Tom Konrad CFA
The first half of 2015 saw a mild advance in the broad market, but concerns about rising interest rates and the ongoing Greek debt drama sent income stocks, clean energy, and most non-US currencies down decisively. My Ten Clean Energy Stocks for 2015 model portfolio has heavy exposure to not only clean energy, but income stocks (6 out of 10) and foreign stocks (4 out of 10.) Despite this the stormy market for all three, the portfolio delivered admirably.
The model portfolio ended the second quarter up 9.7%, compared to its broad market benchmark, which was up only 4.4%. Its clean energy benchmark is a 40/60 blend of its growth oriented benchmark and its income-oriented benchmark, matching the 4/6 ratio of growth and income stocks in the portfolio. These two benchmarks are discussed below. The blended benchmark fell 5.1%.
For the month of June, the portfolio gained 3.1%, compared to only 0.8% for the broad market IWM and a 6.2% decline of the blended benchmark.
Value/Growth and Income Sub-Portfolio Performance
The four stock value and growth sub-portfolio reversed most of its previous losses in June, up 7.4% for the month to end the first half down only 0.4% for the year. Its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), fell 3.8% for the month but remains in the black with a 2.3% gain for the first half.
The six stock income sub-portfolio inched up another 0.3% on top of its already impressive gains, ending up 16.4% year to date, despite rising interest rates. The income benchmark fared much worse. This benchmark was The Global Utilities Index Fund, JXI for the first 5 months, replaced by the more clean-energy oriented Global X YieldCo Index ETF (NASD:YLCO) when that began trading at the end of May. It dropping 5.3% for the month for a loss of 7.7% year to date, despite the fact that YLCO fared better than JXI in June.
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.
6/30/2015 Price: $20.05. YTD Dividend: $0.52 YTD Total Return: 44.6%.
Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong started the month strong, and I hope some of my readers took the opportunity and followed my lead by taking some gains as it briefly rose above $21. At that point, Bank of America broke it’s long climb by lowering its rating to Neutral based on valuation. This is in-line with my own assessment: I like Hannon Armstrong for the long term, but, because of its much higher price than when it began the year, no longer feel that it deserves to be such a large part of my managed portfolios.
2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
6/30/2015 Price: $19.73. YTD Dividend: $0.18 YTD Total Return: 33.6%.
International manufacturer of electrical and fiber optic cable General Cable Corp. rose strongly on the news that it had sold the rest of its Asia Pacific operations for $205 million. This was a significant step in its ongoing reorganization, which has the goals of simplifying its geographic portfolio, reducing debt, and improving profitability.
3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48. Annual Dividend: C$0.84. Low Target: C$10. High Target: C$15.
6/30/2015 Price: C$12.36. YTD Dividend: C$0.39 YTD Total C$ Return: 11.1%. YTD Total US$ Return: 3.3%.
Unlike most of the other income picks, Yieldco TransAlta Renewables fell 2% in June, deepening the undervaluation which made me predict it would rise in the last update. The decline was likely in sympathy with the larger, interest rate related, decline of Yieldcos and utilities in general (down 5.3% and 7.7%, as discussed above.)
4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
6/30/2015 Price: C$2.99. YTD Dividend: C$0.15 YTD Total C$ Return: -1.9%. YTD Total US$ Return: -8.8%.
Canadian power producer and developer (Yieldco) Capstone Infrastructure also declined 2.3% despite my prediction for this stock. As with TransAlta Renewables, I believe the decline was industry related, not specific to Capstone. In fact, the company announce progress with its wind projects in Ontario, where it received a final Renewable Energy Approval from the Ontario Ministry of the Environment and Climate Change for the 10-megawatt Snowy Ridge Wind Park.
New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price: C$13.48. Annual Dividend: C$0.62. Low Target: C$10. High Target: C$20.
6/30/2015 Price: C$15.48. YTD Dividend: C$0.30 YTD Total C$ Return: 17.1%. YTD Total US$ Return: 8.8%.
