Tom Konrad CFA

While the sun was shining on most clean energy stocks in April, my ten clean energy picks for 2013 (introduced here) got relative showers.  The Powershares Wilderhill Clean Energy Index (PBW) was up a sunny 14.1% for April to 19.6% for the year, rising quickly past my picks, which inched up a relatively meager 0.7% to 7.5% for the year so far.  Meanwhile, the broad universe of small stocks gained 2.6% for a year to date gain of 15.1%, as measured by my benchmark the iShares Russell 2000 Index (IWM).

The low volatility of my relatively value-oriented picks is so far looking less attractive than it has in previous years, now that my clean energy benchmark is on track for what looks like excellent performance.  Nevertheless, I remain optimistic that the clouds will pass for many of these stocks which have so far failed to catch investor attention.

The chart and table show individual stock performance for my ten picks plus the six alternative picks I presented in a second article.  Note that the fourth stock in the list is now Ameresco (NASD:AMRC), which I substituted for Maxwell Technologies (NASD:MXWL) last month.  The return shown is that for Maxwell for Q1 and Ameresco for the last month.  Unmixed returns for these two stocks are shown in the 'Six more' section.

 

Significant Events

Below, I highlight significant events I feel affected performance of the stocks in these two lists. 

Ticker	Company	April USD Return
TSX:WFI	Waterfurnace Renewable Energy	-1.1%
NASD:LIME	Lime Energy	0%
TSX:PFB	PFB Corporation	-10.8%
NASD:AMRC	Ameresco, Inc.	-0.6%
Amsterdam:ACCEL	Accell Group	9.8%
NASD:ZOLT	Zoltek Companies, Inc.	6.6%
NASD:KNDI	Kandi Technologies	6.2%
TSX-V:FVR	Finavera Wind Energy	-15.0%
TSX:AXY	Alterra Power	8.9%
NYSE:WM	Waste Management	7.0%
Alternative picks
TSX:NFI	New Flyer Industries	-5.2%
NYSE:LXU	LSB Industries	-0.6%
NASD:MXWL	Maxwell Technologies	13.4%
NYSE:PW	Power REIT	-0.8%
NYSE:HTM	US Geothermal	-13.2%
TSX:RPG	Ram Power Group	-9.3%

Ameresco, Inc. (NASD:AMRC)

Turnkey energy efficiency and renewable energy solution provider and performance contractor Ameresco spent its first month in the main portfolio going nowhere, but I see two developments behind the scenes which bode well for its long-term prospects.  First, there seems to be some bipartisan support in Congress for action on energy efficiency, which is Ameresco's bread and butter. 

Second, in the course of its IPO, Hannon Armstrong Sustainable Infrastructure (HASI) revealed that it had received a private letter ruling from the IRS which allows HASI to treat the securitized performance contracts it specializes in as mortgages on real estate assets.  This means performance contracts can be held within the in tax-advantaged REIT structure, and, over the next couple years, should open up a new source of low cost capital to be deployed by performance contractors such as Ameresco.

Accell Group (Amsterdam:ACCEL)

Bicycle manufacturer and distributor Accell Group held its annual general meeting (AGM) where shareholders approved its €0.75 (5.6%) annual dividend.  The Stock went ex-dividend on April 29th, but still ended up 4.2% for the month.  Although the annual report was published in March, the stock seemed to be responding to positive comments in the AGM presentation (Google translation).

Accell grew sales by 20% from acquisitions and 3% organically in 2012, despite a tough bike market, led by strong electric bike and North American sales but hurt by slow sales in its Dutch home market, where the company will conduct a reorganization to cut costs. 

The company announced it had arranged for up to €300 million in credit from six banks, which the company intends to use to pursue further acquisitions on top of expected sales and profit growth.  Accell is well placed as an experienced consolidator in a fragmented industry given its access to capital when many smaller brands and distributors are having difficulty raising financing.

Zoltek Companies (NASD:ZOLT)

Carbon fiber manufacturer Zoltek continued to appreciate.  I took the opportunity to reduce my exposure to this stock because the promise of further gains have to be set against the risk that the company's board is using its review of strategic options (discussed in the last update) as a pretext, and is not serious about considering the proposals put forward by turn-around specialist Quinparo group and its allies, or any other outside offers. 

Kandi Technologies (NASD:KNDI)

Chinese EV and off road vehicle manufacturer rallied on announced progress in its joint venture with leading Chinese Auto manufacturer Geely, as well as a series of positive articles from its supporters on Seeking Alpha.  Although the company is exceedingly cheap by any conventional valuation, its shares have long been held back articles alleging improprieties in the way it went public in the US through a reverse merger and misreporting of its US EV sales from 2009 to 2011. I had intended to boost the stock myself by tackling these allegations head-on in an article last month, but instead found myself troubled by the misreported sales.

Kandi's supporters will say that all this is ancient history, and the result of inadvertent errors which have since been corrected..  The problem with history, ancient or otherwise, is that if we don't learn from it, we're doomed to repeat it.  Much of Kandi's recent progress is corroborated by third party sources, and I'm confident that Kandi will benefit from Beijing's push for rapid growth in EV sales if any automaker does.  However, the history of exaggeration by the company has undermined my confidence in Kandi's financial reporting.  The all-important numbers in Kandi's financial reports remain impossible to corroborate.  Did Kandi really sell almost 4,000 EVs in 2012, as the company claims and I relayed in the last update?  I find it impossible to be sure.

Given these doubts, I took advantage of the recent rally to greatly reduce my exposure to the stock.

I still plan to write that article, after interviewing both Kandi's supporters and detractors.  Perhaps one side or the other will help me make up my mind.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)

Wind developer Finavera finalized its long-awaited agreement with Pattern Energy holdings.  The revised deal is smaller than the companies had originally envisioned in December, but still contains the most important aspects which should solve Finavera's liquidity problems.  I interviewed Finavera's CEO and covered the finalized deal in detail here.

Alterra Power (TSX:AXY, OTC:MGMXF)

Diversified renewable energy developer Alterra power seems to have bottomed, with the turn-around likely triggered by a purchase of 15 million shares of stock by well respected mining magnate Ross Beaty.  Beaty, who is Alterra's founder and chairman, says the stock should be worth C$0.90, not the C$0.32 it is currently trading for.  He intended his purchase to demonstrate that conviction, and hinted that the might buy the whole company and take it private if the stock stays at its current levels.

At the end of the month, Alterra announced a partnership with Greenbriar Capital to (TSXV:GRB) develop 100 MW of solar in Puerto Rico.  This fits well with Alterra's strategy of diversifying into solar and wind from its base of geothermal and run-of-river hydropower assets, so I would not have considered it even worth mentioning except that Greenbriar's CEO is none other than Jeff Ciachurski, whom I am all to familiar with after covering Western Wind Energy for over two years.

Ciachurski built up Western Wind from nearly nothing to a sale for C$182 million to Brookfield Renewable Energy Partners (TSX:BEP-UN, OTC:BRPFF) in March while relying entirely on bank financing.  Shareholders like myself who got in at the right time did very well, but a development partnership with Pacific Hydro ended in a lawsuit and eventual settlement, with Western Wind keeping the development assets. My assessment of Ciachurski is that he is good at developing renewable energy projects on a shoestring, and working the system of a public company to pay himself very handsomely for doing so.  Shareholders and development partners may also profit, given good timing and better legal representation.

I trust that Alterra's management is well aware of this, and Alterra's CEO and IR representative have agreed to an email interview in which I hope to get some more insight into their perspective on the Greenbriar partnership.  I suspect they are already aware of my opinion of Ciachurski: When I first inquired about an interview, Alterra's IR representative was confident I could speak with Alterra's CEO, John Carson.  A day later, he got back to me, saying Carson was unavailable for an interview, but he would relay my questions.  I suspect that someone at Alterra made the connection to my rather public disagreement with Ciachurski over the sale of Western Wind to Brookfield in the intervening day, and they were worried I might ask Carson uncomfortable questions about the relationship.

Waste Management (NYSE:WM)

Waste Management was up 7% in April. The company's first quarter results missed expectations by a penny, but analysts liked what they heard about the company's expectations of future profits, based positive pricing trends, an increase in volumes in the first quarter, and cost control. 

Six Alternative Clean Energy Stocks

LSB Industries (NYSE:LXU)

Chemicals and climate control company LSB Industries also seems to have bottomed out.  In the absence of news, I think much of its decline since the start of February may be explained by rising prices for natural gas, but the stock seems to me to have fallen too far.  While I was selling when the company was over $42 in February, I was buying in April when the company was below $32.

Maxwell Technologies (NASD:MXWL)

Ultracapacitor firm Maxwell rallied 13.4% on the back of unaudited financial highlights for the fourth quarter (Q4) of 2012 and first quarter (Q1) of 2013.  Invoiced shipments were down 1.5% compared to reported revenues from the previous year in Q4, but up 19% in Q1 from the previous year's reported revenue.  The company is not currently reporting quarterly revenues because improper revenue recognition is why the company is having to restate previous financial statements.  The company attributes the strong Q1 invoicing to a surge in demand for ultracapicitors for buses in China after a government subsidy program was reinstated, but is unable to predict if this demand will prove durable.

Perhaps Lime Energy's (NASD:LIME) stock would be doing better if they'd taken a page from Maxwell's book and provided unaudited quarterly updates on sales even while they are sorting through the mess of the last several years' financial statements.

Power REIT (NYSE:PW)

Power REIT took one more step along the road to becoming a renewable energy focused Real Estate Investment Trust by signing a term sheet for the acquisition of 100 acres of land underlying approximately 20MW of to-be-constructed solar projects with existing power purchase agreements to sell power to Pacific Gas and Electric (NYSE:PCG) and Southern California Edison (NYSE:SCE.)  PW will pay approximately $1.6 million for the land.  Unlike PW's proof of concept deal for land under a solar farm signed in December, this deal is with an established solar developer with a proven track record. As such, it could lead to a series of future deals with PW providing the financing for land under many solar project in the future.  Such an assembly line approach will be key to PW building its portfolio of renewable assets without excessive demands on management time.

Power REIT plans to finance the deal with a combination of equity and debt.  The equity will be raised under PW's existing At Market Issuance Sales Agreement, meaning that the stock will be sold to ordinary investors bidding on the New York Stock Exchange.  Investors who buy shares in PW over the coming months will have a good chance of having their money go directly to finance these solar projects.

US Geothermal (NYSE:HTM)

US Geothermal's long time CEO Daniel Kunz retired and was replaced by Dennis Giles, who brings with him 23 years of experience at Calpine Corporation (NYSE:CPN), a leading independent natural gas and geothermal independent power producer.  Kunz will stay on as a consultant to advise the transition for one year.  The stock fell on the news, and I used the dip to increase my position because I expect the company to achieve its first full year of profitability in 2013 with earnings in excess of $0.04 per share based on power sales from its operating plants.  At $0.33, that would give HTM a forward price/earnings ratio of 8 or lower, which I consider attractive.

The company also has room for growth from its expansion plans at existing plants, and, longer term, the commencement of drilling at its El Ceibillo project in Guatemala.

Conclusion

My swap of Maxwell for Ameresco last month proved poorly timed, but this portfolio is designed as a tool for infrequent traders.  It's only under extraordinary circumstances that I move any stocks into or out of the portfolio in the middle of the year.  This can be seen from the fact that I sold much of my holdings of both Kandi and Zoltek in April, but I'm leaving both in portfolio.

The blistering performance of my clean energy benchmark PBW in April has much to do with a rally of always volatile solar stocks.  I can't say if that rally will continue for the rest of the year.  I've spent so long focusing on other clean energy sectors because of the poor industry structure I see in Solar that I simply don't have the solar expertise to judge if this current solar rally is the start of something bigger, or will prove to be just one more abortive flash in the pan.

A continued economic recovery along with industry consolidation could continue to allow solar stocks to shine, with other clean energy stocks following close behind.  On the other hand, such trends can reverse as quickly as they started.  This is why I've significantly reduced my exposure to Zoltek  and Kandi.  At Zoltek, price appreciation has reduced the inherent protection of the company's former inexpensive valuation.  At Kandi, the valuation still appears extremely cheap, but I've become more cautious about judging the company solely on appearances. In both cases, discretion seems the better part of valor.

Disclosure: Long WFI, LIME, PFB, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG.  Short: MXWL.

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.

Posted by Tom Konrad at 11:33 PM | Permalink | Comments (3)

Tom Konrad CFA

March Clip Art by Phillip Martin

While the broad market of small stocks as measured by my benchmark the iShares Russell 2000 Index (IWM) managed to turn in a small 2% gain in March for the third month in a row, clean energy stocks repeated February's performance, giving back more of January's spectacular gains.  My clean energy benchmark, the Powershares Wilderhill Clean Energy Index (PBW), declined 3.2% to end the quarter up 5.5% for the year, while IWM closed up 12.2% for the first quarter..

As designed, my ten clean energy picks for 2013 (introduced here) again weathered the downdraft of the broader clean energy sector, a relative stability which comes at the expense of not participating in the clean energy sector's periodic blistering rallies.  For the month, my model portfolio was flat, turning in a total return of 6.8% for the first quarter.  For the first time this year, my portfolio has closed ahead of its industry benchmark, although it still lags the broader market.

The chart and table show individual stock performance for my ten picks plus the six alternative picks I presented in a second article.

Significant Events

Below, I highlight significant events I feel affected performance of the stocks in these two lists. 

Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF)
Geothermal heat pump manufacturer Waterfurnace reported 2012 annual and fourth quarter results on March 13th.  The headline numbers were weak, but the outlook was strong.  In the conference call, management said they expect a much stronger 2013:  Heat pump sales tend to lag housing starts by six to nine months, and the housing market has recently been recovering.  While most of my managed portfolios are already heavily invested in Waterfurnace, I added it as a holding to a hedge fund which I co-manage.

Ticker	Company	March USD Return
TSX:WFI	Waterfurnace Renewable Energy	3.6%
NASD:LIME	Lime Energy	-5.4%
TSX:PFB	PFB Corporation	-5.5%
NASD:MXWL	Maxwell Technologies	-39%
Amsterdam:ACCEL	Accell Group	-4.2%
NASD:ZOLT	Zoltek Companies, Inc.	46%
NASD:KNDI	Kandi Technologies	6.7%
TSX-V:FVR	Finavera Wind Energy	5.4%
TSX:AXY	Alterra Power	-16%
NYSE:WM	Waste Management	5.6%
Alternative picks
TSX:NFI	New Flyer Industries	2%
NYSE:LXU	LSB Industries	-14.2%
NASD:AMRC	Ameresco, Inc.	-8.4%
NYSE:PW	Power REIT	-1.2%
NYSE:HTM	US Geothermal	12.4%
TSX:RPG	Ram Power Group	-14.1%

Lime Energy (NASD:LIME)

On March 6th, a NASDAQ hearings panel granted Lime until June 30, 2013 to file all its delayed and restated financial results.  Expect the company to push the deadline.  Unsurprisingly, Lime just announced that its 2012 results would also be delayed until prior years' results are sorted out.

Maxwell Technologies (NASD:MXWL)

Maxwell Technologies gave investors a nasty shock on March 7th, when they announced that some revenue had been booked too early.  When writing an article about it on March 9th, I realized that there would probably be more bad news to come.  Growth in Maxwell's Accounts Receivable was not fully explained by revenue growth and the errors they had reported on the 7th.  Details are here.

I promptly sold in all my managed accounts at $8.  Readers of the article on my Forbes blog should have been able to sell in the $7.90 to $8 range.

On March 19th, Maxwell's independent accounting firm McGladrey LLP resigned.  McGladrey stated that it "could no longer rely on management's representations," and that "there are material weaknesses in [Maxwell's] internal control over revenue recognition and potentially, more broadly, in [its] overall control environment."  

I take the accountants' resignation as likely confirmation of my suspicions, and believe readers should sell even at the current price of $4.98, down 39% for the year.  Hence, I am replacing Maxwell in the portfolio with an equal amount of Ameresco, Inc. (NASD:AMRC,) one of my six alternative picks.   Ameresco is also down this year (-25.9%) but I believe the company's fundamentals are strong, for reasons I will discuss below.

