Tom Konrad Ph.D., CFA
The History of the "10 Clean Energy Stocks" Model Portfolios
2017 will be the ninth year I publish a list of ten clean energy
stocks I expect to do well in the coming year. This series
has evolved from a simple, off-the-cuff list in 2008, to a full
blown model portfolio, with predetermined benchmarks and (mostly)
monthly updates on performance and significant news for the 10
While there is much overlap between the model portfolio and my
own holdings (both personal and in the Green Global Equity Income
Portfolio (GGEIP), a clean energy focused dividend income strategy
I manage), the model portfolio is designed to be easily reproduced
by a small investor who only spends a few hours a year on his or
her investments. Trading is kept to a minimum by retaining many
names from each annual list, and only trading in the middle of the
year in extreme cases. There have been only a couple trades
in the middle of the year so far, once because one of my picks was
bought out, and another because of what I believed to be
Despite (or perhaps because of) the lack of trading, the model
portfolio has performed well, and outstandingly well compared to
clean energy stocks in general. It has outperformed its
benchmark every year since 2008 except 2013. That year it
returned 25% compared to the benchmark's 60% return. Over the past
five years (2012 through 2016) the model portfolio has grown at a
compound annual rate of 10%, or a 62% cumulative gain.
Despite the large gain in 2013, its benchmark has fallen at
a compound annual rate of 3% for a total lost over 5 years of
15.3%. See the chart below (click for a larger version):
I will provide a detailed update on the final performance of the
2016 model portfolio later this month.
In the early years, the model portfolio mirrored the Clean Energy
sector's notorious volatility. More recently, I have
attempted to focus the portfolio on less risky stocks, and this
has allowed the portfolio to consistently outperform its
benchmarks. I've also been emphasizing more income stocks
since I began managing GGEIP at the end of 2013. GGEIP
returned 12.8% in 2016.
How To Finesse Trump
In the game of bridge
"trump" is one suit that's more powerful than all the others; the
highest trump card played wins a trick. There's also a
technique called a finesse
which can be used to win a trick even when the opponents hold a more
powerful card (including a trump) which they could play potentially
play on that trick.
"Finessing Trump" may not be a perfect analogy for picking clean
energy stocks which should do well despite a hostile White House
under the eponymous President-elect, but I'll run with it. The
relative strength of the cards held by fossil fuel industries are
certainly a lot stronger relative to those held by the clean energy
industries than they were just a few months ago.
On the other hand, clean energy's hands are still full of honors
(aces and face cards.) According to the US Energy Information
Administration, new coal and nuclear powered power plants are now
far more expensive to build than new wind or solar.
Investments in renewable
energy create more jobs than the same amount of investment fossil
jobs typically do not require a college education
, and are
often in rural areas. This is a perfect combination to deliver
on Trump's promises to his core voters. The rural nature of
wind and biofuel jobs also give these technologies solid political
support in the Republican controlled Congress.
President-elect Trump and the Republicans have made many grand
promises, to deliver jobs, to renegotiate our relationship with
allies and opponents alike, to dismantle regulations, and to lower
taxes. They will not be able to deliver on all of them, and
many contradict each other. Given this backdrop of political
uncertainty and speculation, the focus of the 10 Clean Energy Stocks
for 2017 list will be on companies that rely little on support from
the federal government, and which should be relatively unaffected by
the possible reversal of President Obama's attempts to encourage
Two of the picks this year are also well positioned to benefit from
a revival in oil and gas drilling. OPEC's recent agreement to
limit production has already set the stage for a slow revival in
2017, and Trump's promises to ease environmental restrictions can
only push in the same direction.
Last January, I used a weighted average of the Global X
YieldCo ETF (YLCO)
and the Powershares Clean Energy ETF (PBW)
as my benchmark. The 70% weight on the income-focused YLCO
reflected the 7 of 10 income stocks in the portfolio, while the
30% weight on PBW matched the three growth stocks. Given my
greater caution this year, the 2017 portfolio contains eight
income and only two growth stocks. Hence the portfolio's
benchmark will be a weighted average of 80% YLCO and 20% PBW.