Leading North American bus manufacturer New Flyer got a very favorable write-up at Seeking Alpha, including speculation that its Brazillian partner, Marco Polo, might acquire the 80% of the company it does not already own in a buy-out. I’m a little skeptical about such buy-out speculation- I think both companies seem to be benefiting well from the alliance as it is, but I agree that New Flyer remains an inexpensive company with a dominant position in the North American bus industry, which continues to rebound from a long slump.
6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. Annual Dividend: €0.61. Low Target: €12. High Target: €20.
6/30/2015 Price: €16.65. YTD Dividend: €0.61 YTD Total € Return: 26.9%. YTD Total US$ Return: 16.8%.
Despite Greek wobbles, bicycle manufacturer Accell Group, which makes most of its sales in Europe, maintained its balance with the stock up 2% for the month and 17% for the first half. The company is a leader in e-bikes, and introduced its own “mid-motor” (i.e. near the pedals so that the motor can take advantage of the bike’s gears) with hardware supplied by Yamaha. Mid-motors are a premium option, offering better balance, efficiency, and handling than the more common hub motors, but are more complex and come with a higher price tag.
Alone among my three predictions for stocks to perform well in June, biodiesel producer FutureFuel did not disappoint. The company gained 8% for the month on the EPA’s proposed biomass-based diesel volumes for 2014-2017, which were announced on the last trading day of May. I predicted that the targets, which were good news for biodiesel producers, would continue to propel the stock upward in early May. That turned out to be the case, and the stock stayed above $13 for most of the month before giving back some of its gains in the recent market turmoil.
Solar and rail Real Estate Investment Trust Power REIT’s stock fell briefly below $5, a price at which I think it represents a good buy despite the negative summary judgement in March.
The two remaining issues in the lessee’s civil case against it will go to trial in August.
The lessees, Norfolk Southern (NSC) and Wheelling and Lake Erie (WLE) claim that Power REIT and its CEO, David Lesser, acted fraudulently when Power REIT was created and the Pittsburgh and West Virginia (P&WV) (which owns the leased property) became its subsidiary through a reverse merger. They are claiming damages in the amount of approximately $140 thousand based on interest on funds withheld by third parties, which NSC and WLE claim is due to Lesser’s actions. It seems to me that if interest is owed, it would be by the third parties. But, given my track record predicting the court’s rulings, readers should form their own opinions.
Energy service contractor Ameresco released the usual press releases about new contracts. Given the timing of the rally, my best guess is that the company attracted the interest of one or more institutional investors by presenting at ROTH London Cleantech Day.
10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $6.50. Annual Dividend: $0. Beta: 0.78. Low Target: $5. High Target: $20.
6/30/2015 Price: $7.77. YTD Dividend: $0. YTD Total South African Rand Return: 26.3%. YTD Total US$ Return: 19.8%.
Vehicle and fleet management software-as-a-service provider MiX Telematics published its annual report, which seems to have boosted the stock slightly. The annual report does not contain information which was not included in its annual results, published at the end of May, but could have drawn the attention of investors to its long term progress. As I discussed last month, the annual results were very encouraging, and MiX continued to trade at a fraction of the valuation of its developed-market peers.
The Annual General Meeting was also set for September 11th.
Last month, I predicted TransAlta Renewables, Capstone Infrastructure, and FutureFuel would advance in June. The sharp decline in utility and Yieldco stocks prevented the advance and led to a small decline in the first two, but FutureFuel advanced strongly, pulling the average gain to 1.1% for the three stocks. Over the past four months, I’ve managed to pick 7 out of 9 monthly winners, my average pick has advanced each month.
While I’m satisfied with both my overall track record and my monthly picks, I don’t encourage readers to trade based on my monthly hunches: Transaction costs would probably cost more than my market timing would help. That said, for readers new to the list, these monthly picks have so far proven to be among the best stocks to buy if you have new money to invest.
Since the monthly picks have so far seemed useful, I’ll continue my predictions. Although it did not work out last month, I’ll be sticking with Capstone and TransAlta Renewables. Despite rising interest rates, both are trading at excellent valuations. Also, I feel the rapid decline of income stocks over the last couple months is due for a pause or even a small rebound.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI. I am the co-manager of the GAGEIP 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.