I will substitute the two as if MXWL had been sold at the current (April 2nd) price of $4.98 and Ameresco had been bought at the current price of $7.27.  Although it would be tempting to use their prices when I published my warning about Maxwell, this portfolio is intended to model the results of a small investor who follows my advice, and only trades more than once a year in very unusual circumstances.  Such an investor would likely not be following my writing closely enough to get out as soon as I published my warning.

PFB Corporation (TSX:PFB, OTC:PFBOF)

Green building product manufacturer PFB also reported 2012 results. Headline earnings were ugly, hurt by a slow housing market and a margin squeeze caused by high chemicals costs and a charge due to the failed acquisition of an upstream supplier.  Despite the poor 2012 results, PFB, like Waterfurnace, should be able to benefit from the recovering housing market, and management believes that cash flow is sufficient to protect PFB's C$0.06 quarterly dividend going forward.  I recently added a little to my position at $5.51.

Zoltek Companies (NASD:ZOLT)

Carbon fiber manufacturer Zoltek's recent rise was explained when turn-around specialist investment firm Quinparo partners and allied investors revealed a 10.13% stake in the company and called for a special election to replace the board.  I interviewed Quinparo's founder, Jeffry Quinn, and concluded that the firm would not go quietly, and possibly make a hostile bid for Zoltek (details here.)

On April 2nd, Zoltek announced a "review of its strategic options," part of an agreement with Quinparo to defer the investment firm's special meeting request.  Such a review will almost certainly include an independent evaluation of offers from Quinparo, as well as any other outside bidders which might be interested in the firm.  The stock was up 46% in March, and continues to rally as I write today.

Kandi Technologies (NASD:KNDI)

Chinese ATV and Electric Vehicle (EV) maker Kandi announced 2012 results, with full year revenues up 60.6% and earnings up 33.6% to 30 cents a share.  EV sales for the year were 3,915, with EV revenues up 204% to $19 million.  This was still less than the 1,000 vehicles per month starting in August I expected when Kandi signed their agreement with the city of Hangzhou last July, but Kandi's EV sales are clearly ramping up, and a trailing P/E of 13 is quite cheap for a company growing this quickly.

This morning, Kandi announced the completion of its (and China's) first full-scale EV production line, with annual production capacity expected to reach 100,000 EVs.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)

Finavera is taking longer than expected to finalize its deal with Pattern, announced in December, and the reason I included the stock in my list.  In the meantime, Finavera issued C$42,200 worth of shares at the current market price of $C0.21 a share to settle debts to insiders.  While I don't like even this mild dilution, it does show some faith among insiders that the deal is likely to go through, since a failure of the Pattern deal would be disastrous for the otherwise cash-starved company. 

Alterra Power (TSX:AXY, OTC:MGMXF)

Renewable energy developer and power producer Alterra lost ground because of delays in multiple development projects caused by uncertainty surrounding the terms of one off take power purchase agreement, and planning studies for for a hydropower project being more complex than anticipated.  Also, the possible sale of Alterra's stake in the Icelandic HS Orka geothermal plant has been put on hold because Iceland's capital controls would prevent the repatriation of the sale proceeds.  Instead, Alterra is working to arrange for HS Orka to start paying a small dividend, the proceeds of which should not be affected by the capital controls.

Alterra has trimmed staff and cut overhead to accommodate the delays and preserve cash for its longer than anticipated pre-construction periods.  While the delays reduce the current value of development assets, I don't feel any of these events undermine the original reason I included the stock in my list: the stock price is far below the value of its assets, especially when the stock's recent decline in considered.  I also added to my position in Alterra in March.

Six Alternative Clean Energy Stocks

New Flyer Industries (TSX:NFI, OTC:NFYEF)

Transit bus maker New Flyer also had lower sales and profits in 2012 compared to the previous year, but this was mostly due to a now-resolved supplier quality issue and the delay of a notice to proceed on a large order from the New York City Transit Authority.  Nevertheless, the results exceeded analyst expectations, and the company's backlog continues to grow, most recently with an order for 120 compressed natural gas buses for the city of Phoenix.

LSB Industries (NYSE:LXU)

LSB fell significantly in March, despite beating analyst estimates for both earnings and revenue at the end of February.  My best guess as to the reason for the decline is significant stock sales in the $38-$40 range by a number of insiders.  My regular readers were fortunately able to exit this one as well, since I highlighted it as one to sell at $42 in mid February, after which it traded as high as $42.15.

I'm considering getting back in if it falls below $30.

Ameresco, Inc. (NASD:AMRC)

Performance contractor Ameresco again disappointed expectations in Q4 because many of its clients were delaying making final decisions on previously awarded projects.  Because they are unable to determine when the current climate of uncertainty will end, management revised revenue and earnings guidance for 2013 downward.  The stock fell significantly as a result.  I added to my positions because I like the company's long term prospects and growing backlog, as well as the current price.

Note that I'm going to be substituting Ameresco for Maxwell in the "10 Clean Energy Stocks for 2013" portfolio for the remainder of the year; see the comments under Maxwell above for more details.

US Geothermal (NYSE:HTM)

US Geothermal announced what I expect to be the first of many quarterly profits.  Commercial operations and higher output at multiple geothermal plants achieved in 2012 mean that I expect a profitable 2013 is a near certainty, and will probably be over 4 cents a share for the year.  The company also received a $33 million cash grant for the completion of its Neal Hot Springs project this month.

Ram Power Group (TSX:RPG)

Geothermal developer Ram Power announced 2012 results and raised C$50,855,000 in secured 8.5% debt and $0.30 warrants to refinance the company's outstanding balance on its credit facility, where the company had been paying 16% annual interest, and extended the term to 2018.  Revenue increased six-fold to C$28 million in 2012 from 2011 with Phase I of its signature project operating for most of the year.  The increased revenues narrowed Ram's loss from 64 cents in 2011 to 19 cents per share in 2013.  Most of this loss was due to an impairment charge, and with Phase II having achieved commercial operation in December, we should see a move to positive earnings in 2013.

Conclusion

While I like to be beating my benchmark, I would prefer if clean energy stocks as a whole were ahead of the broad market for once.  Still, I'm happy that the good news at Zoltek offset the ugly surprise at Maxwell.  Such effective diversification is the reason why I chose ten stocks, and not just one or two.  I hope most of my readers also managed to do a bit better than this portfolio by getting out when I raised the alarm about Maxwell on my Forbes blog, rather than waiting until now.

I added to existing positions in several of these stocks in some of the accounts I manage.  Stocks bought are Waterfurnace, Accell, Finavera, Alterra, and Ameresco. I sold Maxwell Technologies, and reduced my exposure to Zoltek by selling calls. New Flyer and PFB Corp were both bought and sold, depending on the need for investment or cash in particular accounts.

Disclosure: Long WFI, LIME, PFB, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG.  Short: MXWL.

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.

Posted by Tom Konrad at 03:55 PM | Permalink | Comments (0)

Tom Konrad CFA

Clip Art by Phillip Martin

February was a month of consolidation after blistering January returns in clean energy stocks, and the market in general.  My clean energy benchmark, the Powershares Wilderhill Clean Energy Index (PBW), declined 2.2%, while the broad universe of small cap stocks which I benchmark with the iShares Russell 2000 Index ETF (IWM) eked out a 0.6% gain.

My ten clean energy picks for 2013 (introduced here), put in a relatively strong showing of  +1.5%, but that still leaves them trailing the benchmarks.  For the year, PBW is up 8.7%, IWM is up 10.1%, and my picks are up 6.8%.

The chart and table show individual stock performance through March first, for my ten picks plus the six alternative picks I presented in a second article.

Significant Events

Below, I highlight significant events I feel affected stock performance. 

Ticker	Company	February USD Return
TSX:WFI	Waterfurnace Renewable Energy	-1%
NASD:LIME	Lime Energy	30%
TSX:PFB	PFB Corporation	2%
NASD:MXWL	Maxwell Technologies	-10%
Amsterdam:ACCEL	Accell Group	-13%
NASD:ZOLT	Zoltek Companies, Inc.	18%
NASD:KNDI	Kandi Technologies	-8%
TSX-V:FVR	Finavera Wind Energy	4%
TSX:AXY	Alterra Power	-9%
NYSE:WM	Waste Management	2%
Alternative picks
TSX:NFI	New Flyer Industries	2%
NYSE:LXU	LSB Industries	-11%
NASD:AMRC	Ameresco, Inc.	-13%
NYSE:PW	Power REIT	-6%
NYSE:HTM	US Geothermal	0%
TSX:RPG	Ram Power Group	5%

Lime Energy (NASD:LIME)

Lime Energy will continue to trade on NASDAQ until the exchange can review the company's appeal of a possible delisting.  There has not yet been any news about when the hearing will take place, or if the company is still on track to file restated earnings before March 31st.

On March 1st, Lime sold its ESCO business to PowerSecure International (NASD:POWR) for $5.5 million, leading to a 6% rally for the day capping off a 30% rally since the last update.

Maxwell Technologies (NASD:MXWL) gave back 10% after a 17% rally in February.  I think the decline was caused by profit taking and concern that a date has not yet been set for Maxwell's fourth quarter earnings announcement.  Last year, Maxwell announced earnings on February 16th, and set the date a week earlier. 

I don't think investors should be worrying that the delay is due to a reluctance to reveal some nasty surprise.  If management had been aware of such a surprise in the works, two small sales of stock by company insiders on February 7th would not have been allowed.  These two sales were dwarfed by the amount of restricted stock which had recently become available for these two insiders to sell, so I don't think the sales can be taken to imply that they think the stock has peaked, either.

Accell Group (Amsterdam:ACCEL)
Netherlands based global bicycle maker Accell Group fell 13% largely due to disappointing fourth quarter results.  While total sales were up 23%, that was mostly due to last year's acquisition of Raleigh. Organic worldwide sales growth was up only 3%, although sales shrank in its home market.

Operating profit excluding one-off items fell 17%, in line with previous guidance, but apparently lower than many investor's expectations.  The company expect to grow both sales and profit in 2013.

Electric bike continue to be Accell's strongest performing segment, and now account for 32% of sales.

Zoltek Companies (NASD:ZOLT)
Carbon fiber maker Zoltek shot up18% after a brief decline following the company's fourth quarter results on January 31st.  When I highlighted Zoltek as a buying opportunity in last month's update, I did not expect to be proven right so soon.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
Finavera was the other buying opportunity I highlighted last month.  Although it has risen 4% since then, I continue to consider the stock dirt cheap.

Alterra Power (TSX:AXY, OTC:MGMXF)
Geothermal, Hydro, and Wind Power developer Alterra Power declined 9% on disappointing results from it's 66% owned HS Orka power plant in Iceland.  Over the longer term, Altera's share price will be driven by the company's ability to develop its projects and possible asset sales.  Wiggles in the earnings from its operating power generation should have much less effect, so I think the decline has made the stock increasingly attractive, and added a little to my position.

New Flyer Industries (TSX:NFI, OTC:NFYEF)
New Flyer continues the steady stream announcements of new contract awards adding to its already solid backlog.  A number of contracts for compressed natural gas buses drew the attention of Seeking Alpha author and advocate of natural gas for transportation Micheal Fitzsimmons.  He wrote a good overview of the company, highlighting its strength in natural gas buses.

On March 1st, the company announced the acquisition of Orion's aftermarket parts division.  This acquisition fits nicely into New Flyer's ongoing strategy of diversifying its revenue stream into businesses which are less cyclical than that for new heavy duty transit buses. 

Daimler unit Orion announced its exit from the North American bus market last year.  New Flyer has also taken up multiple contracts for new buses from Orion, including a contract for up to 381 hybrid buses announced on February 12th.

LSB Industries (NYSE:LXU)

Chemicals and climate control conglomerate LSB Industries announced earnings on February 28th, comfortably beating analyst expectations for earnings, but missing slightly on revenue.  After rallying strongly (19%) in January, the stock fell back 11% in the lead-up to the earnings announcement.  Market reaction since has been tepid.

My Forbes readers should have been able to play the company's large swing, since I highlighted LXU as a stock to sell on February 12th, with a suggested limit price of $42.  The stock traded as high as $42.15 on February 15th, but has since fallen to $38.27.   I personally sold covered calls on LXU, and intend to continue to do so until I'm eventually taken out of my position.  Time will tell which will turn out to be the best strategy.

Ameresco, Inc. (NASD:AMRC)

Performance Contracting Firm Ameresco fell 13% in February after warning that its fourth quarter earnings would be worse than expected on February 15th.  It said results would be impacted by storm related delays and fiscal uncertainty.  The actual earnings release was delayed on March 1st as Ameresco reviews the accounting treatment of an interest rate swap. 

Proper accounting for financial derivatives is always tricky and subject to judgement calls, so this accounting issue is unlikely to make a big difference to shareholders focused on the long term viability of Ameresco's business. 

The fiscal uncertainty and total dysfunction in Washington DC, is a more serious concern.  Ameresco's largest customer is the federal government.  However, I believe that the executive branch has the power and will to push ahead with initiatives which are likely to substantially increase the size of the performance contracting market over the next four years.  Hence, I continue to see the current weak stock price as a buying opportunity.

Ram Power Group (TSX:RPG)
Stock in geothermal developer Ram Power rose 5% in February on news that the second phase of its San Jacinto-Tizate project in Nicaragua had achieved full commercial operation and passed a 30 day performance test.  The company also announced a best efforts offering of secured debt and warrants.at C$0.30 (slightly above the current price) on February 27th.  The non-dilutive offering has so far had little effect on the stock price.

Conclusion

My picks so far continue to lag the bulk of clean energy stocks and the broad market, but they made up some ground in February.  Readers who purchased Zoltek and Finavera when I called them buying opportunities last month did very well on the former, and made small gains in the latter.

I continue to see Finavera as a buying opportunity, now joined by Ameresco and Alterra.  I personally added to my positions in Ameresco, Alterra, and Zoltek in February.

Disclosure: Long WFI, LIME, PFB, MXWL, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG.

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.

Posted by Tom Konrad at 04:11 PM | Permalink | Comments (0)

Tom Konrad CFA

I guide my sister through the stock market, she guides me through the mountains.

An earlier version of his article was first published on the author's Forbes.com blog, Green Stocks on February 15th.  This version has been updated to reflect market action and news since then.

Earlier this week, I wrote about how my annual green stock trading advice had worked out for my sister and readers (well) and the two stocks where I thought she should take profits LSB Industries (NYSE:LXU) and Potlatch Corp (NYSE:PCH).)  I also promised a follow up article on my buy recommendations.  Here they are:

Ameresco, Inc. (NYSE:AMRC)

Current Price: $8.44

Suggested Limit Price: $9.20 (sister); $8.50 (readers)

Suggested Allocation: 21% (sister); 25% (readers)

Ameresco is a leading performance contracting company, meaning that they install energy efficient and renewable energy solutions for institutions and government entities which are paid for out of the institution’s energy budget, from the cost savings.  Ameresco disappointed investors with their guidance last quarter, largely due to the dysfunction in Washington.  Ameresco’s largest customer is the US government.

The stock has been trading down since.  On February 15th, Ameresco released an outlook for its Fiscal 2012 results, which will be released in  full on March 1st.  It said 2012 earnings should be even worse than previously expected, due to weather and fiscal uncertainty, yet Ameresco’s backlog is at a record high.  As expected, Q4 2012 was bad, but the next few years look good.  This “disappointment” has produced a buying opportunity which I don't expect to last.

 I’m more focused on the future than last quarter, and I expect that future to be bright.  In his State of the Union Address, Obama promised to take executive action to reduce carbon pollution and accelerate our transition to more sustainable sources of energy, unless congress acts to combat climate change. 

While Obama can't change legislation, he can require increased energy efficiency and use of renewable energy within the government itself.   And goverment entities rely on Ameresco and other performace contractors to fulfull just such mandates while staying within (and sometimes reducing) existing energy budgets.