The Making of 10 for 2017
Over the last few decades, stock market research has poked a number
a gaping holes in the basic assumption of Modern Portfolio Theory
that, other than diversification, there is no reliable way to reduce
portfolio risk without sacrificing expected returns. Several
of these potentially counter-intuitive findings have become
important to my investment selection process:
- Selecting high dividend stocks reduces portfolio risk without
reducing expected returns. When the stocks are small and
mid-cap stocks, expected returns actually increase. (What
Difference Do Dividends Make? C. Mitchell Conover, CFA,
CIPM, Gerald R. Jensen, CFA, and Marc W. Simpson, CFA)
- Selecting stocks with low market correlation (Beta) or low
volatility reduces risk without sacrificing returns. (Low-Risk
Investing without Industry Bets Clifford S. Asness,
Andrea Frazzini, and Lasse H. Pedersen, and many others.)
- Small capitalization stocks and stocks with lower liquidity
tend to outperform their larger and more liquid counterparts. (Liquidity
and Stock Returns, Yakov Amihud and Haim Mendelson)
- Selecting a portfolio of individual stocks is a more effective
way to take advantage of multiple such market anomalies than
buying a collection of "Smart Beta" ETFs, which only focus on
anomalies individually. (Fundamentals
of Efficient Factor Investing, Roger Clarke, Harindra de
Silva, CFA, and Steven Thorley, CFA)
You will find that this year's list tilts towards high dividends
(average yield 6%), and low Beta (average Beta 0.63 - anything
less than 1 is low.). All are small capitalization stocks,
or near that range ($300 million to $2 billion) in market
capitalization. Other factors I consider are traditional
value metrics such as EV/EBITDA, Price to Book ratio, and dividend
coverage, and trading of the stock by company insiders. This year,
I've also added my own estimates of the risks and potential
rewards of action by the Republicans in Congress and the White
I believe that technology continues to advance, and that the
world and individual US states will continue confronting our
environmental problems no matter what the federal government
does. I'm also a moral investor, with the core belief that
the actions taken by companies I invest in are as much my moral
responsibility as actions I take myself.
Hence, I only consider green companies for this list and my
managed portfolios. That does not mean just wind, solar and
electric cars. It means that the company should be doing net
good for the environment. For each company, I ask myself,
"If this company did not exist, would the
environment be worse off?"
If the answer is "yes," then I'll consider the
company for my portfolio. This can lead to a few
unconventional picks. In this list are companies
involved in energy
from waste (Covanta (CVA))
and container shipping (Seaspan
SSW-PRG). Another is an insulation company whose
main customers are fossil fuel drillers and refiners.
These companies are, in my opinion, better for the
environment than the alternatives (landfills, air transport
or less efficient container shipping, and oil refining with
less effective insulation.) You may disagree on these
admittedly qualitative judgements. If you do, you
should omit these specific stocks from you portfolio.
Ten Clean Energy Stocks for 2017
Below is Ten Clean Energy Stocks for 2017 list, along with some
of the metrics discussed in the stock selection section
above. Data is as of December 31st, 2016.
|Pattern Energy Group
|8point3 Energy Partners
|Hannon Armstrong Sustainable Infrastructure
|NRG Yield, A Shares
|NextEra Energy Partners, LP
|Covanta Holding Corp.
|Seaspan Corporation, Series G Preferred
|Aspen Aerogels, Inc.
Below I describe each of the stocks and groups of stocks in more
detail. I include with each stock "Low" and "High" Targets,
which give the range of stock prices within which I expect each
stock to end 2017. In 2016, all but two of the stocks ended
the year within these ranges. One (Terraform Global GLBL
ended the year 1% below my low target, and another (Enviva EVA
ended 3% above my high target.
Yieldcos are companies with a business focused on the ownership
or financing of of operating clean energy assets, and use most of
the resulting cash flow to pay dividends to shareholders.
Operating clean energy assets include wind farms, solar farms,
biomass and biofuel plants, and other sustainable infrastructure
which reduces overall greenhouse gas emissions. Yieldcos
often have a developer "sponsor" which holds a majority of the
Yieldco's stock, and gives the Yieldco the first opportunity to
buy many of the developer's projects, called a "Right of First
Offer" or ROFO.
Because Yieldcos own existing infrastructure and sell renewable
energy, they are much less dependent on the continuation of
government subsidies for clean energy than many renewable energy
companies that have to sell or install products to make a profit.
