Tom Konrad Ph.D., CFA
In the two months since my last "monthly" update, the stock market
has been in turmoil. At the end of June, I was pleased report
that my Ten
Clean Energy Stocks for 2015
model portfolio was not only up
for the year, it was comfortably ahead of its benchmarks. At
the end of August, the report is of a more
win-the-battle-lose-the-war variety. The portfolio is still ahead of
its benchmarks, but it's now down 1% for the year to date.
The portfolio lost 4.8% in July and 5.7% in August, to end down 1.0%
for the year to date. This decline was entirely due to the
strong dollar: without the relative decline of the Canadian dollar,
Euro and South African Rand, the portfolio would have been up
5.5%. In contrast, its broad market benchmark, IWM, was down
1.1% in July, down 6.3% in August, and down 3.7% year to date.
Its clean energy benchmark was down 8.4% in July, down 10.7% in
August, and down 21.3% year to date.
The clean energy benchmark is a 60/40 weighted average of the income
and growth benchmarks discussed below.
I feel that the recent volatility presents a great buying
opportunity for many of the stocks I follow, especially the income
On Wednesday last week (the day of the market low), I persuaded a
client to add some cash to her account. The money reached the
account on Thursday, one day after the market's low, but I was still
able to buy a number of stocks for her at very compelling prices on
Thursday and Friday as the market began to rebound. I also
invested all available cash in the other accounts which I manage,
including funds freed up by reducing positions in PFB
OTC:PFBOF), which was a stock from my 2014 model portfolio. As
I wrote at the time, I dropped the stock not because I did not like
its prospects, but because I felt few readers had bought it because
of the foreign listing and low liquidity. I
suggested that readers hold the stock last December when it was in
the low C$4 range
. Now that the stock is up
significantly (around C$9) and there are many other attractive
income stocks to choose from, it's time to take some or all of our
Value/Growth and Income Sub-Portfolio Performance
The six stock income sub-portfolio continues to hold up despite the
turmoil and strong dollar. It fell only 0.7% in July and 0.9%
in August, for a still strong 13.6% return year to date. This
performance is even more remarkable given that Yieldcos, the best
known clean energy income investments, fell 8.1% in July and 10.7%
in August, as measured by the Global X YieldCo Index ETF
which I also use as a benchmark for the income sub-portfolio.
Year to date, the benchmark (which began the year as JXI, until YLCO
was launched at the end of May) is down 21.3%.
The Green Alpha Global Equity Income Portfolio (GAGEIP) strategy
which I manage with Green Alpha Advisors also fared well despite the
market turbulence. It was flat in July, and fell only 2.3% in
August. For the year to date, it is up 5.6%.
The four stock value and growth sub-portfolio continues to fare
poorly. It was down 11.0% in July and 12.8% in August, for a
decline of 23.0% year to date. Its benchmark, the Powershares
Wilderhill Clean Energy ETF (NASD:
), also fell 8.9% in July and 10.6% in August, but these
smaller declines left PBW well ahead, with a 16.7% fall year to
Individual Stock News and Returns
The chart below (click for larger version) gives details of
individual stock performance, followed by a discussion of the
month's 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.
8/31/15 Price: $18.99. YTD Dividend: $0.52 YTD
Total Return: 37.1%.
Sustainable infrastructure financier and Real Estate
Investment Trust Hannon Armstrong announced second quarter
earnings, with a 19% increase in core earnings per share for
$0.26. The company originated $455 million in
transactions during the quarter, bringing its investment portfolio
to $1.1 billion, 30% of which were energy efficiency investments
and 67% of which were in renewable energy, with the balance in
other sustainable infrastructure.
Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend:
$0.72. Beta: 1.54. Low Target: $10. High
8/31/15 Price: $14.55. YTD Dividend: $0.36 YTD
Total Return: 0.01%.
International manufacturer of electrical and fiber optic cable
General Cable Corp. fell, most likely because the investors are no
longer chasing rumors that the company might be acquired by
European competitor Prysmian (OTC:PRYMF),
as well as the general market decline. Second quarter
results were strong, with adjusted earnings per share of $0.36
coming in well ahead of analysts' average estimate of $0.26 per
share. The company also completed the sale of its operations
in Thailand on August 31st, which was part of the restructuring
that is already improving profitability.