Ameresco's 2012 results may be weak, but it can look forward to growing demand for its services from the Federal government (already its biggest customer) over the next four years.

Zoltek Companies (NASD:ZOLT)

Current Price: $8.86

Suggested Limit Price: $7.50 (sister); $8 (readers)

Suggested Allocation: 21% (sister); 10% (readers)

Zoltek makes carbon fiber.  Their biggest market is currently large wind turbines, and their biggest customer Vestas (Copenhagen:VWS; OTC:VWDRY).  The extension of the Production Tax Credit extension should help the company this year, but the long term bullish reason to own this stock will come when auto manufacturers turn to carbon fiber to reduce vehicle weight and improve fuel efficiency, as they are likely to do over the next few years to meet increasingly stringent CAFE standards and EU emissions requirements.

Zoltek is the stock that led me to pick last week to send my sister her annual recommendations.  It was briefly trading below $8, and even fell below $7 for a day.  I did not think the opportunity would last.  Unfortunately, the window was shorter than I expected, and her limit order did not execute.  It probably won’t now, so I’m afraid we’re going to chalk this one up as “the one that got away.”  It could still fall back again, but I don’t expect it.   It’s still a good buy around $8, but not the screaming deal it was.  I’d suggest readers put in limit orders at $8, but for fewer shares.

Power REIT (NYSE:PW)

Current Price: $10.79

Suggested Limit Price: $10.75

Suggested Allocation: 18%

Power REIT is a tiny Real Estate Investment Trust which owns 112 miles of railway and is starting to invest in Real Estate under renewable energy farms.  The $0.40 (3.8%) annual dividend makes it a nice dividend stock for a long term hold in my sister’s conservative portfolio, but the company also has the potential for some incredible upside if they prevail  in an attempt to foreclose on the massively unfair lease of their track.  Details here.

US Geothermal (NYSE:HTM, TSX:GTH)

Current Price: $0.32

Suggested Limit Price: $0.31

Suggested Allocation: 5%

US Geothermal is a geothermal project developer with projects in Nevada and Oregon.  Many of its plants have recently come on-line, so earnings growth over the next year is already built in.  Nevertheless, developing geothermal projects is a very risky business, so I was conservative on the limit price (there’s a good chance the order won’t execute) and kept the allocation small.

Canadian Stocks

I found out after I sent my sister her suggested trades that her broker does not let her trade Canadian stocks, even if they have a US OTC ticker, so my sister has not purchased any of these.  I won’t be including any Canadian stocks next year unless I can persuade her to open an account with a better broker.   But there’s no reason readers can’t benefit from this year's picks below.

Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF)

Current Price: $17.07

Suggested Limit Price: $15.50

Suggested Allocation: 18%

Waterfurnace is a leading manufacturer of geothermal heat pumps.  A reliable dividend payer (C$0.96 annually) it’s a long time favorite of mine.  I traded as low as $14.90 in late January, but was already well above the limit price I gave her when I suggested buying to my sister.  Although I did not really expect the trade to go through, I would have been happy if it had.  This is one to watch long term and accumulate on any dips.

Finavera Wind Energy (TSXV:FVR, OTC:FNVRF)

Current Price: $0.20

Suggested Limit Price: $.21

Suggested Allocation: 12%

Finavera Wind Energy is a wind project developer with a focus on the early stages.  The signed an agreement in December to sell almost all their current projects when those projects are ready to build (probably in the next 1-2 years) for a total of $40M.  According to my valuation, the stock would be worth C$0.77 a share if they succeed.  While nothing is certain, the stock is only trading at C$0.20 to C$0.21, which seems like an absolute bargain to me.  That’s why I told my sister to put such a large allocation into such a tiny stock.  Too bad she can’t buy it.

Alterra Power (TSX:AXY, OTC:MGMXF)

Current Price: $0.39

Suggested Limit Price: $0.41 (sister); $0.40 (readers)

Suggested Allocation: 5%

Like US Geothermal, Alterra is a renewable energy project developer and operator that seems currently undervalued.  Their assets are mostly geothermal, wind and run of river hydroelectric in the Western US, Iceland, and Chile.  The stock has been going nowhere recently, but could rise on the possible sale of a geothermal plant in Iceland or if the Phillipine utility Energy Development Corporation decides to move ahead with a partnership to develop Alterra’s South American assets.

Conclusion

Zoltek and Waterfurnace may have risen a bit far to buy now, but Ameresco is looking like a deal which may not last past their earnings announcement on March 1st.  Finavera still looks like a steal to me as well.   Power REIT, US Geothermal, and Alterra can also currently be bought at attractive prices.

I can’t real expect to produce the stunning returns I managed for my sister last year unless the clean energy sector as a whole takes off.  Yet that could easily happen with prices at their current depressed levels and the President's re-affirmation of his commitment to combat climate change in his State of the Union address.

Disclosure: Long AMRC, ZOLT, PW, WFIFF, FNVRF, HTM, MGMXF, LXU, PCH.

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.

Posted by Tom Konrad at 09:07 AM | Permalink | Comments (0)

Tom Konrad CFA

I guide my sister through the stock market, she guides me through the mountains.

Once a year, I give my sister stock trading advice.

Managing money is not her thing, so any more often and she’d likely lose interest, and not do anything.  With that constraint, I wait until there are a large number of stocks I think she should trade, and send he a list of trades, along with quantities and limit prices for her to enter “good ’til canceled.”

Last May, I told her to buy 10 green stocks, and wrote about the picks here. It’s been one of my most popular articles.  Even better, the picks have done spectacularly well.  As of Friday, February 8th, my sister had a 35% total return in nine months.  Readers who bought the stocks listed in the article with the suggested allocations had a 32% return over the same period.  Meanwhile, the S&P 500 has gained 16.6% and the Powershares Wilderhill Clean Energy ETF (NYSE:PBW) has gained only 8.6%.  I’ll explain the differences between my sister’s returns and those of readers below.

Last week, I gave her my recommendations for 2013.  I told her to sell two of her holdings and to buy seven other stocks.  I’ll also discuss the sells below, and I’ll write about the buys in a follow-up article.

Many Happy Returns

Since I told her to enter limit orders, not all of my sister’s trades executed.  The red bars in the chart above represent her actual allocations to particular stocks.  In contrast, the blue bars are the target allocations I told readers to use.   The yellow bars are the returns my sister would have achieved if her orders had executed at the limit prices I gave her.  Some of her orders did not execute because her broker (USAA) does not accept trades for Toronto-listed stocks, others did not execute because the limit prices were never met.  I did not know that USAA would not let her trade Canadian stocks when I gave her my recommendations.

The green bars represent the total return from the closing price on May 22nd, the day the article was published.

One other difference is that I told my sister to buy Exide Technologies (NASD:XIDE) while I told readers to buy Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF.)  This is because, after I sent the email to my sister, I decided Waterfurnace was a better pick for her conservative portfolio, since it pays a healthy dividend, while Exide is more of a turnaround play.  In the end, that made little difference, since she left a “0″ off the quantity when she was entering her limit order for Exide, and ended up owning only a trivial amount of the stock.  If I’d told her to buy Waterfurnace, she wouldn’t have gotten any of it, since it trades in Toronto.  Readers would have done better with Exide in these first nine months (with more risk), but that’s just hindsight.

Two Sells

I told her to sell Potlatch Corp (NYSE:PCH) at $44, and the order executed on Friday.  I like Potlatch because this timber REIT is a leader in sustainable forestry, but the price rise has dropped the annual yield from 4.2% last May to 2.8% today.  I consider that a bit low for a non-preferred dividend in a low-growth stock.

I also told her to sell LSB Industries (NYSE:LXU) at $42.  The order has not executed yet.  If it does not execute, I’m not particularly worried.  As I said when I included it in my article Six More Clean Energy Stocks for 2013, the main reason I’m getting out of this stock is that it has become a bit less green since the company bought a working shale gas interest as a hedge against its exposure to the price of natural gas.   I think the stock will probably rise a bit more this year, but it’s no longer nearly as undervalued as it was last May, or even when I wrote about it at the start of January.  [Update: This order has now executed.  Since LXU has fallen below $40, the sell is looking like a good call.]

Holds

Because I’m trying to build up her stock portfolio one year at a time, I have a bias towards having her hold stocks that she already owns, so I would not have told her to sell any of the other stocks in the list, even the ones she ended up not buying.  In my personal portfolio, I’ve sold covered calls on ABB Group (NYSE:ABB), as well as on Potlatch and LSB.  The calls on PCH and LSB look likely to be exercised and take me out of my positions unless the stocks decline before the options expire.

I’m holding on to all my other positions in the list.

Conclusion

My sister told me she’d be keeping me on as an advisor for another year.  I probably should have warned her that past performance is not a guarantee of future results.  It would be too much to expect to beat the market by over 15% for two years running.  Fortunately, I’m quite optimistic about the potential for clean energy stocks in 2013, and I suspect even matching the PBW’s returns this year will allow me to comfortably keep my “job” as her unpaid, informal, once-a-year advisor.  Perhaps more importantly, she’ll keep me from getting lost when we go on our annual backpacking trip next fall.

Stay Tuned

I also told her to buy seven stocks not already in her portfolio.  Stay tuned for an updated article this week.  [Or, since this is a reprint, you can see an earlier version here.]

Disclosure: Long ABB, WM, PCH, WFIFF, NFYEF, LXU, AMRC, MXWL, WNDEF, KNDI, XIDE.

This article was first published on the author's Forbes.com blog, Green Stocks on February 12th. 

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.

Posted by Tom Konrad at 10:16 AM | Permalink | Comments (0)

Tom Konrad CFA

Clip art by Philip Martin

January has been a great month for clean energy stocks, and the stock market as a whole.  My clean energy benchmark, the Powershares Wilderhill Clean Energy Index (PBW), returned 10.9%, while the broad universe of small cap stocks which I benchmark with the iShares Russell 2000 Index ETF (IWM) is up a lesser but still impressive 9.5%. My ten clean energy picks for 2013 (introduced here), are up a solid 5.3%.

So far this year my picks are losing the relative performance game, but 2012 started in a similar fashion.  At the start of February, PBW was up 21% and my picks were up only 15%.  The year ended with PBW down 16.4%, and my picks up 7.4%.  I have much better hopes for this year,especially for clean energy as a whole.  There's a meme that's even finding it's way into mainstream media and Wall Street research notes that 2013 could be an inflection point for clean energy.  The long decline has certainly produced a number of great values which few would expect to see in a sector most people would associate with growth stocks.

Ticker	Company	Total USD Return
TSX:WFI	Waterfurnace Renewable Energy	12%
NASD:LIME	Lime Energy	11%
TSX:PFB	PFB Corporation	10%
NASD:MXWL	Maxwell Technologies	17%
Amsterdam:ACCEL	Accell Group	10%
NASD:ZOLT	Zoltek Companies, Inc.	-1%
NASD:KNDI	Kandi Technologies	3%
TSX-V:FVR	Finavera Wind Energy	-18%
TSX:AXY	Alterra Power	0%
NYSE:WM	Waste Management	8%
Alternative picks
TSX:NFI	New Flyer Industries	11%
NYSE:LXU	LSB Industries	19%
NASD:AMRC	Ameresco, Inc.	-5%
NYSE:PW	Power REIT	14%
NYSE:HTM	US Geothermal	-8%
TSX:RPG	Ram Power Group	-6%

The table shows individual stock performance through February first, for my ten picks plus the six alternative picks I presented in a second article.

Significant Events

Below, I highlight significant events I feel affected stock performance. 

Lime Energy (NASD:LIME) started the month with a rapid rise of $0.81 only to fall to $0.53 as worries surfaced about a possible NASDAQ delisting.  It's regained some lost ground over the last few days since Lime won a stay of delisting from NASDAQ.  While I can't predict what NASDAQ will do, I think they should give Lime's management the extra time they're asking for to complete their internal audit and file their much delayed financial reports.  Lime seems to me to be complying with the spirit of the listing rules, in that they are attempting to provide accurate financial information, even if the ongoing internal review is taking much longer than anyone ever expected when Lime's audit committed first discovered the misreported revenue.

Lime is the biggest gamble in the portfolio.  Right now, the market is discounting a large chance of a delisting and some very bad news from the internal audit.  Both fears are real, but I think the risks are not nearly as great as is reflected in the current stock price.  We should know the truth by the end of March.

Zoltek Companies (NASD:ZOLT) started the month with a big jump when the wind Production Tax Credit (PTC) was extended as part of the fiscal cliff package.  Then it gave back all its gains on February first when the company missed analyst's earnings estimates for the fourth quarter for 2012.  I think the PTC extension is more significant than the weak fourth quarter performance, and used the sell-off to add to my position.

Kandi Technologies (NASD:KNDI) lagged for most of the month, only to surge on February 1st on the announcement that the company was setting up an electric vehicle joint venture with Geely Automotive Holdings Ltd (Hong Kong:0175).  Geely announcement (PDF).  Geely is a major Chinese automaker without a significant presence in EVs, but an extensive dealer network throughout China.  The partnership should allow Geely quick entry into the EV market, and provide strong manufacturing prowess and distribution muscles to Kandi.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) shocked me by finishing the month below its already depressed levels at the end of December.  However, the company's fundamentals have not changed, and I used the recent lows to add to my position in Finavera as well.  I gave a more detailed analysis of the stock's moves and an updated valuation of the company here.

Waste Management (NYSE:WM) rose sharply on rumors that it might convert into a REIT.  REIT or no, I like the dividend, and the continued expansion of their recycling business.  WM expanded its recycling footprint with the January 31st acquisition of Texas based Greenstar. 

New Flyer Industries (TSX:NFI, OTC:NFYEF) got a big cash infusion by selling a 20% stake to Brazilian busmaker Marcopolo S.A at C$10.50 a share.  The companies will also explore opportunities to explore synergies in engineering, purchasing, technical, and operational matters.  That announcement, plus a growing backlog and several increases in analysts' price targets all boosted the stock.

Power REIT (NYSE:PW) produced a $1M proof-of concept deal by investing in Solar Real Estate, showing that its plans to become a renewable energy REIT are more than just hot air. It also payed a $0.10 dividend, which had been delayed from the fourth quarter of 2012 for tax reasons.

Conclusion

The year is still young, but it's off to a great start for clean energy.  My stock picks have been lagging a little, but at least in the case of Finavera and Zoltek, that should be looked on as a buying opportunity.

Disclosure: Long WFI, LIME, PFB, MXWL, ACCEL, ZOLT, KNDI, FVR, AXY, WM, NFI, LXU, AMRC,PW, HTM, RPG.

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.

Posted by Tom Konrad at 10:17 AM | Permalink | Comments (0)

Tom Konrad

When I asked my panel of green money managers their predictions for trends 2013, I got enough material for four articles: On where the cleantech sector is heading in 2013, as well as on Solar, Smart Grid, and LED technology.

I also asked them for stock picks, some of which I included in the previous articles.  Several had opinions about EnerNOC (NASD:ENOC), which I wrote about here, and two picked LED stocks Veeco Instruments (NASD:VECO) and Universal Display Corp. (NASD:PANL), which I discussed here.

Since I just published my annual model portfolio of Ten Clean Energy Stocks for 2013, I thought it would be interesting to compare the performance of their six picks as well, especially since there is absolutely no overlap.   It’s not exactly an apples-to-apples comparison, since I did these interviews before the holidays, but I still expect it to be interesting.

Here are the rest of their picks.

Shawn Kravetz: Amtech Systems

Shawn Kravetz is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar.  Kravetz likes Amtech Systems (NASD:ASYS), a maker of capital equipment for the semiconductor and solar industries.  He likes Amthech because it is

 Currently trading at a 40% discount to the cash on its balance sheet as their business has deteriorated sharply, they are managing cash superbly and have significant business opportunities should there be any activity whatsoever in solar manufacturing in 2013.

Kravetz made these comments when Amtech was trading at $3.10.