The stability of Yieldco cash flows (and dividends) depend much
more on counter-parties (usually investment grade utilities)
living up to their obligations than on government policy.
Even wind farms, which often receive an ongoing tax subsidy in
the form of the federal Production Tax Credit (PTC) are relatively
safe. When the PTC has been allowed to lapse in the past,
the change has only applied to new wind farms, not wind farms
already in production.
This stability and current low valuations led me to include six
Yieldcos in the list for 2017. The current low valuations
mean that most Yieldcos cannot now issue new stock to fund
acquisitions and grow quickly, but the resulting high dividends
mean that there is significant protection against further declines
because income investors do not require significant growth
prospects to buy high dividend stocks as long as they believe the
dividend is safe.
The biggest risk from a Trump administration for Yieldco
investors is the same as the risk borne by every income investor:
Increased spending and tax cuts may lead to ballooning federal
deficits, which will in turn cause interest rates to rise.
Rising interest rates could make Yieldco stock prices fall in
order for the yield to rise along with other interest rates.
I believe that most Yieldco prices have already fallen enough to
account for most of this risk.
Pattern Energy Group
12/31/16 Price: $18.99. Annual Dividend: $1.63
(8.6%). Expected 2017 dividend: $1.64 to $1.67. Low
Target: $18. High Target: $30.
Pattern is a Yieldco owning mostly wind projects in North
America. While Pattern is smaller than most other Yieldcos,
and has a more limited development pipeline from its sponsor, it has
historically been able to acquire new projects at higher cash flow
yields than its bigger rivals with higher profile sponsors.
This advantage is in large part due to Pattern's focus on the less
competitive market for wind farms (as compared to solar
Wind Yieldcos vs. Solar Yieldcos
Wind farms also tend to have higher returns than solar because wind
production varies more from year to year than solar, and the higher
cash flow yields are compensation for higher risk.
One other advantage of wind over solar for Yieldcos is very long
term. Wind farms need large scale to be cost competitive, and
certain locations such as ridges have much better wind resources
than most other locations nearby. These factors mean that, in
15 or 20 years when utility power purchase agreements (PPAs) expire,
the utility will have difficulty replacing the power from an
existing wind farm with another next door. This is much less
the case with solar, where my neighbor's solar resource is almost
identical to mine.
I believe that wind farms will have higher residual value at the end
of their power purchase agreements than will solar farms. The
wind farm location and existing towers should retain more value even
in the face of the falling price of wind technology than will the
location and other infrastructure of solar farms.
Pattern's stock has sold off since its third quarter earnings call
when the company announced that it had discovered a material
weakness in its internal controls over financial reporting. As I
wrote at the time
, a weakness in financial controls means that
they believe it would be possible for some financial data to be
misreported, not that this has happened. The weakness arose
because the company's systems had not kept up with rising headcount
The company is working to fix this, but it will probably take a
couple more quarters. Unless some material mistakes are
found in the meantime, the stock should recover when it reports the
problem has been resolved.
Energy Partners (NASD:CAFD)
12/31/16 Price: $12.98. Annual Dividend: $1.00 (7.7%). Expected
2017 dividend: $1.00 to $1.05.
Low Target: $10.
High Target: $20.
8point3 is a solar-only Yieldco started by joint sponsors, First
and SunPower (SPWR
Because of recent
rapid decline in the price of solar modules
, both have
recently been struggling
to find a way to profitability
On the sunny side, 8point3 has relatively little debt compared to
most Yeildcos, and this relatively low debt give it great
flexibility even in the face of weak sponsors. All of this
debt is held at the company level (other Yieldcos use specific
projects to back much of their debt.) Company level debt
typically has a slightly lower interest rate than project level
debt, and it typically requires only interest payments. Both
of these factors help increase short term Cash Available For
Distribution (CAFD, and the reason for 8point3's choice of ticker
symbol.) High current CAFD allows 8point3 to pay a higher
dividend than it otherwise would.
On the cloudy side, CAFD's focus on solar and its reliance on
non-amortizing company level debt could be storing up trouble for
the long term, when PPAs start to expire in 15-20 years. As I
discussed in the Pattern Energy section, I believe that solar farms
will have greatly diminished cash flows and residual value when
8point3's current PPAs expire. While project level debt is
paid off over the life of the project PPA, company level debt is
not. Unless 8point3's share price recovers in the next few
years, allowing the company to return to growth, 8point3 Partners
could face the prospect of greatly diminished income and
undiminished debt when PPAs begin to expire in 15-20 years.