The company will pay its second quarter dividend of $0.18 to
shareholders of record as of August 17th. I only added small
amounts of BGC to my managed portfolios, but that was more because
it rebounded from its $13 low extremely quickly.
Renewables Inc. (TSX:RNW,
12/31/2014 Price: C$11.48. Annual Dividend:
C$0.84. Low Target: C$10. High Target: C$15.
8/31/15 Price: C$11.02. YTD Dividend: C$0.53 YTD
Total C$ Return: 0.0%. YTD Total US$ Return: -11.6%.
Yieldco TransAlta Renewables reported its second quarter
results. On a per share basis, Funds From Operations (FFO)
and earnings both increased significantly because of the drop-down
of its parent's (TransAlta (NYSE:TAC)) Australian assets on May
7th. Cash Available For Distribution (CAFD) per share
increased to C$0.24 for the quarter from the same period in 2014.
Despite these strong fundamentals and a 7.6% yield, the stock
fell 14% in July and August, most likely dragged down by the poor
performance of other (mostly lower yield) Yieldcos and the 5%
decline in the Canadian dollar. (The Yieldco ETF YLCO was
down 18% over the same period.) I thought it was already a
great value before the recent decline, and have been adding to my
position in several managed portfolios.
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.
8/31/15 Price: C$3.24. YTD Dividend: C$0.15 YTD
Total C$ Return: 5.9%. YTD Total US$ Return:
Canadian power producer and developer (Yieldco) Capstone
Infrastructure bucked the Yieldco and Canadian currency declines
with a 3% gain in July and August. The gain was most likely due to
provisional findings in the UK Competition and Markets Authority's
(CMA) evaluation of Capstone's UK water subsidiary's appeal
in a regulatory matter against its regulator, OfWat. While
Capstone seems likely to only get part of what it wants in the case,
investors seemed to have been assuming that Capstone would get
nothing at all. The market took the provisional findings as
good news. This may have been because the CMA later stated
that its evaluation would be extended
by up to two months
. If the CMA did not think that
Capstone had strong grounds for appeal, it seems likely that it
would not have felt the need for more time to evaluate the case.
Capstone also received an excellent
in-depth write up
by Spy Hill Research on Seeking Alpha.
I recommend it highly to anyone who wants to become familiar with
I have not been adding significantly to my positions in Capstone in
the last two months, but only because they are already quite large.
New Flyer Industries (TSX:NFI,
12/31/2014 Price: C$13.48. Annual
Dividend: C$0.62. Low Target: C$10. High
8/31/15 Price: C$19.11. YTD Dividend:
C$0.40 YTD Total C$ Return: 44.4%.
YTD Total US$ Return: 27.6%.
Leading North American bus manufacturer New Flyer reported
excellent results for the second quarter, well ahead of most
analysts' expectations. The company is reaping the benefits
of consolidating its lead and streamlining its operations during
the industry downturn over the last 5-7 years. CIBC,
Cannacord Genuity, and National Bank Financial all increased their
price targets or ratings in the days following the earnings
12/31/2014 Price: €13.60. Annual Dividend:
€0.61. Low Target: €12.
High Target: €20.
8/31/15 Price: €19.14.
YTD Dividend: €0.61 YTD
Total € Return: 45.2%. YTD
Total US$ Return: 34.6%.
European bicycle manufacturer Accell Group reported that its
first half net profit was up 21% compared to the first half of
2014 in July, and the stock took off, rising 20% in Euro terms and
18% in dollar terms for the month. The entire bike sector has been
enjoying a strong tail-wind, outperforming
other transportation industries (carmakers, automotive
suppliers, truck manufacturers, and aerospace) for the first half
SNS Securities increased
its price target for Accell from Accumulate to Buy on
September 1st, citing its relative undervaluation compared to
other bicycle stocks.
12/31/2014 Price: $13.02. Annual Dividend:
$0.24. Beta 0.36. Low Target: $10. High
8/31/15 Price: $10.08 YTD Dividend: $0.12. YTD
Total Return: -21.7%.
Biodiesel and specialty chemicals producer FutureFuel reported
strong revenues but weaker profits in the second quarter.
The decline in profitability was driven mostly by low oil prices
(which determine the price of biodiesel.) Falling profits caused
shares to fall as well, but insiders remain bullish, with two
directors making substantial stock purchases in August and no
8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35. Annual
Dividend: $0. Beta: 0.52. Low
Target: $5. High Target: $20.