Sam Healey: Hudson Technologies

Sam Healey is a portfolio manager at Lamassu Capital.  He likes Hudson Technologies (NASD:HDSN), saying:

Hudson is a refrigerant technology/reclamation company.  For the majority of the past years they have served as a refrigerant re-seller, selling R-22 and other refrigerant gases.  With the EPA currently cracking down on its R-22 phase out and severely limiting the virgin R-22 production, R-22 prices tripled in 2012 and will likely move up materially again in 2013.  Hudson has the ability to reclaim used R-22 (it is illegal to vent though many do it) and clean it up and resell in.  Prior to the EPA phase out the economics were not attractive enough to promote wide spread reclamation   Despite the fact that it is illegal, many many contractors would and did vent the gas into the air rather then capture and reclaim it because in many cases they would have to pay to get rid of the dirty gas.  With the R-22 price spike HDSN can now pay contractors for the dirty gas thereby getting supply to clean up and decreasing the amount of gas that gets into the atmosphere.  The demand for R-22 will last years beyond the allowed period of virgin production.  If one uses the R-12 phase out as a template, R-12 prices went from 3$ per pound to 20$ per pound.  R-22 went from $4  up to $9 last year, and now I think is moving into the low double digits.  HDSN also has R-Side technology which they use to enhance/diagnosis large cooling units and make them much more energy efficient   The R-side product, though not materially significant in Revenue right now, I think gets this company into a clean energy universe as an energy efficiency play.  I like HDSN, think it has the right product at the right time and has a large upside potential.

Sam made these comments when HDSN was trading at $3.31.

Garvin Jabusch: First Solar

Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog ”Green Alpha’s Next Economy.” Among renewable energy companies, he likes First Solar (NASD:FSLR).  He says,

They’re the global thin-film leaders, to the extent that they’ve even been invited to bid and work on projects in China, where the state is aggressively trying to support its domestic PV manufacturing players. Yet, where thin film is the appropriate approach, FSLR gets the call. FSLR will continue to be strong in the U.S. as well since it’s not subject to tariffs imposed on Chinese solar makers. First Solar – and solar in general – have been so unfairly maligned that the stage is set for an upside surprise as the reality of how we need to power the global economic production function sets in.

Jabusch made these comments when FSLR was trading for $32.56.

Conclusion

I find other manager’s picks particularly useful because they give me new companies to consider.  Of these, I find Amtech and Hudson Technologies particularly interesting, and will be keeping an eye out for a stock pull-back to possibly acquire one or both.

Disclosure: Kravetz has along position in ASYS, and Healy owns HDSN.  I have no positions in these stocks.

This article was first published on the author's Forbes.com blog, Green Stocks on January 2nd.

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.

Posted by Tom Konrad at 09:06 AM | Permalink | Comments (0)

Tom Konrad CFA

Year In Review

For the fourth year in a row, my model portfolio of clean energy stocks has beaten the clean energy sector as a whole, this year by 23.8%.   Unfortunately, this was mostly due to another year of poor performance by my industry benchmark, the widely held Powershares Clean Energy (PBW) ETF, which lost 16.4% for the year.  My model portfolio, composed of eleven clean energy stocks listed in this article published on January 2nd, gained 7.4%, still short of the performance of the broad market, which gained 16.6%.  The general market gains also hurt a hedged version of the model portfolio, which finished the year up a paltry +0.3%.

I published my list of Ten Clean Energy Stocks for 2013 on New Year's Eve.

Detailed performance of the individual pics can be found in the chart and discussion below.

Stock Notes

Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF), +1%

Waterfurnace was basically flat for the year, with a small stock price decline offset by a healthy dividend.  The decline was mostly due to slowing sales caused by low natural gas prices, which make using the company's geothermal heat pumps less cost effective by comparison.  Waterfurnace stock is still cheap, and I expect natural gas prices to continue their recent rise, so Waterfurnace remains in the list for 2013.

Lime Energy (NASD:LIME), -82%
The big loser of the year was Lime Energy, which discovered accounting problems with revenue recognition in July.  The company's internal review is ongoing, and includes all its financial statements going back to 2008, and possibly some fictitious revenue recorded between 2010 and Q1 2012.  Although the board believed the size of the revenue misstatements to be limited to $15 million when the internal inquiry was first announced, the protracted uncertainty and a dilutive fundraising over the last six months have eviscerated the firms' stock price. 

The final results of the audit have been delayed several times, and are now expected in the first quarter of 2013.  Despite the ongoing uncertainty, the firm's shares are currently so cheap, I expect that any conclusion to the protracted process should lead to a substantial rally in the stock price, and so Lime remains in the list for 2013.

Honeywell, Inc. (NYSE:HON), +20%

Honeywell produced a respectable gain over the course of the year, and I'm dropping it from the list because several other stocks have become relatively more compelling.

Rockwool International A/S (COP:ROCK-B / OTC:RKWBF), 38%

Insulation manufacturer Rockwool produced a very healthy return over the year, but the stock's rise now leads me to conclude that it's no longer a great value, even though I appreciate the international diversification it brought to the portfolio.  I've removed Rockwool from the list for 2013, and have taken some profits on my personal stake as well.

Waste Management (NYSE:WM), 7%
Waste Management produced a modest return in 2012, and remains a good value in a cyclical business that is currently recovering.  With a healthy 4.2% dividend yield and good potential for price appreciation in 2013, WM remains in the 2013 list.

Veolia Environnement S.A. (NYSE:VE), 19%
Veolia produced a strong return in 2012 as it rebounded from a very low valuation at the start of the year, even while paying a healthy dividend.  The stock remains cheap, but I'm dropping it in 2013 in favor of even more attractive value stocks.

Accell Group (Amsterdam:ACCEL), 2%
Dutch bicycle manufacturer Accell produced a small positive return in 2012 because its large 6.9% dividend more than offset a small decline in the stock price.  The stock was hurt in 2012 by higher than expected expenses integrating its purchase of Raleigh Bicycles, but the benefits of that merger should begin to show in 2013.  Accell remains in the list for 2013.

New Flyer Industries (TSX: NFI / OTC:NFYEF), 67%
Bus manufacturer New Flyer Industries was the star performer of 2012, as the high-dividend payer recovered from a depressed valuation at the start of the year caused by a stock reorganization that saw it cut its previously unsustainable dividend in half.  (New Flyer currently yields 6.8%.)  While the dividend is still very attractive, New Flyer's potential price appreciation is much reduced, so I've dropped it from the main list but included it as an alternative pick for 2013.

Finavera Wind Energy (TSX:FVR, OTC:FNVRF), -42%
Finavera saw its stock first fall as it failed to obtain sufficient new financing to repay outstanding debts, and then rise as looked to sell first a single wind projects, and then put the whole company up for bid when the wind farm sale fell through.  On December 23rd, it announced a financing and sale of most of its wind projects which disappointed investors hoping for a clean sale.  I believe they misunderstood the value of this deal. I expect the stock to recover significantly as investors return from their holiday breaks and revalue the stock with the new deal in mind,  Needless to say, Finavera remains in the list for 2013.

Western Wind Energy (TSX-V:WND / OTC: WNDEF), +43%
Western Wind first fell and then rallied when it, too, put itself up for sale under pressure from a hedge fund and other disgruntled investors.  Shareholders have so far received an offer of C$2.50 a share, but most expect a final offer to be closer to C$3, at least if the current stock price is anything to go by.  Since most of the price appreciation from the impending sale is likely already reflected in the stock, I'm dropping the company from the list in 2013.

Alterra Power (TSX:AXY / OTC: MGMXF), +6%
I think the modest gain in Alterra's stock price does not fully reflect the value of the company or its future prospects in a climate where many new investors seem to be looking at renewable energy projects as a viable source of stable income.  Hence, Alterra remains in the list for 2012.

Conclusion

For the first time since I started publishing this annual list, I have retained more than half of the stocks into the next year.  Those that I've dropped have been mostly discarded because their gains make their new valuations less attractive, but even most of these remain in my personal portfolio.  The two big losers in the 2012 list remain in the portfolio, with Finavera in particular likely to produce outsized gains in 2013.  I only truly regret including Lime in the 2013 list, but I'm including it again because, while there are legitimate reasons to question management's behavior, I think many of these questions will be resolved in 2013.  While I think it's unlikely that holders of LIME will recoup their 2012 losses unless they greatly increase their positions, selling now seems likely to be a mistake.

We enter 2013 with a number of clouds hanging over the stock market and the world economy.  That instability holds risks for stock market investors, but it also creates great bargains for those brave enough to look for them.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE.

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.

Posted by Tom Konrad at 10:24 AM | Permalink | Comments (0)

Tom Konrad CFA

This article is intended as a companion piece to Ten Clean Energy Stocks for 2012.

In the past, I've generally avoided illiquid stocks like Lime Energy (NASD:LIME) and PFB Corporation (TSX:PFB, OTC:PFBOF) which are included in this year's list.  The reason is simple: it's hard for all but the smallest investors to buy such stocks without significantly moving the price.  This year, I've instead chosen to publish a short list of alternative picks which readers can substitute for stocks they consider too illiquid or otherwise risky for their portfolio. 

Another advantage of this approach for smaller investors is that they can use these stocks to substitute for foreign companies that do not have a US listing, for which brokers often charge a much larger commission than they do to trade US stocks or foreign stock with an OTC ticker.  Accell Group (Amsterdam:ACCEL) is one foreign stock included in this year's list that is probably only practical to buy for larger investors.

You can, of course, use this list any way you like.  Investors looking for a more diversified portfolio might consider buying all sixteen.

My six alternative are:

Company (Ticker)	Price 12/31/12	Good substitute for
New Flyer Industries (TSX:NFI, OTC:NFYEF)	$8.69	Accell, Kandi
LSB Industries (NYSE:LXU)	$35.42	PFB Corp, Zoltek, Waterfurnace
Ameresco (NYSE:AMRC)	$9.81	Lime Energy,  Zoltek, Maxwell
Power REIT (NYSE:PW)	$9.90	Waste Management
US Geothermal (HTM)	$0.362	Finavera, Alterra
Ram Power (TSX:RPG / OTC:RAMPF)	$0.257	Finavera, Alterra

About the Picks

New Flyer Industries (TSX:NFI, OTC:NFYEF)
New Flyer has been in my list of annual picks more often than not because of its high yield and leading position in a very sustainable business: manufacture of heavy duty buses.  It was the star performer of the 2012 list, producing a 67% total return for the year.  While the stock was extremely depressed last year, I left it off the list because of the reduced potential for price appreciation.  However, with a yield of 6.75% and a recovering industry, it remains in my portfolio and could easily produce a respectable return in 2012.

LSB Industries (NYSE:LXU)
LSB is a manufacturer of chemicals for agriculture and mining, as well as geothermal heat pumps under its Climatemaster brand.  The chemicals business accounts for about two-thirds of revenue, and the climate control segment accounts for about one third.  

LSB's chemical business suffered an explosion and a pipe rupture at different plants last year, but the company's insurance is expected to cover the majority of the costs, including business interruption.  The work stoppages put a big dent in earnings in 2012, but the insurance proceeds will mostly be paid in 2013, giving a big boost to earnings.  I don't think the company's stock price fully reflects the expected insurance payments, making LSB an excellent buying opportunity at $34.60.

Despite my optimism about LSB's prospects for the year, there are two reasons I chose not to include it in my annual list of clean energy stocks.  First, only 1/3 or revenue comes from clean energy, and, second, because of the acquisition of a working shale gas interest in October.  Natural gas is a significant part of LSB's cost structure, and the intent of this acquisition is to create a natural hedge against rising natural gas prices.  However, LSB already has something of a natural hedge against rising gas prices in their climate control business: geothermal heat pump sales tend to be stronger when natural gas prices are high, because high natural gas prices make geothermal heating look relatively attractive.

Ameresco (NYSE:AMRC)
Ameresco is a leader in Performance Contracting: making energy efficiency and renewable energy improvements for institutions which are financed and then paid for out of the subsequent cost savings.  Ameresco's price is currently low because its earnings have been hurt among government entities which have been delaying decisions in the climate of uncertainty surrounding the fiscal cliff.  While Congress remains deadlocked as I write, Ameresco's services often help budget-constrained government entities pay for necessary improvements they otherwise would be unable to afford.  I expect the coming era of fiscal austerity will likely be improve Ameresco's long term prospects, rather than hurt them.

I chose to leave Ameresco out of this year's picks only because the price had spiked from $9.43 to $10.03 in the thin holiday market on December 28th, the day I compiled my list, and I anticipate that that spike will be reversed over the next day or two, which would be a 6% drag on the company's annual performance.  If the price had stayed near $9.50, where it had been trading over the previous few days, I would have included it in the list.

Power REIT (NYSE:PW)
Power REIT is a railroad infrastructure REIT with plans to expand into renewable energy real estate.  It's currently involved in a civil case with Norfolk Southern (NYSE:NSC) and Wheeling and Lake Erie Railroad which I discussed in detail here.  The short version is that Power REIT could collect payments worth several times its market capitalization if they win, and even if they lose on all counts, it will result in a tax write off which will allow the company to designate its current $0.40 annual dividend a return of capital (and hence tax-free to investors) for the foreseeable future.

The prospect of a tax-free dividend is enough to fully justify Power REIT's current price of slightly over $10, but it does nothing to account for the very real chance of even a partial victory in the civil case, or for the potential dividend increases which would come from its expansion plans.  I only chose to leave Power REIT out of this year's list because it is very illiquid and the timing of the resolution of the NSC case are unknown.

Ram Power (TSX:RPG / OTC:RAMPF) and US Geothermal (HTM)
Ram and US Geothermal are geothermal power developers which, after two years of declines are currently trading at very attractive valuations.  As Ram and Nevada Geothermal Power (TSX-V:NGP, OTC:NGPLF) have shown over the last two years, such companies can lose a great deal of their value from unexpected development risk.  I try to compensate for development risk by holding relatively small stakes in several renewable energy developers at once.  With only ten slots to fill in my list, I could not include these two in addition to Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) and Alterra Power (TSX:AXY, OTC:MGMXF), which are in the list this year.

Of the four, I currently consider Finavera and Alterra to be the least risky, but I think including a little Ram and US Geothermal along with Alterra and Finavera would reduce overall portfolio risk through the added diversification.

Conclusion

The abundance of great values among clean energy stocks this year bodes well for the performance of my annual model portfolio in 2013.  For the first time, it also left me with an abundance of clean energy stocks to choose from.  I hope you, my readers, will be able to use these six extra picks to build portfolios more suited to your particular needs than you might otherwise have been able to do.

DISCLOSURE: Long NFYEF, RAMPF, LXU, AMRC, PW, HTM, FNVRF, MGMXF, ACCEL, LIME, PFBOF

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.

Posted by Tom Konrad at 09:06 AM | Permalink | Comments (2)

Tom Konrad CFA

Every year since 2008, I've published a list of ten (or eleven in 2012) clean energy stocks I expect to do well over the coming year.  The list is intended as a model portfolio which could be used by a small investor looking to avoid the relatively high costs of clean energy mutual funds, most of which have expense ratios around 2%, in addition to the trading costs they incur with fairly high turnover ratios. 

My list also reflects my belief that the best returns and least risk in clean energy stocks are to be found in relatively boring companies involved in using energy and resources more efficiently, rather than from the sexier but less cost effective renewable technologies such as solar manufacturing.  Rapid price declines have served to make solar an attractive investment in many places given current subsidies, but the industry remains vulnerable to subsidy cuts.

This belief has served me and readers well.  An equally weighted portfolio of my ten stock picks has beaten the clean energy ETF I've used as a benchmark for each of the last four years, often by a substantial margin (see chart.)  The benchmark has changed from year to year, but, following industry best practice, I've chosen the benchmark at the start of the year so readers know I am not retroactively inflating my relative results by choosing a poorly performing benchmark in any given year.  In 2013, I will be sticking with the same benchmark I've been using for the last three years, the Powershares Wilderhill Clean Energy ETF (PBW), which is the most widely held and liquid clean energy ETF and hence likely to be the best indication of the results of the average clean energy investor.  Since I tend to favor small and micro-cap companies, I also use the small cap focused iShares Russell 2000 Index ETF (IWM) to track my portfolio's performance against the broad market.