Fifteen years is a long time, so it is not yet time to run from the
shadow of this possible future, but it does make sense to expect a
slightly higher dividend from 8point3 than other Yieldcos in order
to compensate for this risk. 7.7% will do the trick for me.
Sustainable Infrastructure (NYSE:HASI)
12/31/16 Price: $18.99. Annual Dividend: $1.32
(7.0%). Expected 2017 dividend: $1.34 to
$1.36. Low Target: $15. High Target: $30.
Hannon Armstrong is a Real Estate Investment Trust and investment
bank specializing in financing sustainable infrastructure.
It's a leader in the disclosure of the net effect on greenhouse
gas emissions caused by its activities. Hannon Armstrong has
been in this list since 2014, the year after it became public.
Hannon Armstrong is unique among Yieldcos in two ways.
First, it invests in senior securities of clean energy projects,
meaning that Hannon Armstrong will be paid before equity investors
such as the other Yieldcos. It also has a broader focus, and
its expertise in in financing allows it to invest in energy
efficiency projects as well as the energy production and
transmission infrastructure that other Yieldcos invest in.
When Hannon Armstrong's stock price is strong, it issues new
stock in secondary offerings, and uses that money to invest in
projects. This boosts the long term growth of the dividend.
When the stock price is relatively weak, it continues to finance
clean energy projects, but it sells the assets to third
parties. This boosts short term earnings, but does not help
the dividend in the long term. The bursting of the 2015
Yieldco bubble kept HASI's stock priced depressed in early 2016,
and the company did more than the usual number of third party
financings. It signaled a planned return to investing on its
own account in the second half of 2016, but the lower level of
investment had the effect of lowering its dividend growth for 2017
to 10%, compared to the 12-15% it had grown in previous years.
The election result, the lower than expected dividend increase,
and two negative articles from a short seller on Seeking Alpha
have combined to push the stock price down almost to its level at
the start of 2016, when it was already cheap. With a 10%
dividend increase since then, this is the best opportunity to buy
Hannon Armstrong since early 2015.
Hannon Armstrong unique and relatively low risk business model
should make it a core holding for any investor wanting to invest
in clean energy. If you do not already own it, this is an
excellent entry point.
Yield, A shares (NYSE:NYLD/A)
12/31/16 Price: $15.36. Annual Dividend: $1.00 (6.5%).
Expected 2017 dividend: $1.00 to $1.10. Low
Target: $12. High Target: $25.
The term "Yieldco" was first applied to NRG Yield (NYLD
and NYLD/A), and the company rode the Yieldco bubble in 2014 and
early 2015. During this period, I was often short the stock,
as a hedge against the other, significantly better valued,
Yieldcos. I added NRG Yield to the list last year, and the
stock has advanced along with its dividend.
The company's parent, NRG, develops both conventional and renewable
energy projects, but remains committed to large scale renewable
projects suitable for acquisition by NRG Yield. Such dropdowns
will be limited, however, until the Yieldco's stock price recovers,
allowing it to issue new equity to fund the acquisitions.
NRG Yield remains in the 2017 list because of good traditional
valuation measures (Price/Book and EV/EBITDA) and significant
insider buying of the stock.
The reason I focus on the less liquid A shares rather than the more
liquid and widely held C shares (NYSE:NYLD
is because this list is mostly targeted towards small investors for
whom A shares should be sufficiently liquid for unconstrained
trading. Other than liquidity, all the advantages lie with
NYLD/A. Both classes of stock pay the same absolute dividend,
but A shares are less expensive and produce a higher yield. A
shares also have more votes, which will make them more valuable in
any potential restructuring of the Yieldco.
Large investors who do face liquidity constraints may consider
splitting their purchase between the two share classes.
Yield, PLC (NASD:ABY)
12/31/16 Price: $19.35. Annual Dividend: $0.65 (3.4%).
Expected 2017 dividend: $0.65 to $1.45. Low Target: $10.
High Target: $30.
