African software engineers should enable MiX to keep its lead in this area.
Last month, I used this section to comment that "Capstone
Infrastructure and MiX Telematics look particularly attractive at
their current prices. Ameresco also looks quite attractive,
but its near term performance will hinge on the March 5th earnings
announcement and management's outlook for the rest of the year."
I was wrong about the reaction to Ameresco's earnings announcement. It was exactly what I hoped for, but the market was unimpressed. Instead, it took Presidential action to get the stock moving two weeks later. But move it did, and Capstone, MiX, and Ameresco were up 11.6%, 23.5%, and 18.2% for the month in dollar terms, and even more for MiX and Capstone in terms of their local currencies.
I should probably quit while I'm ahead, but this month's losers, TransAlta Renewables and Future Fuel both look to me like they have fallen too far. I think it would be too much to ask to expect them to do in April what the three stocks above did in March. That said, these two are the stocks I'm buying now.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC, RNW/TRSWF. I am the co-manager of the GAGEEIP strategy.
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.
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