The data used to compile this chart can be found in my annual review articles from 2008, 2009, 2010, and 2011.  I plan to publish a 2012 year in review article on January 1st or 2nd.

Last year, I said I was finally seeing great values among the available clean energy stocks.  Those values translated into a positive return in 2012, despite the significant decline of clean energy stocks in general.  While I had been hoping for a repeat of 2009's stellar performance, I am presented this year with yet another opportunity to pick stocks from an even broader selection of deeply discounted value and dividend paying clean energy stocks.

Without further ado, here is my list of 10 clean energy stocks for 2013, along with their price as of the close on December 28th:

Energy Efficiency	Price	Last Used
Waterfurnace Renewable Energy (TSX: WFI / OTC: WFIFF)	$14.29	2012
Lime Energy (NASD:LIME)	$0.56	2012
PFB Corporation (TSX:PFB / OTC:PFBOF)	$5.53	n/a
Efficient and Alternative Transportation	Price	Last Used
Maxwell Technologies (NASD:MXWL)	$8.18	n/a
Accell Group (Amsterdam:ACCEL)	$17.59	2012
Zoltek Companies, Inc. (NASD:ZOLT)	$7.52	n/a
Kandi Technologies (NASD:KNDI)	$3.90	n/a
Renewable Energy Developers	Price	Last Used
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)	$0.225	2012
Alterra Power (TSX:AXY / OTC:MGMXF)	$0.396	2012
Environmental Services	Price	Last Used
Waste Management (NYSE:WM)	$33.46	2012
Benchmarks	Price	Last Used
Powershares Wilderhill Clean Energy (PBW)	$4.03	2012
iShares Russell 2000 Index (IWM)	$82.53	2012

For those of you wondering why Tesla (NASD:TSLA), Solazyme (NASD:SZYM), Solar City (NASD:SCTY) and other household names are missing from my list, this reflects my belief that the best values are to be found among stocks that few people have ever heard of.  These stocks have significant potential to gain as a broader pool of investors become familiar enough with them to invest.  With a stock like Tesla, there is a much smaller pool of new investors.

Widely known stocks are also followed by more analysts and professional investors, meaning that it requires much more time and effort to learn something about a stock that other investors are not already familiar with.  Given limited time, I choose to focus my research time where it's liable to be most effective at unearthing the new information that might give me an investing edge.

I chose to focus on the Energy Efficiency and Efficient/Alternative Transportation sectors because these are the most cost-effective alternative energy opportunities, as well as the least reliant on government subsidies.  My third sector of focus is renewable energy developers.  These stocks are currently deeply out of favor, and have reached such low valuations that mainstream companies and utilities are beginning to see them as very attractive investment opportunities based solely on the reliable cash flows they receive from sales of clean energy.  As Finavera Wind Energy's CEO, Jason Bak recently told me in an interview, small renewable energy developers are so out of favor that he would prefer to take the company private, if funding were available.

Individual Companies

Waterfurnace Renewable Energy (TSX: WFI / OTC: WFIFF)
Waterfurnace has appeared in my annual picks several times over the years because they are a pure-play leader in geothermal heat pumps, which the US EPA calls "the most efficient way to heat and cool a building."  Heat pumps have a high up-front cost, and so they benefit from low interest rates and a high price of heating alternatives, such as natural gas.  Recent low natural gas prices have been hurting Waterfurnace's business, which has recently driven the stock price down and brought the dividend yield up to a very attractive 6.74%.

Lime Energy (NASD:LIME)
Lime Energy's core business is running energy efficiency programs for small utilities, a business which is expanding rapidly.  The stock is currently trading at rock-bottom prices because the company has been conducting an internal review of its past revenue recognition policies since July 2012.  The review has recently been expanded to include possible improper revenue recognition all the way back to 2008 and up to and including the first quarter of 2012, and may include up to $15 million in fictitious revenue in the more recent years. 

Lime has not published a quarterly financial report since the first quarter, and says all its financial statements as far back as 2008 are not to be relied on, so investors abandoned the company in droves in 2012. While I have my own doubts about how the review has been handled, I think the worst case scenario has more than been priced in.  Since Lime expects to report the results of the review in the first quarter of 2013, I estimate that investors who get in today are likely to see price appreciation of 50% or more when that happens. 

While Lime has large upside potential at the current price, many investors may feel this stock is inappropriate for their portfolios given the large cloud of uncertainty surrounding the company.  For that reason, I will be publishing a follow-up article in the next couple of days discussing six alternative picks which I nearly included in this list from which you can pick alternatives.
UPDATE: That article is now available here.

PFB Corporation (TSX:PFB / OTC:PFBOF)
PFB is a leading North American manufacturer of expanded polystyrene (EPS, aka "Styrofoam") building products such as insulated concrete forms and structural insulated panels.  The stock trades infrequently, and did not trade at all on December 28th, so I will be using the midpoint of the bid and ask for the purpose of measuring its return over the coming year.  At $5.53, PFB pays a 5.75% annual yield.

The stock price has fallen significantly after the planned purchase of NOVA Chemicals' Performance Styrenics business as a move towards vertical integration with the acquisition of the EPS manufacturer.  This deal fell though, and many investors sold the stock, driving it down from the mid $7 range to the mid $5 range where it is today.   Already a good value, PFB stands to gain from continued recovery in the housing market or any increase in investor recognition.  However, since the stock is so illiquid, larger investors will probably want to substitute one of my upcoming alternative picks for PFB, while small investors should limit themselves to good-til-cancelled limit orders to avoid paying over the odds for their shares.

Maxwell Technologies (NASD:MXWL)
Maxwell Technologies is a leading manufacturer of electrodes for ultracapacitors.  Ultracapacitors are electricity storage devices which excel in applications requiring high power but low energy and extremely long life.  In layman's terms, they pack a big punch, but have little staying power.  They pair well with batteries, which are best in low power, high energy applications.

Ultracapacitors are used in a wide variety of electronics and electricity transmission and distribution applications, as well as in wind turbines and heavy-duty hybrid vehicles, such as buses. They expect to have a large and growing market in "stop-start" hybrid cars.  Stop-start technology is one of the most cost effective measures for improving automotive fuel economy, and auto manufacturers are scrambling to meet increasingly stringent fuel economy standards in both the US and Europe. 

The main reason for Maxwell's current low price has been the lack of a design win with a major manufacturer for start-stop technology using Maxwell's ultracapacitors.  Many investors were anticipating such a win in 2012, and the lack of one so far and slower revenue growth overall led to extreme investor disappointment, driving the stock from over $21 at the start of the year to the low $8 range where it has been recently trading.  Maxwell insiders, including the CEO, David Schramm, have been demonstrating their faith in the company's prospects since the stock fell to $10 with large stock purchases.  They have acquired 128,400 shares since then.

Accell Group (Amsterdam:ACCEL)
Accell is a leading bicycle manufacturer and a leader in electric bikes based in the Netherlands with worldwide sales mostly in Europe but expanding rapidly in the United States and Asia.  The company's strategy is to leverage its strong distribution network by acquiring strong brands in a highly fragmented industry.  In 2012, they acquired Raleigh, which was a slightly larger than usual acquisition.  Integrating Raleigh took longer than management expected, and depressed third quarter earnings and the company's current share price.  The company has a variable annual dividend, but based on the last payment of 0.782 euros, it's currently trading at a 5.9% annual yield.  Stock appreciation in 2013 could be driven by the start of synergies from the Raleigh acquisition, increased adoption of electric bikes in the US, or easing of uncertainty in Europe.

Because smaller investors may find Accell difficult to buy through their broker's foreign trading desk, they may want to substitute one of my upcoming alternative picks.

Zoltek Companies (NASD:ZOLT)
Zoltek is a leading manufacturer of carbon fiber, which are used for a wide variety of applications requiring high strength to weight ratios.  Consumers may be familiar with carbon fiber tennis rackets and racing bicycles, but carbon fiber is also used to manufacture wind turbine blades (Zolek's largest source of revenue) and to replace heavier steel and aluminum in transportation applications such as Boeing's Dreamliner 787, performance cars and electric vehicles.  I think it's likely that automakers pursuit of fuel efficiency standards will lead to more carbon fiber being used in more mass market vehicles to reduce weight and lead to improved fuel economy without sacrificing safety.

The company never recovered from its fall in 2008-9, but company insiders, including its CEO have been buying ZOLT shares since it fell to the $10 range last year, and the company's fundamentals have been improving even as the stock traded basically flat for the last 3 years.  Having lost money in 2010 and 2011, Zoltek made a profit of $0.66 per share on record sales in its Fiscal 2012, which ended on September 30th.  Analysts expect $0.52 per share earnings in 2013, for a forward P/E of 14.  The company has a strong balance sheet with no net debt and several unused lines of credit at favorable interest rates, and the company has several opportunities to achieve high growth as carbon fiber usage expands in its existing markets and breaks into new markets.

One misgiving I've long had about Zoltek is the centralization of power in the hands of its Founder, Chairman, President, and CEO Zsolt Rumy. This concern is ameliorated by his recent stock purchases.  These, along with the historically low valuation, led me to add Zoltek to my annual clean energy stock list for the first time.

Kandi Technologies (NASD:KNDI)
Kandi is a manufacturer of ATVs which is creating a new class of mini electric vehicles (EV) for congested Chinese cities.  Kandi's mini-EVs are well suited for rental and leasing programs where the ownership of the the batteries is often separate from the vehicles, which are designed for quick battery swapping.  One early agreement has Kandi selling its EVs without the batteries to China's State Grid utility, which owns the batteries and uses them for grid stabilization when they are not in EVs in use by commuters.

As a Chinese stock which achieved a US listing through a reverse merger, Kandi has been the target of a number of short sellers and articles claiming to expose shadowy self-dealing among industry insiders which has kept the stock at its low current valuation.  However, unlike many of Kandi's Chinese peers, its detractors have yet to uncover the sort of shoddy accounting we saw at such disasters as SinoForest, but not for want of trying.

In 2011, Kandi earned $0.30 a share based almost entirely on its legacy off-road vehicle business.  The company's fans have estimated that just Kandi's existing EV deals could generate $4.42 in annual earnings in their first year of ramp-up, which could be as soon as 2014 or '15.  I'm not comfortable projecting that far into the future, but I think that $0.60 to $1.20 of earnings in 2013 is quite likely, and would leave the current stock price of $3.90 looking quite cheap at only four to six times earnings in a rapidly growing company.

Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
Finavera is a hold-over from 2012 which I had until a week ago expected to drop from this year's list.  That's because the company had put itself up for sale for a lack of another way to refinance a past-due note from General Electric (NYSE:GE).  I expected a sale to be completed early in 2013, which would have meant that followers of my portfolio would have to redeploy funds early in the year. 

On December 23rd, Finavera announced a deal to obtain financing from and sell its projects for C$40 to Pattern Renewable Energy Holdings.  Investor disappointment at it not being a sale caused the stock to plunge in the thinly traded holiday market to what I anticipate will be a very short-lived buying opportunity in the 20-30 cent range.  I just posted a valuation of Finavera stock in light of the Pattern deal here.

Alterra Power (TSX:AXY / OTC:MGMXF)
Alterra is another hold-over from 2012, which I also expected to remove from the list until the stock unexpectedly declined over the last few weeks.  Alterra owns a portfolio of run-of-river hydroelectric and Wind projects in Western Canada, as well as geothermal projects in the Western US, Iceland, and Chile.  With its diverse and growing portfolio of operating renewable energy projects, Alterra is one of the most stable of the small renewable energy developers, but not yet so big that its assets are fully valued. 

A recent agreement with Philippine utility EDC could easily lead to significant price appreciation if the companies jointly develop Alterra's projects in Peru and Chile as envisioned in the agreement.

Waste Management (NYSE:WM)
The only household name in this year's list, Waste Management is coming back for an encore performance in 2013.  WM is the North American leader in recycling and renewable biogas among waste and environmental services companies.  The industry has been in a cyclical downturn, and WM's well-covered 4.2% dividend makes it a solid anchor for this portfolio of small and micro-cap clean energy stocks.

Conclusion

I'm very optimistic about the prospects for these 10 stocks this year.  Two of them (Finavera and Lime) are trading at significantly depressed prices by what I expect are temporary situations; I would be surprised if both are not up 50% by the end of the first quarter.  The other eight seem to be temporarily out of favor, driven not so much by company specific events but by the general economic weakness leading them to disappoint previously inflated shareholder expectations.  Yet the revised outlook for these stocks is more than enough to justify their current prices, and good news or a more realistic appraisal of their prospects could drive significant prices rises as well.  

Even if the world economy worsens or these stocks remain out of favor, Waterfurnace, PFB, Accell, and Waste Management all have high yields (averaging 5.65%) which should provide return and protection against large price declines even if the market tanks.  All except Lime, Finavera, and Alterra have profitable operations which should protect them even if the world economy worsens.

That said, the goal of this portfolio is to produce a return that is significantly better than my chosen clean energy benchmark, PBW.  If clean energy has another horrible year like 2008 or 2011, we're liable to see a negative return from this portfolio as well.  On the other hand, PBW has recently reversed it former trend, and significantly outperformed the broad market in December.  Clean energy stock prices are currently so depressed that I would not be surprised if clean energy stocks gain in 2013 even if the broader stock market falls.

See also: Six More Clean Energy Stocks for 2013

DISCLOSURE: Long WFIFF, PFBOF, MXWL, ACCEL, ZOLT, KNDI, FNVRF,  MGMXF, LIME, WM.

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.

Posted by Tom Konrad at 09:38 AM | Permalink | Comments (3)

Tom Konrad CFA

What the Election Brought to Energy Stocks

Obama's reelection did not bring on a new bull market for Clean Energy stocks, as some had hoped.  My Clean Energy model portfolio was flat (+0.4%) for the month, while the widely held Powershares Wilderhill Clean Energy ETF (PBW) fell 1.6%.  In contrast, the broad market, as measured by the Russell 2000 ETF, (IWM) rose 1.1%. 

If Obama's re-election had a strong effect on any energy sector, it was coal stocks: the Market Vectors Coal ETF (KOL) was down 8.5% over the same period.  The market seems to be saying that the Republican-controlled House will be able to block any significant legislation which might favor clean energy, but Obama's re-election will allow the EPA to continue its efforts to tighten emissions regulations in power generation.  Such regulations force power plants to bear more of the costs of the pollution they produce, and make burning dirty fuels like coal less attractive.

For the year, my clean energy model portfolio leads PBW by 26% but lags the broad market by 8%.  The unhedged portfolio is up 4.8% for the year, while the hedged portfolio is down 2.3%, having lost money on the hedge as the broad market rose.  For comparison, PBW is down 21.9% and  IWM is up 12.5%.

For details on the performance of my individual picks, see the chart and discussion below.

Stock Notes

Among the significant movers in the model portfolio this month were Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF), which announced disappointing third quarter results of 24 cents per share, compared to 38 cents in 2011.  The company attributed the poor results to low natural gas an propane prices.  The stock fell 19%, bringing the yield over 7% at the current stock price of C$13.60.  Since I think current low prices in natural gas and natural gas liquids are unsustainable, with drillers unable to recover their full costs at these prices, I've added to my position in the company.

Western Wind Energy (TSX-V:WND / OTC: WNDEF) rose 17% on the news that Brookfield Renewable Energy Partners (TSX:BRP.UN, OTC: BRPFF) had made a C$2.50 cash offer for the company, outside Western Wind's organized bidding process.  This led Western Wind to comment that it had received multiple expressions of interest from parties involved in the process indicating a willingness to pay considerably more than C$2.50, and pushed the stock into the high C$2.70 range.  The company then got an additional boost from the announcement of a supplemental cash grant payment of $4,132,980 (6 cents a share.)  This supplemental grant is the result of Western Wind's perseverance in discussions with the US Treasury over the reduced award on its 1603 cash grant for its Windstar project.  While the supplemental grant only makes up for a third of the $12.2 million shortfall, I was pleasantly surprised that they received anything more, despite the fact that management has never wavered in their belief that additional money would be forthcoming.