Atlantica Yield was formerly called Abengoa Yield after its now
bankrupt sponsor, Abengoa
. Over the last year, Atlantica has made substantial
progress disentangling itself from its former sponsor. Most
importantly, it has achieved full autonomy and is now responsible
for the entirety of its own operations.
The main remaining obstacle to its divorce from Abengoa are waivers
to covenants on certain project debt which were triggered by
Abengoa's bankruptcy. The largest of these are needed from the
US Department of Energy due to loan guarantees granted as part of
the ARRA financial stimulus package in 2009. The Yieldco
states that these negotiations are "very advanced" and I expect that
the DOE will do everything in its power to finalize them before
control shifts to the new administration on January 20th.
If it fails to do so, the likely new Energy secretary Rick Perry has
shown himself to be pro-business when it comes to clean energy
technologies, despite his denial of the science of climate
change. He had a record of promoting renewable energy as an
economic driver in his 14 year term as governor of Texas. I
expect that Secretary Perry will focus on dismantling those parts of
the Department of Energy which he believes interfere with companies'
ability to go about their business. I expect that will include
granting the necessary waivers to Atlantica.
As Atlantica is able to finalize the necessary waivers, it will
increase its dividend accordingly. If all had been achieved at
the end of the third quarter, that would have been an annual
dividend of $1.45, or a current yield of 7.5%.
NextEra Energy Partners (NYSE:NEP)
12/31/16 Price: $25.54. Annual Dividend: $1.36 (5.3%).
Expected 2017 dividend: $1.38 to $1.50. Low
Target: $20. High Target: $40.
NextEra Energy Partners' is the poster boy for the widely held
investor belief that Yieldco's with strong sponsors deserve a
premium price. I have long been skeptical of this belief on
the grounds that the main constraint on Yieldco growth is not access
to quality projects from a sponsor, but access to inexpensive
capital from investors. But Yieldcos with strong sponsors do
command a premium, and that can help the Yieldco to grow faster as
long as the premium lasts.
That strength lasted for NRG Yield until NRG ran into trouble in
2015. Along with the Terraforms (TERP
and Atlantica, NRG Yield proved that the sponsor could as easily be
a source of Yieldco weakness as a source of strength. Uniquely
among Yieldcos, NEP's sponsor, NextEra (NEE
When NextEra was trading at $40-$45 in 2014 and 2015, it topped my
list of overvalued Yieldcos. In early 2016 at the bottom of
the Yieldco bust, it traded as low as $23, and I missed a chance to
buy it because I was using all the available capital I had (as well
as some borrowed money) to buy other massively undervalued Yieldcos
I was more familiar with, and which had higher yields. I took
profits on most of those trades last summer and fall. NEP is
now starting to look relatively fairly valued because of a
combination of strong dividend growth and a relatively flat stock
trajectory. Unless the stock recovers, even NEP will not be
able to achieve its annual 12% to 15% distribution growth targets
through 2020, but a 5.3% current yield is high enough that I'm now
willing to buy some and wait to see.
Other Income Stocks
Covanta Holding Corp. (NYSE:CVA)
12/31/16 Price: $15.60. Annual Dividend: $1.00
(6.4%). Expected 2017 dividend: $1.00 to
$1.06. Low Target: $10. High Target: $30.
Covanta is the US leader in the construction and operation of
waste-to-energy plants. These plants incinerate trash (often
called municipal solid waste or MSW) and use the resulting heat to
generate electricity. Recyclable metals are recovered from
Waste to energy has a bad name among many environmentalists
because it is a less valuable use for recyclable materials, and
because improperly operated incineration of waste can lead to
toxic emissions, such as dioxins, especially if the combustion
temperature is too low. I include Covanta as a green stock
because, as I discussed above, I believe its operations are a net
positive for the environment. The MSW Covanta burns includes
some recyclables, but this is also true for any MSW which is
headed for landfills. In a landfill, the organic component
of MSW emits methane which is an extremely powerful greenhouse
gas, and the incineration allows the recovery of metals which
would otherwise be land filled. Electricity generated from
waste displaces electricity which might otherwise be generated
from fossil fuels.
When it comes to dangerous pollutants from incineration, Covanta
has shown that it has the technical capabilities to operate
safely, and emissions from incineration must also be compared to
emissions from land filled waste and from the electricity
generation that Covanta's operations displace.