8/31/15 Price: $4.60. YTD Total Return: -44.9%.
Solar and rail Real Estate Investment Trust Power REIT's continued
to decline slowly in July and August. I expect that investors
are frustrated that the judge in the REIT's civil case with its rail
tenants Norfolk Southern Corp and Wheeling and Lake Erie will not
make his ruling until the fourth quarter of this year.
Power REIT's preferred shares, PW-PA
have also been trading down. As I've
, the 7.75% coupon is not in my opinion at risk and
should be treated as return of capital due to the lawsuit.
Because of this, I've been adding to my positions.
9. Ameresco, Inc.
12/31/2014 Price: $7.00. Annual
Dividend: $0. Beta: 1.36. Low
Target: $6. High Target: $16.
8/31/15 Price: $5.67. YTD Total Return: -19.0%.
The EPA's Clean Power Plan should provide a good
boost to energy service contractors like Ameresco, but
investors seemed unimpressed. The stock also fell despite strong
second quarter results, which exceeded analysts' expectations for
the fourth quarter in a row. My best guess as to why the
stock remains in the doldrums is that it has been down for so long
that investors have given up and stopped paying attention.
If they were paying attention, the stock would almost certainly be
Two people who are paying attention are Director Francis Wiseski
and President and CEO George Sakellaris. Both
have been making large and regular purchases of AMRC stock
(and no insiders have sold) in the last year.
10. MiX Telematics
12/31/2014 Price: $6.50. Annual
Dividend: ZAR 0.08 or $0.15 Beta:
0.78. Low Target: $5. High Target: $20.
8/31/15 Price: $6.08. YTD Dividend: $0. YTD
Total South African Rand Return: 7.6%. YTD Total
US$ Return: -6.5%.
Vehicle and fleet management software-as-a-service provider MiX
Telematics announced earnings for the quarter ended June 30th,
meeting analyst expectations and continuing the company's trend of
15% annual subscription growth. However, the stock fell
substantially over the two last months in part because of the
general market decline, but also because it concluded
its strategic review process
without the sale of the company
that many speculators had been betting on. The company stated
that there had been "significant interest from prospective buyers,"
so we can only assume that the offers were not at a price that
management found attractive.
I believe MIXT is worth at least two or three times its current
price, based on its rivals' valuations. The lack of sale came
as a bit of a relief to me: I had been worried that the company
might agree to a sale below what I think it is worth. Instead,
it resumed its dividend of 8 South African cents per year, and
will pay dividends for the preceding 5 quarters (ZAR 0.10 or $0.19
per share) on September 18th. This resulting 2.5% annual
dividend from a company that is growing earnings at over 15% per
year underscores MIXT as a compelling value proposition.
Two months ago, I called TransAlta Renewables and Capstone
Infrastructure the best buys in the list. Capstone was a good
call, but TransAlta Renewables disappointed again, albeit not as
much as most Yieldcos. I suppose I should not complain about
getting one winner out of two in the market turmoil of the last two
months. On average, my two picks were flat in Canadian dollar
terms, but down 5.5% in US currency.
Right now, I see many excellent buying opportunities, and I don't
want to limit them to this list. On this list, I've currently
very enthusiastic about TransAlta Renewables, Ameresco, and MiX
Telematics. Elsewhere, I have been aggressively buying Enviva Partners, LP
Innergex Renewable Energy
Pattern Energy Group
and Abengoa Yield
It's no coincidence that almost all of these picks have high
yields. The market correction has been mostly due to
overvaluation combined with worries of a worldwide economic
slowdown. If that slowdown materializes, it will put downward
pressure on interest rates, which in turn helps income stocks.
The market turmoil itself is also reducing the pressure for the
Federal Reserve to raise rates soon or quickly, and this also
increases the value of long term income streams.
Although it's been a tough couple of months in the stock market,
a correction has been long overdue. The reminder that stocks
can go down as well as up is likely to make investors pay more
attention to the risks of the stocks that they buy. Portfolios
like this one, which have a bias towards low risk stocks, should be
relative beneficiaries over time.
That said, there is no guarantee that the correction is over, and so
while there are currently a large number of very compelling
investment opportunities, investors should also be looking at
potential ways to free up capital if the opportunities become even
more compelling in the near future.
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