Rockwool International A/S (COP:ROCK-B / OTC:RKWBF) rose 16% on strong third quarter earnings.  For the first nine months of 2012, sales increased 8% compared to the first nine months of 2011, and the company expects sales for the whole year to be up 6%.  The company raised its target for full year earnings from DKK 650-700 million ($5.18-$5.57 per share) to at least DKK 700 million ($5.57 per share).

Accell Group (Amsterdam:ACCEL) fell 9%, on the announcement that the company expects 2012 profits despite organic sales growth.  Company CEO Ren Takens attributes lower profits to the costs of integrating the recent Raleigh and Diamondback acquisitions, with limited synergies expected this year.  Takens expects positive synergies to emerge from the acquisitions over the longer term.

Finavera Wind Energy (TSX:FVR, OTC:FNVRF) was flat, after falling early in the month, and then receiving a strong boost when the company announced it had received initial offers from four companies in its sale process.  The offers are currently being reviewed by Finavera's M&A advisory firm. 

Veolia Environnement S.A. (NYSE:VE) rebounded 8% after an 8% fall the previous month.

Honeywell, Inc. (NYSE:HON) fell 2% despite slightly better than expected quarterly results.

Lime Energy (NASD:LIME) continued its slide, falling another 3% after delaying its third quarter results because of its ongoing investigation into previously disclosed accounting problems.

Alterra Power (TSX:AXY / OTC: MGMXF) fell 7% without significant news. Analyst John McIlveen says this company "has a number of events that could make it a very interesting story" but investors are not yet paying attention.

New Flyer Industries (TSX: NFI / OTC:NFYEF) rose 4% despite 13% lower quarterly earnings caused by a previously disclosed delayed bus order which disrupted its production schedule.  

Waste Management (NYSE:WM) rose 2% after reporting quarterly earnings which beat street expectations by 1 cent per share.

Conclusion

Looking forward to the end of the year, it seems almost certain that my model portfolio will once again outperform its clean energy index.  Chances of outperforming the broad market seem slim, but I would not be surprised if the gap narrows significantly on more buyout news from Western Wind or Finavera.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE, BRPFF.

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.

Posted by Tom Konrad at 11:19 AM | Permalink | Comments (3)

Garvin Jabusch

The Green Alpha Advisors' approach to portfolio management utilizes a top-down macroeconomic model reflecting how global economies will evolve to meet demands presented by modern challenges such as resource scarcity, growing populations, land and food management, atmospheric carbon and extreme weather, to name a few.

These emerging challenges are daunting, but fortunately, society is answering and acting to preserve our economies and way of life with a new wave of innovation, the like of which has not been seen since the information technology revolution of the 1990s and the industrial revolution before that. 

The companies providing these innovations will see rapidly increasing demand over the next few years as economies rise to meet big challenges, and capital, as it always does, will flow to the best solutions. This is what defines the next economy: it is comprised of companies providing products and services that can thrive in the future economy as well as they do now (perhaps even better), and/or companies whose business is directly in the path of solving one or more of our main challenges.

It is among these innovators that one may now find the next Googles, Apples and Amazons. And, as with the first to see the promise of information technology, the first investors into the next wave of innovation will be the ones who have the best chance of outsized returns. With that in mind, here are four companies, based here in the U.S., that are timely in their deployment of innovative technologies, ideas and services. The global economy's next leap forward is beginning with firms like these.

Ocean Power Technologies, Inc. (OPTT) designs, makes and deploys ocean buoys that generate electricity from the kinetic energy of ocean waves. Their technology is proven effective, and in places where waves are always present (like the West coast of the U.S.), it doesn't suffer from intermittency as do wind and solar. Among Ocean Power’s best customers and advocates is the U.S. Navy, which has identified wave electricity as a way to power bases and missions, and yet have no reliance on external sources.  Ocean Power has also recently teamed up with Lockheed Martin to deliver two utility-scale projects, one off the coast of Oregon and the other for the Commonwealth of Australia. This is a small company with great growth prospects.

UQM Technologies, Inc. (UQM) makes propulsion systems for electric vehicles (EVs). UQM is not an electric car maker, but provides power systems and drive trains to companies making or converting fleets to electric. FedEx, UPS, London Taxi cabs, Audi and many others have converted portions of their fleets to electric using UQM. UQM's systems are remarkably efficient. FedEx CEO Fred Smith has said his electric delivery vans operate at 75% less cost than diesel vans. As Smith said, "Not 7.5%, 75%. These are big numbers." Recently, UQM has also entered into a memo of understanding to provide its electric propulsion systems to China's "New Energy Vehicles" state program. With its record of quality implementations, strong client list and ability to deliver big cost savings, UQM is a great way to get exposure to the EV sector without betting on any individual car company.

GT Advanced Technologies Inc. (GTAT) is an original equipment manufacturer (OEM) providing the machines that help make light emitting diodes (LEDs) and solar panels. LEDs are bright, adaptable to uses from TVs to phones to streetlights, make light with far less electricity than incandescent or fluorescent, and last as long as 20 years between replacing. As a result, the LED sector is booming. Solar, for its part, is clearly going to be one of the main pieces of our electricity mix going forward, and the guys who make the machines that make the panels should have steady business as this growth accelerates and will be less sensitive to fluctuations in the prices of the panels themselves (as opposed to panel and module manufacturers).

Remarkably, GT was competing just fine toe-to-toe with the Chinese solar industry, long before U.S. tariffs on Chinese solar came along, a fact that inspires confidence in management effectiveness. In both LED and solar, GT Advanced Technologies is a great way to invest in an overall industry without having to select individual product manufacturers. 

Trex Company Inc. (TREX) manufactures and distributes wood-composite lumber substitutes for residential and commercial decking, railing, fencing and similar applications. Trex makes its products from reclaimed wood and plastic waste, and their boards are attractive and very durable. (Trex claims a positive return on investment of its products versus wood is less than 6 years). We consider Trex a prime example of waste-to-value economics that not only keeps huge quantities of waste out of landfills and oceans (Trex used 3.1 billion plastic bags in 2010, and is responsible for 70% of all U.S. plastic bag recycling), but also delivers a superior product with better long term value. In a world of constrained resources, making great stuff from leftovers is the best of all worlds.

Each of these four firms has a great operational story, and they fit well within Green Alpha’s macroeconomic thesis. In addition though, three of the four have to differing degrees suffered share price setbacks recently, providing attractive entry points. Ocean Power and UQM Technologies in particular have suffered long retrenchments but due to recent business improvements have begun to see share prices stabilize. OPTT is trading below both cash and book value and, with several projects upcoming, should be able to reach profitability and expand from there. UQM is expecting to reach profitability in its next full calendar year, and could be poised for rapid growth.

Already profitable and with a much larger market cap, GT Advanced Technologies is less speculative that the OPTT or UQM, yet has seen its share price decline rapidly as well. GTAT’s solar business probably explains that, as solar manufacturing stocks as a group have done poorly since mid-2011, but the market may be mispricing GTAT on this basis for two reasons. First, GTAT is not a panel maker, but a business to business panel equipment provider, where orders have remained more consistent. Further, GTAT’s other business, LED lighting, should be insulating it from the full vagaries of solar valuations. Second, GTAT has a very strong balance sheet which should allow it to withstand solar’s downturn, and the company remains profitable, expecting steady or modestly growing EPS for the next couple of years. Still, the company today trades at only 63% of sales and only 1.6 times book, so there’s plenty of upside potential as the company comes back to objectively reasonable valuation.

Trex is the one firm discussed here to have had outstanding share price performance so far this year, and with good reason. After losing $0.75 per share in 2011, the company is poised to earn $1.58 in 2012 and is forecasting $2.33 EPS for next year. Booming growth by any reckoning, resulting in a forward year PE of 14. Given their earnings growth, TREX need only return to their historical PE average just above 19 to deliver a nice return to forward looking next economy investors.

Disclosure: Green Alpha Advisors is long GOOG, OPTT, GTAT, UQM and TREX, but has no positions in AAPL, AMZN, NSU, FDX, UPS or LMT.

Note: this post first appeared online in Financial Advisor magazine's "Portfolio Manager Insights" section.

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy."

Posted by Garvin at 11:23 AM | Permalink | Comments (0)

11 Clean Energy Stocks for 2012

Tom Konrad CFA

October Overview

October brought a gentle fall to my Clean Energy model portfolio, and a slightly-less gentle decline for the clean energy sector and the stock market as a whole. Both the unhedged and hedged versions of my model portfolio fell 2.3% for the month, compared to a 4.1% decline for the widely held Powershares Wilderhill Clean Energy ETF (PBW), which I use as a benchmark for the clean energy sector as a whole, and a 4.0% decline in the broad market, as measured by the Russell 2000 ETF (IWM.)  All returns are as of Friday's close.
 
For the year, my clean energy model portfolio leads PBW by 25% but lags the broad market by 7%.  The unhedged portfolio is up 4.3% for the year, while the hedged portfolio is down 2.6%, having lost money on the hedge as the broad market rose.  For comparison, PBW is down 20.3% and the IWM is up 11.4%.

For details on the performance of my individual picks, see the chart and discussion below.

Stock Notes

Among individual stocks, only Finavera Wind Energy (TSX:FVR, OTC:FNVRF) and Honeywell, Inc. (NYSE:HON) had positive returns.  Finavera's 6% gain came as the market continued to digest the prospect of an outright sale of the company, as I discussed in some detail in the October update.  Analyst Felix Pinhasov thinks the company is worth about $1.10 per share, and expects investors will " receive a fair offer and a healthy premium" on the current price of $0.38 a share.

Honeywell's 2% gain seems largely due to a contract to equip new Cessna aircraft, and both Deutsche Bank and Barclays initiating coverage on the stock with Buy and Overweight ratings, respectively.

Battered Lime Energy (NASD:LIME) was down another 2% on a dilutive convertible note private placement to a group of investors led by Lime Director and largest shareholder Richard Kiphart.  I thought the timing of this private placement unusual, given that the stock price is currently depressed due to an ongoing internal audit to clean up Lime's books after misreporting of income.  If the placement could have waited until after the results of the audit were announced, the pricing of the placement would almost certainly have been better, making it less dilutive to existing shareholders.  I contacted Lime's CEO, John O'Rourke on October 23rd, to see if he could explain the timing. O'Rourke stated that he was "not ready to have a conversation yet," but promised one "soon."  

Lime management will have to communicate extensively with shareholders soon, since the company will have to seek shareholder approval for the transaction by February 28th at the latest. 

The most significant declines came from Alterra Power (TSX:AXY / OTC: MGMXF, down 13%) and Veolia (NYSE:VE, down 8%).  Alterra's decline did not seem to arise from any news, and even came in the face of  an agreement with the Philippines based Energy Development Corporation (EDC) to fund the development six of Alterra's geothermal projets in Chile and Peru, subject to EDC being satisfied with the results of due diligence field work on the projects.  While I would have expected a funding agreement with a global geothermal leader such as EDC to have given Alterra's stock a significant boost, this announcement only managed to halt the stock's decline, most likely because EDC has not yet committed to the projects.  Given Alterra's current value pricing and the likelihood that EDC will choose to proceed with some of the projects in the next six months, now is probably a good time to buy Alterra if you have not already done so.

Veolia's decline seems mostly due a downgrade of the stock from HSBC Securities from Overweight to Neutral on October 9th.  I took the opportunity to add to my position high dividend paying stock at $10.09 and $9.75.

I did not see significant news for any of the other stocks in the portfolio, most of which traded nearly flat.  Their performance was as follows:

Western Wind Energy (TSX-V:WND / OTC: WNDEF)	-1%
New Flyer Industries (TSX: NFI / OTC:NFYEF)	-1%
Waste Management (NYSE:WM)	+3%
Rockwool International A/S (COP:ROCK-B / OTC:RKWBF)	-4%
Accell (Amsterdam:ACCEL)	flat
Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF)	-3%

Conclusion and Election Outlook

While October was a quiet month, the US Presidential election promises to bring significant news both for clean energy and the market in general.   Romney's hostile attitude towards clean energy and Obama's supportive policies mean that PBW is likely to decline significantly on a Romney victory, and gain from an Obama win, while results for the broader stock market will be much more dependent on Congress successfully tackling the looming fiscal cliff during its lame-duck session.  I personally am worried that our dysfunctional Congress may not be up to the task, which is why I recently wrote about how to protect your portfolio with puts.

In terms of the model portfolio stocks, most are relatively immune to domestic politics because their operations are broadly international (ACCEL, VE, RKWBF, MGMXF, FNVRF), or likely to be dominated by company specific news (LIME, FNVRF.)  The exceptions to these rules are Waste Management, whose primary business is far enough removed from clean energy that changes in Federal policy towards renewable energy are unlikely to affect its returns.  Western Wind, New Flyer, Honeywell, and Waterfurnace should all feel electoral effects to varying degrees.

Waterfurnace gets a boost the 30% Investment Tax Credit for geothermal heat pumps, which is currently expected to revert to 10% in December 2013.  However, even an Obama administration is unlikely to be able to extend this in the current political environment, so I expect the stock to follow the real estate market more than the political cycle.

New Flyer's US bus sales are heavily subsidized by the Federal government, and all mass transit subsidies will be at risk under a deficit cutting, car-friendly Romney administration.  Expect NFYEF to gain from an Obama victory or fall in the event of a Romney win.

Western Wind Energy is currently in the process of auctioning itself to the highest bidder, but we can expect those bidders to place significantly more value on the company's wind development pipeline under a wind-friendly second Obama administration than under Romney, although this effect may not immediately show up in its stock price.

Although Honeywell is quite active in building automation and energy efficiency, the stock is more likely to get a boost from expected increases in defense spending under Romney than it is to be hurt by loss of support for energy efficiency.

Overall, this model portfolio might be helped slightly by an Obama win, but traders looking to speculate on the election result would probably do better to buy (Obama) or sell short (Romney) PBW than on any of my relatively stable picks.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE.

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.

Posted by Tom Konrad at 12:20 PM | Permalink | Comments (0)

Tom Konrad CFA

September Overview

September was another quiet month for my Clean Energy model portfolio and the stock market in general, with the exception of Finavera Wind Energy (TSX:FVR, OTC:FNVRF), which put itself up for sale last Monday (see below.) 

Since my last update, my model portfolio rose a modest 4.5%, shadowing my broad market benchmark, the Russell 2000 index (^RUT), also up 4.5%.  Although my clean energy picks rose in line with the broader market, the clean energy sector as a whole lost 0.6%, as measured by the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW).
 
For the year, my clean energy model portfolio increased its lead compared to PBW to 26%, but still lags the broad market by 9%.  The unhedged portfolio is up 6.5% for the year, while the hedged portfolio is down 0.4%, having lost money on the hedge as the broad market rose.  For comparison, PBW is down 16.1% and the Russell 2000 is up 15.4%.

For details on the performance of my individual picks, see the chart and discussion below.

Stock Notes

Among individual stocks,

• Western Wind Energy (TSX-V:WND / OTC: WNDEF) gained 8.2% over the month as management released more details about the sale process, revealing that 14 potential buyers were looking over company data, and five other interested parties were in the process of negotiating non-disclosure agreements so that they could also look over the data.  Some uncertainty also was dispelled when management saw off an attempted by Savitr Capital to replace the board at the company's annual meeting on September 25th with 74% of the vote.
  
• On October 1st, Finavera Wind Energy (TSX:FVR, OTC:FNVRF, up 30.4%) shot up after announcing that it had put itself up for sale and was already in discussion with three serious bidders.  This was most likely prompted by the termination of a planned sale of the company's Wildmare wind project to Innergex Renewable Energy Inc. (TSX: INE, OTC:INGXF), leaving Finavera desperately short of liquidity.  On Friday, Finavera revealed that it had entered discussions with a fourth potential acquirer, and that initial bids are expected soon. The fourth bidder is most likely B9 Energy of Northern Ireland, since Finavera director Robert Ian Harvey stepped down because of a "conflict of interest with one of the bidders" the same day the fourth bidder was announced.  Harvey is a founding director, shareholder, and CFO of B9.  B9 is the largest independent operator of wind farms in the UK.
• New Flyer Industries (TSX: NFI / OTC:NFYEF) was up1% from last month.  The company declared second-quarter earnings of $3.6 million, compared to a $7.3 million loss in the second quarter of 2011.  Canaccord Genuity increased it's price target for NFI from $7.25 to $8.00, but BMO Capital markets reduced it's price target from $7.50 to $7.25.  The stock was helped by the rising Canadian dollar, but hurt by lower production caused when New York City delayed an order for 90 buses in order to complete an independent review.
  