Trump and Covanta
In addition to an attractive current valuation, high yield, and
strong insider buying, Covanta is well placed to benefit from
possible initiatives of a Trump administration.
First, while Covanta is quite capable of controlling the
emissions of its plants, loosening limits on power plant emissions
in order to benefit coal are equally likely to benefit
Covanta. Second, any large investment in domestic
infrastructure is likely to increase the production of waste going
to Covanta's facilities, and to increase the prices of the metals
Seaspan Corporation, Series G Preferred (NYSE:SSW-PRG)
12/31/16 Price: $19.94. Annual Dividend: $2.05
(10.3%). Expected 2017 dividend:
$2.05. Low Target: $18. High Target: $27.
Seaspan is a leading independent charter owner of container
ships. On the whole, its fleet is newer, has larger
capacity, and is more efficient than the worldwide fleet.
Container shipping is in the depths of a worldwide downturn,
leading to massive industry overcapacity and low prices for ships
and their leases. The long term nature of Seaspan's
contracts largely insulates it from these prices, but there is
some turnover and leases cannot currently be renewed at prices
which are anything like the old contracts.
While the current environment holds some risk for Seaspan, it
also presents opportunities. The company recently scrapped
some of its oldest ships and was able to replace them with newer,
more efficient ships at close to the scrap price it received for
the older ones. As low prices lead older ships to be
scrapped, the overall supply of container ships will fall.
This will in turn lead to higher leasing prices when the industry
I took an in-depth look at Seaspan and both its common (SSW)
and preferred shares in November. You can read
it here. Since then, the price of the preferred has
fallen slightly, while the common had fallen less. This
makes the case for investing in the Preferred even stronger than
it was then. This investment can be done with or without the
put hedge I describe in the article. I don't think the put
hedge will actually be needed, and I recommend it only for
investors who take very large positions in the preferred relative
to the size of their whole portfolio. This is what I have
done: Seaspan Preferred shares are currently my largest holding.
Seaspan has several other classes of preferred stock, as well as
exchange-traded notes. The notes (SSWN) have not fallen
nearly as much as the preferred series have, so I find them less
interesting. The different preferred shares are all similar,
varying only in maturity date, interest rate, and market
price. Since I wanted to pick one, I chose G because it is
the farthest from maturity, but series D, E, and H could easily be
Trump and Seaspan
A Trump administration presents some risks for the global shipping
industry because of the President-elect's negative attitude towards
trade. If his aggressive negotiation tactics lead to a global
trade war, it will almost certainly worsen the shipping industry's
troubles. This is part of the reason I strongly prefer SSW-PRG
over the company's common shares. I think it's very unlikely
that the company will cease paying dividends on its preferred
shares, but a substantial dividend cut on the common shares is very
likely. I may become interested in buying SSW after that cut
happens, if the cut is large enough that I become confident there
are no further cuts in the future.
MiX Telematics Limited
12/31/16 Price: $6.19. Annual Dividend: $0.14
(2.3%). Expected 2017 dividend: $0.14 to
$0.16. Low Target: $4. High Target: $15.
MiX provides vehicle and fleet management solutions to customers
in 112 countries. The company's customers benefit from increased
safety, efficiency and security. The company's core
customers are large, international corporations with large
fleets. Many of these customers are in the oil and gas
industry, and these have been reducing their vehicle fleets during
the oil price downturn. The oil price recovery, which seems
to have begun because of OPEC's recent agreement to limit output
should contribute to MiX's growth this year. Despite the oil
price headwind, MiX has managed year over year subscription growth
of 10% or more in recent quarters.
Many of MiX's other customers are in the logistics and
transportation industries. All customers benefit from
reduced fuel usage, better safety, and lower insurance premiums
after implementing the company's vehicle management
solutions. Even when fuel prices are low, the increased
safety and insurance savings can easily pay for MiX's services.
In August, MiX repurchased 25% of their outstanding stock with
cash on hand. This will lead to a 33% year over year growth
in revenue and earnings per share for the next few quarters.
Trump and MiX
Aspen Aerogels (NYSE:ASPN)
If Trump manages to accelerate the oil and gas drilling in the
US, it should cause MiX current customers to purchase more
vehicles, automatically adding to MiX's subscriber base. If
large industrial companies are involved in promised infrastructure
investment or border-wall building, this will also add to the
growth of the fleets of MiX's current customers, easily adding to
MiX's top line growth without the cost of new sales.