• Waste Management (NYSE:WM) fell 6.7% on a downgrade to neutral from overweight by JP Morgan, which also lowered its price target to $34 per share.
  
• Rockwool International A/S (COP:ROCK-B, OTC:RKWBF) advanced 11.3%, riding the improving outlook for Europe and a strengthening Danish Krone, but did not release any significant company news.
  
• Lime Energy (NASD:LIME, down 1,6%) continued to tread water as investors wait for the results from an internal investigation into the company's revenue reporting.  Early in the month, I thought Lime had found a bottom at $0.70 because it looked like everyone who wanted to sell had sold.  I was wrong about that: Volume selling resumed in force on September 27th, knocking the stock down to $0.69 at the close on October 5th.  I picked up a little more at $0.65 with a limit order.
  
  

There was little change for Alterra Power (TSX:AXY / OTC: MGMXF, down 5%) , Accell (Amsterdam:ACCEL, down 1.5%), Veolia (NYSE:VE, up 2.1%), Honeywell (NYSE:HON, up 5%), or Waterfurnace Renewable Energy (TSX:WFI, OTC:WFIFF, up 3.5%).

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE.

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.

Posted by Tom Konrad at 09:14 AM | Permalink | Comments (0)

Tom Konrad CFA

August Overview

I was traveling for much of the month of August, and so did not keep up with most of my stocks.  But not much happened while I was gone, with the broad market and renewable energy stocks both producing small gains for the month of a little over three percent, as measured by my benchmarks, the Russell 2000 index (^RUT, 3.4%), and the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW, 3.2%).

My Clean Energy model portfolio also had a relatively uneventful month, producing a total return of 2-3%, only slightly below the general market (2.6% for the unhedged portfolio, 2.4% for the hedged portfolio.)

For the year, my clean energy model portfolio continues to greatly outperform its industry benchmark, but lag the total market.  The unhedged portfolio is up 2.1% for the year, while the hedged portfolio is down 4.2%.  Meanwhile, PBW is down 16% and the Russell 2000 is up 11%.

Stock Notes

Most of my clean energy stock picks also had uneventful Augusts, as shown by the small orange bars in the performance chart above.  From left to right, the exceptions were:

• Alterra Power (TSX:AXY / OTC: MGMXF) gained 19% on a generally positive second quarter earnings announcement and an analyst upgrade.
• Western Wind Energy (TSX-V:WND / OTC: WNDEF) gained 17% when it emerged that Brookfield Renewable Energy Partners (TSX:BEP-UN/ OTC: BRPFF) acquired 10.7 million shares and 319 thousand warrants of the company for C$2.25 per share, and the right to acquire an additional 277 thousand shares on the same terms.  The agreement requires that Brookfield compensate the seller if Western Wind is acquired by any party for more than C$2.25 any time in the next year.  Since Western Wind is currently in a proxy battle between two parties, both of which have stated they intend to sell the company, such a sale is very likely, and Brookfield's purchase only makes sense to me if Brookfield intends to bid at least C$2.25 per share for the whole company, and wants to influence the outcome of the shareholder vote in the proxy battle and/or the eventual sale ratification.  Other investors seem to agree, and WND has been trading with a new floor price of C$2.25 since the announcement.  It closed Friday at C$2.31.
  
• New Flyer Industries (NFI.TO / OTC:NFYEF) completed the redemption of its outstanding 14% subordinated notes.  This wraps up the financial restructuring which began last year.  New Flyer was up 4% (total return) for the month.  As expected, the annual dividend rate was set at C$0.585; half the previous payout on the company's old IDS securities, giving New Flyer a 7.6% yield at the current C$7.70 share price.
  
• Lime Energy (NASD:LIME) fell a further 7% after it received notice of potential delisting from NASDAQ because of its late 10Q filing, which is pending an internal investigation into the company's revenue reporting.  Lime has 60 days to submit a plan to regain compliance, upon receipt of which NASDAQ may grant a further extension of up to 180 days.  As I discussed previously, I considered LIME so cheap at $0.90 that I could see little potential downside in the outcome of the internal investigation.  While the company cannot currently give any timeline for the completion of the investigation, I consider the delisting notice a non-event, since Lime is already taking steps to restate its financial statements.  Because of this, I decided to add to my position in LIME with a purchase at $0.70 on Thursday, and intend to purchase more if the stock falls further.
  

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE, BRPFF.

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.

Posted by Tom Konrad at 01:04 PM | Permalink | Comments (0)

Tom Konrad CFA

July Overview

July was a good month for my Clean Energy model portfolio.  Since the last update, these 11 stocks are up an average of 3.3%, with a year to date return total return a tiny loss of -0.5%.  While it's never pleasant to be down for the year, it's helpful to compare this performance to that of the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW), which was down 8.7% for the month, and down 21% year to date.  All in all, it has been a miserable year so far for most clean energy investors, and I'm happy to say that my model portfolio has managed to avoid almost all of that misery.

The broader market, as measured by the Russell 2000 index (^RUT), had a weak July as well, down 2.5% for the month, but it is still up 7.1% for the year.  With the broad market up, my hedged portfolio, which includes a put on the broad market ETF SPY, is lagging the model portfolio, with a total loss of -6.5% year to date.

I believe the model portfolio's year to date out performance is mostly due to avoidance of the moribund solar sector, which has declined 37% since the start of the year, even after a 63% decline in 2011, as measured by the Guggenheim Global Solar ETF (TAN).  However, TAN gained 3% since the last update, even as PBW declined, so this month's strong performance is due to other factors.

News Driven Returns

Company-specific news events drove the model's July performance.   New Flyer Industries (TSX:NFI / NFYEF), Western Wind Energy (TSX:WND, WNDEF) and Finavera Renewables (TSX-V:FVR, FNVRF), which were up 25%, 35%, and 23% for the month all gained because of significant news releases.  This more than compensated for bad news from Lime Energy (LIME), which lost 40% (see below for details.)

While those four stocks were charging ahead or falling off a cliff, the rest of the portfolio was more sedate.

Europe-based stocks Veolia (VE), Rockwool (RKWBF), and Accell Group (ACCEL.AS) all declined modestly (-8%, -4%, and -4%) becaue of continued concerns over the Euro crisis.  Nevertheless, these three remain positive or flat for the year (2%, 8%, and 0%.)  Domestic companies Waterfurnace Renewable Energy (TSX:WFI / WFIFF), Waste Management (WM) and Honeywell (HON) produced modest gains of 4%, 5%, and 8%, partially offsetting the losses among the European companies and Canadian Alterra Power (TSX:AXY / MGMXF), which gave back -5% after a strong showing in June.

I've written extensively about three of the big movers elsewhere, so I will just provide a quick summary for each and links:

• Western Wind Energy put itself up for sale under increasing pressure from shareholders.
• Finavera sold one of its wind projects for $22 million, greatly easing liquidity concerns.
• Lime Energy announced that its audit committee had discovered mis-reporting of revenue over the last nine quarters, possibly including the booking of non-existent revenue.  The stock plunged while the market awaits the results of the full review currently being conducted.
  

Distracted by all the news at these three companies, I have not found time to write about the news at New Flyer Industries, which over the last month has announced strong order activity and backlog for the second quarter, and has snagged an order in the New York market as a consequence of the exit of Daimler's Orion division from the North American bus market. 

My Trades

During the month, I bought Western Wind (both before and immediately following the sale announcement), Finavera (right after the wind farm sale), and Lime, where I think the current price has discounted all the very real accounting risk and then some.  I also re-entered Veolia at $10.36, having sold in June when the stock was above $12.  The decline in price and some progress cleaning up the balance sheet combined to make this stock attractive to me again.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, VE.

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.

Posted by Tom Konrad at 12:11 PM | Permalink | Comments (0)

Tom Konrad CFA

On Thursday, Veolia Environnement (NYSE:VE) closed a deal to sell its solid waste business for $1.9 billion.  This is part of its ongoing effort to reduce debt and cost of operations by selling assets worth $6.14 billion, which the company expects to complete by the end of 2013.  Last year, Veolia took the first step in this program by selling its UK water business, also for $1.9 billion.

I’ve long been attracted to Veolia for its green credentials and high dividend yield.  The company paid a euro 0.70 ($0.85) dividend in 2012, and will pay the same in 2013, for a yield of 8.2% at the current price of $10.33.  However, the company’s high debt ($23.7 billion after the recent sale, which it plans to reduce to $14.7  billion by the end of 2013 through a combination of asset sales and retained earnings) and negative free cash flow have made me wary.

Debt is still higher than I would like, and free cash flow is still negative, but with the stock trading at a forward P/E of 8 and at less than two thirds of book value, this seems a good time to re-enter this high yielding company before it completes it’s restructuring and attracts more cautious income investors.

I re-purchased Veolia today (I sold a month ago, when the stock was over $12, and the recent asset sale had not yet been announced.)  The company bears watching, since there is no guarantee it will continue divest assets and cut operating costs, but a successful restructuring leading to less debt and positive cash flow will make Veolia into an attractive stock worthy to be among the core of stable green income stocks in my portfolio.

Disclosure Long VE

This article was first published on the author's Forbes.com blog, Green Stocks.

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.

Posted by Tom Konrad at 09:08 AM | Permalink | Comments (0)

Tom Konrad CFA

June was a month of recovery for the stock market in general and clean energy stocks to a somewhat lesser extent.  

The Russell 2000 index (^RUT, which I use as a broad market benchmark in this series) was up 9% in June, while the Powershares Wilderhill Clean Energy ETF (PBW) gained 5.3%.  So far for the year, ^RUT has produced a total return of 9.5%, while PBW shows a loss off 12.2%.

My model portfolio introduced in January of 11 equally-weighted clean stocks lost ground yet continues to outperform the clean energy index fund PBW, down only 3.8% for the year (up 2.4% for the month.)  Since the broad market is up for the year and the month, the hedged portfolio trails, down 9% for the year and is flat for the month.

I continue to believe that my model portfolio's out-performance of the sector is largely due to my avoidance of the moribund solar sector, which has declined 40% since the start of the year, even after a 63% decline in 2011, as measured by the Guggenheim Global Solar ETF (TAN).  I don't expect a significant solar stock revival until at least 2013, so I think avoiding solar will remain a good strategy for the second half of 2012.

Stock Notes

Among the individual stocks in the portfolio, my investment in solid European companies with global sales Veolia (VE, +9%), Rockwool (RKWBF, ROCK-B.CO, +12%), and Accell Group (ACCEL.AS, +4%) continues to pay off, especially in June which saw some easing of concerns about a European breakup, when the three returned 0%, 8%, and 6%, respectively.
 
In the last month, Rockwool announced a new factory in North America in response to robust demand for their fire-resistant insulation, Veolia continued to make progress in its restructuring with the sale of it's UK water business and discussions with buyers over its US waste business and a stake in its transportation unit.

Relatively weakly capitalized companies Lime Energy (LIME, -30%), New Flyer Industries (TSX:NFI / NFYEF, +20%), Western Wind Energy (TSX:WND, WNDEF, -32%) and Finavera Renewables (TSX-V:FVR, FNVRF, -58%) were mixed in June (-6%,-3%,-2%, and +6% respecitively) but these companies have declined so much in previous months (or the previous year, in New Flyer's case), that all currently look like they are bottoming.

As I wrote in May, I expected a buying opportunity in LIME after the market had digested a first quarter earnings disappointment.  I purchased shares a couple weeks ago at $3.23, near where the stock is currently hovering.

New Flyer gave notice of its long-indicated intent to redeem its 14% subordinated notes in August, the redemption of which will be funded with the proceeds from the much cheaper 6.25% convertible debentures.  The exchange will greatly strengthen New Flyer's cash flow and should make the company more attractive to new investors, especially income investors attracted by New Flyer's 9% forward dividend yield.

Western Wind Energy has still not received an overdue Federal cash grant which had several readers asking me what was going on with the stock.  The company remains confident that the grant is just delayed, and I could find no reason to think otherwise when I looked into it. 

Finavera recently received the construction permit for its Tumbler Ridge project, but a real recovery of the stock will probably await the announcement of financing for the project.

Alterra Power (TSX:AXY / MGMXF) had the strongest gain in June, up13% after an unsolicited offer for its Icelandic HS Orka geothermal plant and the first equity payment from its Dokie wind farm.  Alterra is up 18% for the year.

Waterfurnace Renewable Energy (TSX:WFI / WFIFF) posted a solid 4% return in June, for an 11% total return for the year.  Waterfurnace recently launched the world's most efficient commercially available heat pump based on variable speed technology.  I'm currently talking to contractors about installing a geothermal system in the oil-heated home I bought in January, and Waterfurnace's Series 7 will definitely be one to consider.

Waste Management (WM) and Honeywell (HON) produced modest gains for the month (+1% and +3%) and year to date (+3% and +2%.)

My Trades

I expect the stock market to continue to be rocky through the second half of the year, but so far I'm happy with the additions to my holdings of New Flyer, Accell, Waste Management, and Waterfurnace I wrote that I'd bought in May. 

With the market strengthening in June, I made fewer purchases from this list, only Waterfurnace at $15.48, Western Wind at $1.15 and 1.20, and Lime at $2.24. 

I sold my shares in Veolia at $12.3-12.50 early in the month, as I had indicated I would probably do when I wrote about trash stock in early May.  Veolia is currently trading at $11.17, and I'll consider repurchasing it if it goes much lower, since I like the progress the company has made on its restructuring since I sold. 

The Western Wind purchase was just speculation that the tax grant would come through, and put me over my target allocation, so I took the opportunity to sell the extra shares for a quick profit when the stock got to $1.32 on Friday, even though we have not yet seen the tax grant.  Part of the reason for the quick turnaround was that this pair of buy/sell trades had the benefit of effectively moving part of my Western Wind position out of my IRA and into my taxable brokerage account.  I'd initially bought the Western Wind in the IRA because that's where I had cash when I was buying the stock last October, but I generally prefer to hold income style investments in the IRA and speculative equity investments in the brokerage account because of differences in tax treatment.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF.

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.

Posted by Tom Konrad at 09:26 AM | Permalink | Comments (2)

Tom Konrad CFA

Performance in May

Fear of the disintegration of the Euro resurfaced in May, sending all stocks downward.  Clean energy stocks once again fell more than the market as a whole.  Possible causes are that many clean energy sectors are exposed to further loss of European subsidies, and that clean energy stocks tend to be more volatile than the market as a whole, with both up and down moves being magnified.  The Russell 2000 index (which I use as a broad market benchmark in this series) was down 7.1% in May, the Powershares Wilderhill Clean Energy ETF (PBW), was down more than twice as much, with a 14.6% decline.

This month, my strategy of avoiding the most subsidy -dependent clean energy sectors once again reduced my losses compared to PBW, with the equally-weighted portfolio of 11 stocks declining by 12.1% (total return.)  My losses might have been reduced more if I did not have fairly heavy exposure to European companies (Veolia (VE), Rockwool (RKWBF, ROCK-B.CO), and Accell Group (ACCEL.AS), but I don't regret the decision to invest in Europe.  Like Nassim Taleb, I think the structural problems in Europe are only more obvious than those in the United States.  In the longer term, we're likely to have more problems here.

As is to be expected in a down month, the hedged portfolio did a little better, declining only 10.2%.  Since my hedge is a long put, we can expect it to supply more protection than it did this month if the market continues to decline.  On the other hand, if the market stabilizes or rises, we can expect the hedge to return to being a drag on portfolio performance.

While every single stock and index (with the exception of the hedge) was down. The performance of the individual stocks in the portfolio are detailed in the chart below.  All percentages are in terms of the stock price at the start of the year.