12/31/16 Price: $4.13. Annual Dividend and expected 2017
dividend: None. Low Target: $3. High Target: $10.
Aspen Aerogels manufactures one of the highest performing types of
insulation available with current technology. The company's
largest markets are in the most demanding industries where aerogel's
high R value, moisture resistance, and ability to withstand extreme
temperatures command a substantial premium. The company's
largest applications are in refining. petrochemical processing,
liquified natural gas (LNG), and power generation. The company
is expanding into building products through a license agreement with
2016 earnings have been disappointing for Aspen because of low oil
and gas prices (which affect its refining and subsea markets), and
because it has had to pursue patent enforcement actions at the US
International trade Commission and in German courts.
The general uncertainty in the energy industry and the slowdown in
its subsea markets has led Aspen to delay plans for a new
manufacturing plant. Construction of this plant had previously
been planned to begin this year. Management will commence
ordering long lead time items needed for construction when they are
again confident that end markets will support the additional supply.
Aspen and Trump
Recovering oil markets and offshore drilling should cause demand for
Aspen's products to follow suit, but its status as a supplier to the
oil industry means that an oil industry revival is not yet reflected
in the stock price.
The disappointments of 2016 give investors the opportunity to
purchase this company with its leading energy efficiency technology
at a substantial discount to its 2014 IPO price of $11.
What's Not In The List
I emailed a draft version of this article a day to a number of
paying subscribers, and asked for their feedback. (I'm
thinking about launching a premium service, and wanted to get a
feel for demand from people who were actually willing to
pay. One common question was about the stocks that did not
quite make it, and the changes from the 2016 list. I will
write a Year in Review article discussing the stocks in the 2016
The reason I don't typically mention stocks other stocks that I
consider is simply to keep the workload down. There are five
stocks that almost made it and are also in my portfolio.
Here are the tickers: TSX:PIF,
The incoming Trump administration and Republican Congress promise a
weakening of federal support for many types of clean energy and
stronger support for its fossil fuel competitors. This has not
been lost on investors, who have been selling most well known clean
energy stocks since the election.
Despite investors' understandable fear, many if not most clean
energy companies are unlikely to be harmed by the actions of a Trump
administration. US support for clean energy has always been
tepid, with the Republican Congress blocking most of the Obama
administration's efforts for the last eight years. The US has
never given clean energy the support it deserves given the severity
of the climate crisis, and coming attempts to withdraw what little
support there is and bolster fossil fuel industries will come as
advancing clean technology is increasingly making those fossil
technologies obsolete. The transition to a clean energy
economy can be slowed, but at this point it is inevitable.
Green minded investment advisors and climate activists I have been
speaking to have also noticed another effect of the election.
Voters who understand the challenge of climate change are reacting
to frustration at the ballot box by looking for other levers they
can pull to create change. Environmentally responsible
investing is one such massively underused lever. The fossil
fuel industry's market cap is gigantic, while the market cap of all
clean energy companies is tiny in comparison. A small shift of
investment out of fossil fuels into clean stocks will not do much to
hurt fossil fuel companies, but it can do a lot to help their clean
Selecting lower-risk clean energy companies such as most of the ones
in this list means that the environmental investment lever can be
pulled without increasing the risk of most investors'
portfolios. And it can do a lot for the companies you
buy. Most of the Yieldcos in this list were beginning to issue
new shares to acquire more assets and grow last summer, when stock
prices had only recovered to a fraction of their losses from the
popping of the 2015 Yieldco bubble. Bringing their stock
prices back up to those levels will mean their growth will resume,
and continue to finance new wind and solar farms.
It's even harder to predict what will happen to the stock market in
2017 than usual. Certain market sectors like banking seem
overvalued, but when I look at these stocks, I think they are
undervalued. The broad market is overdue for a correction, but
Yieldcos have already had one. With this backdrop, I am buying
well valued stock opportunistically, but keeping a large allocation
of cash in reserve in case we have a real market crash.
Disclosure: Long HASI, MIXT, PEGI, NYLD/A, CAFD, CVA, ABY, NEP,
SSW-PRG, ASPN, GLBL, TERP. Long puts on SSW (an effective
short position held as a hedge on SSW-PRG.)
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