Stock Notes

The portfolio's worst performer in terms of stock price was Veolia (VE), which fell from $13.74 to $11.20 (a 23% decline.)  However, much of that decline was due to the stock trading ex-dividend, so the loss in terms of total return (with the dividend added back in) was only 15%.  Although it's a global company, Veolia is based in France, which easily accounts for its relatively large decline.

In terms of total return, the largest decline was felt by Alterra Power (TSX:AXY / MGMXF), which fell by 24%, on the heels of a 25% decline in April.  In May, Alterra announced the acquisition of four wind development projects in British Colombia, and announced the resignation due to conflicts of interest of a director who would be taking a job at the company's auditor, KPMG.  Overall, Alterrra is still up for the year, and since there was no negative news of note, I think the decline was simply due to investors looking to sell one of their few stocks which were up for the year. 

New Flyer Industries (TSX:NFI / NFYEF) saw a decline of 16% after dividends, despite generally good news: A competitor closed up shop, there are signs of renewed strength in the market for transit buses, the company announced a partnerships to develop a new smaller "midi" bus, and unveiled a new battery-electric bus prototype.

Overall, only  Lime Energy (LIME) had what I would call "bad news," when the company missed analysts' estimates of earnings for the first quarter.  But even that was not particularly bad news, since the company has made good progress advancing its new utility-focused strategy.  Further, Lime raised money from it's biggest shareholder (without having to give him a discount to the market price) in order to fund the faster-than-expected growth of the utility business.  LIME fell 9% in May.

Conclusion

With many of these companies trading at lower prices despite making advances in their underlying businesses, I added to my positions in several of these names this month (New Flyer (NFYEF), Accell (ACCEL.AS), Waste Management (WM), and Waterfurnace (TSX:WFI / WFIFF), in particular.)  Given the number of attractive opportunities within this list and elsewhere in clean energy, my focus has been on buying dividend-paying companies which I think will be able to increase or maintain fairly high dividends. 

All four of the stock buys above pay over 4% dividends, as do several other acquisitions this month: Power REIT (PW), ABB (ABB), PFB Corp (TSX:PFB / PFBOF) and Potlatch (PCH).  These acquisitions are part of a long-term strategy to anchor my portfolio around a large block of reliable dividend-paying names which do not require as much attention as my more speculative clean energy picks.  (Note that all of these except WM, PW, and PCH are subject to foreign tax withholding, so they are better held in a taxable account, where the withheld tax can be usually be recovered through the Federal foreign tax credit.)

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, AQUNF, PW, ABB, PFB, and PCH; short IWM and SPY.

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.

Posted by Tom Konrad at 09:16 AM | Permalink | Comments (0)

Tom Konrad CFA

Unenchanted April

After a great January, the last three months have not been kind to clean energy stocks.  While my model portfolios are still in positive territory (+5.4% and +0.9% for the unhedged and hedged portfolios, respectively), and are above my clean energy benchmark (The Powershares Wilderhill Clean Energy ETF, -3.4%), they have again fallen behind my broader market index, the Russell 2000 (+7.3%.) 

Gone with the Wind trailer, public domain

Gone With the Wind

April saw the chances of an extension of the federal Production Tax Credit (PTC) for wind diminish significantly when Congress failed to attach it to the payroll tax cut extension.  In an election year, the chances of a stand-alone PTC extension getting through Congress look slim, despite the massive numbers of layoffs expected in the wind industry without an extension.  Even if the PTC is extended next year, the diminished wind industry capacity will be felt for years to come.  It's already being felt by wind stocks, and, I believe, other clean energy stocks are reacting in sympathy.

Stock Notes

Clean Energy Developers

• The greatest pain was felt among my group of clean energy development companies, most likely because developers are the most direct beneficiaries of clean energy subsidies such as the PTC.  Hardest hit was Finavera Wind Energy (TSXV:FVR,PINK:FNVRF), which lost 43%.  On April 30, Finavera fell over a third, although the CEO confirmed that there had been no change in the company's prospects.  Perhaps some large investor feared some bad news would come out in Finavera's annual report on May 1, but I found little of note which had not already been released.  It's worth pointing out that Finavera's prospects should not be hurt and might even be helped by a failed PTC extension, since Finavera has no US projects, and the companies projects in Canada might benefit from cheaper wind equipment which might have been used in the United States had the PTC been extended.
  
• Western Wind Energy (TSXV:WND, PINK:WNDEF) also has little exposure to the lack of a PTC extension, since most of this company's value is in wind projects which were commissioned before the PTC expiration, and a solar project the company is developing in Puerto Rico.  Yet Western Wind has also been experiencing a sell-off on no news, although part of this may be due to an unsubstantiated smear campaign on blog comment sections and bulletin boards.  One (also unsubstantiated) rumor has it that a group of Toronto hedge funds are trying to force a quick sale far below the company's current valuation, perhaps to Algonquin Power (TSX: AQN, PINK:AQUNF) which made a low-ball offer last October.
  
• Alterra Power (TSX:AXY,PINK:MGMXF) also declined significantly on no news.  Alterra also has little exposure to the US wind market, and operates mostly internationally and has more of a focus on run-of-river hydropower and geothermal.
  

Other News of Note

• Bicycle manufacturer Accell Group (ACCEL.AS) announced a successful conclusion to its talks to buy out Raliegh.  
• Waste Management (WM) (along with several competitors) announced disappointing first quarter results.  At the time I wrote that the subsequent sell off might lead to another attractive buying opportunity, partly because I liked the reasons earnings fell short. WM has since declined from slightly over $36 to slightly under $34, and I have placed a limit order to add to my position at a little below the current price.  If the decline continues, I intend to continue to add to my position.  I like WM in the long term for the company's sustainability initiatives and healthy (4.2%) and well-protected dividend.
• Last Thursday, Lime Energy (NASD:LIME) announced a contract with Central Hudson (which happens to be my electric utility) to handle the utility's direct install energy efficiency program.  I wrote that this validated Lime's strategy, but the stock has yet to get any love from investors as a consequence.
  

Conclusion

Investor disappointment with the lack of political support of clean energy seems to be translating into a broader disappointment with clean energy stocks in general.  Values continue to get better in those clean energy stocks which are not dependent on subsidies.  I think cautious buying is in order, but I also think it likely that the political climate for clean energy will continue to worsen this year, so it is probably best to keep the majority of your funds in cash while waiting for more enchanting values to blow our way.

DISCLOSURE: Long WFIFF, LIME, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, AQUNF, short IWM and SPY.

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.

Posted by Tom Konrad at 06:39 PM | Permalink | Comments (3)

Tom Konrad CFA

Portfolio performance

March was a volatile month for clean energy, with many of my picks reporting earnings.  My 11 picks were down 4% on average since my last update (March 1st to April 5th), compared to a 9% decline in the Powershares Wilderhill Clean Energy Index (PBW), while the broad Russell 2000 index was flat.  The hedged portfolio (see the original article for details) lost 5%.

For the year to date, the portfolio has put in a strong performance, and is up 15%.  PBW and the Russell 2000 are up only 3% and 11%, respectively.  The hedged portfolio is up 10%.  See the following chart for details:

Stock Notes

Wind Developers: A Little Birdie Told Me

Last time, I mentioned I has a limit order to buy Western Wind Energy (WNDEF.PK/WND.V.)  That order has since executed at $1.68, and the stock bottomed at $1.66.  Since then, I tweeted that the company had applied for the $90M Section 1603 cash grant on their 120 MW Windstar project. While this was expected, it reduces uncertainly around the company's projects.  Even a little more certainty around a $90M payment is significant for a $115M market cap company.

I also tweeted  that Finavera Wind Energy (FNVRF.PK/FVR.V) had received its Environmental Assessment Certificate (EAC) for its Tumbler Ridge project.  This was the last barrier to project construction (funded by GE Energy (GE).)  The EAC is also significant because the EAC applications for Finavera's 77MW Wildmare and 120MW Meikle projects are modeled on Tumbler Ridge.  Not only can Finavera begin construction of Tumbler, but investors can be a little more confident that Wildmare and Meikle will also obtain EACs.  Finally, Finavera also closed on a $200 thousand convertible note in March, easing the company's tight liquidity.  I recently bought more Finavera at $0.355 on the EAC news.

Earnings Notes

Earnings disappointed investors at New Flyer (NFYEF.PK/NFI.TO) and Lime Energy (LIME.)  I wrote about New Flyer last week, so I won't repeat myself here.  Since then, the only news has been the ratification of a new collective work agreement by the union at New Flyer's Winnipeg factory: Good news, but not enough to move the stock much. 

The highlight of Lime's (LIME) earnings were a big write-off and less than expected revenues in their Commercial and Industrial (C&I) division.  When I first wrote about Lime last October, I concluded by saying,

A renewed market decline, along with a possible earnings miss caused by C&I clients hoarding cash in the climate of uncertainty could easily lead to a lower stock price in the coming months. I’ll be watching the stock closely and buying cautiously if either of these comes to pass.

We have not had the stock market decline yet, but this was the earnings miss I was waiting for.  I took the opportunity to scoop up a bunch of this stock between $2.65 and $2.95 over the last week, most notably when Lime had a surprising intra-day sell-off which I tweeted about on Monday.

On March 9th, Waterfurnace Renewable Energy (WFIFF.PK/WFI.TO) announced revenue for 2011, down 0.5% from 2010, but improved margins because of a price increase in late 2010.  The market has reacted mildly favorably, with Waterfurnace's stock climbing slowly but steadily since.

Alterra Power (MGMXF.PK/AXY.TO) also announced earnings on March 28th.  The good news was no news: all Alterra's development project continue on pace, and there have been no significant hiccups in power production.  Given the large number of mishaps in the geothermal industry in 2011, a few months of no bad news is all that it takes a for great stock performance in 2012.

The Acquisition Cycle

Bicycle manufacturer Accell Group (ACCEL.AS) was cruising along with 2011 sales  9% over 2010, and net profit up 11% announced in February.  Profits were driven by a continued shift into higher value electric bikes.  The company is re-cycling its profits into more acquisitions of bicycle brands.   Accell adds value to its acquisitions with a strong distribution network which is unusual in the very fragmented bicycle industry.  Having already purchased American electric bike and scooter manufacturer Currie Technologies, Accell is now in talks to buy storied bicycle brand Raleigh.  (As an aside, I own an older Currie iZip, a utilitarian commuter bike, although I just upgraded to the much sportier EZ008 and am looking to sell the iZip.) 

Conclusion

While my stocks lost a little ground in March and the first week of April, it has been a good month in comparison to Clean Energy stocks in general.  Most of this has probably been due (again) to my avoidance of solar stocks, which are again looking like they are headed for new lows. 

We're seeing decent buying opportunities in Lime Energy, which I think is a deal below $3, and Finavera which seems quite cheap at $0.36, although the company's low cash on hand could drive the stock lower if they are forced to dilute current stockholders to raise funds.

DISCLOSURE: Long WFIFF, LIME, AMRC, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, and puts on IWM and SPY.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 08:42 AM | Permalink | Comments (9)

Tom Konrad CFA

Experimenting with more frequent updates

In the past, I genrally only wrote about my annual list of ten clean energy stocks on a quarterly basis, but when I wrote last month to apolgize for inadvertently slipping in an extra stock, and in the process wrote a few notes on a couple of the stocks with news, a couple readers wrote to say they liked the more frequent updates.  So let it be written, so let it be done. 

Leave a comment if you think it's something I should continue doing, or if you think my limited writing time is more valuably spent talking about stocks you have not already heard about.

Portfolio performance

February was kind to my stock picks, which had a total return since the start of the year of 19.5%, up from 15.1% at the start of February.  The hedged portfolio showed a gain of 16.1%, up from 12%.  Meanwhile my benchmarks both lost ground, the Clean Energy ETF PBW falling back to 10.9% from 20.8% at the start of February, and the Russell 2000 ETF IWM falling from a gain of 12.3% to a gain of only 8.8% for the year.

For details on the composition of the portfolio and hedged portfolio, see the original article: 10 [sic] Clean Energy Stocks for 2012.  Stock-by-stock performance and dividends are shown in the chart below.  Note that the performance of foreign-traded stocks mrked with * is calculated based on the prices in their home markets converted to dollars at the prevailing rate at the time.

Stock Notes

Euro Stocks Rebound as Crisis Fades

The three European stocks (Rockwool  [ROCK-B.CO] up 28%, Veolia [VE] up 31%, and Accell [ACCEL.AS] up 22%) have done well this year, as investors worst fears of the outcome from the Greek debt crisis begin to fade.  Veolia climbed 15% over the last two days based on its announcement that the company is in talks to sell its mass transit unit.

Alterra Rises on HS Orka

The top performer has been Alterra Power [MGMXF.PK/AXY.TO.]  I think the 57% gain so far this year is partly based on the fact that the company had been so beaten down last year, and the announcement that the group of Icelandic pension funds that owned 25% of its HS Orka geothermal plant had increased their stake to 33.4%.  This is good for Alterra in two ways: the cash can be used for investments in other renewable energy projects, and the greater local ownership of the Icelandic power plant helps to blunt the criticisms of Icelandic nationalists who who have been highly critical of foreign ownership of this power plant, which meets 9% of Iceland's electricity needs and 10% of its heating needs.

Depressed Stocks Cheer Up

The other star performer has been transit bus manufacturer New Flyer (NFYEF.PK/NFI.TO).  I believe the stock's rise has been mostly a rebound from excessively depressed levels at the start of the year.  Even at the current $7.89 a share, I think this high-yielding stock remains an excellent value.  The story at Waterfurnace (WFIFF.PK/WFI.TO) is similar, with the stock rebounding from severely undervalued levels at the start of the year on little news of note.

Drifting in the Western Wind

The worst performer has been Western Wind Energy (WNDEF.PK/WND.V.)  This stock has been drifting slowly downward on a lack of news after rejecting potential buyout at the end of last year.  Since the company has completed its Windstar and Kingman wind farms, the value of the company has risen appreciably since I wrote about it in late 2011, so the price decline represents an opportunity to pick up a deeply undervalued renewable energy power producer.  I have a limit order in to buy a little more at slightly below the current price, despite my fairly large existing position in the stock.

Conclusion

It's been a good year so far for my picks, much like the start of my last banner year, 2009.  As I wrote when I introduced this list,

I'm optimistic about 2012.  Unless we see a total economic meltdown..., I expect strong appreciation of this portfolio of undervalued clean energy stocks in 2012.

DISCLOSURE: Long WFIFF, LIME, AMRC, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, and puts on IWM and SPY.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 11:29 PM | Permalink | Comments (10)

Tom Konrad. CFA

A "bonus" stock pick this year.  Also, notes on New Flyer Industries and Finavera Wind Energy.

Maybe it was because Seeking Alpha did not carry my annual list of 10 Clean Energy Stocks for 2012 this year, but no one seems to have noticed that there were actually 11 stocks in the list.  Call it the Spinal Tap of top-ten lists.

If anyone did notice the extra pick, they didn't leave a comment.  What happened was that I have two number 8 stocks, but there is enough text between them that neither I nor most of my readers could see both 8's at once on the same screen.  Oops!

I had 10 originally, but my messed up numbering led me to think I did not have enough, and so I went back and added Honeywell (HON) at the last minute, choosing to play it safe with a large cap energy efficiency company.  So far this year, Honeywell has produced the expected safe results, but because clean energy stocks (especially solar) have been on a tear,  Honeywell's 10.5% return has dragged down the portfolio's average a little.  But who's complaining?

Performance

I'll be complaining if including Honeywell makes my list not beat PBW, my clean energy benchmark for the first time in 2012.  As of February 3rd, PBW is up 20.7% and my broad market benchmark IWM is up 12.3%.  Meanwhile, my (ahem) eleven stocks are up an average of 15.0%, with New Flyer's monthly dividend payment bringing the portfolio's total return to 15.1%.  Readers who hedged their portfolios by buying a put on SPY as I suggested did worse (since the market was up in January), slightly under-performing even the broad benchmark with a total return of 12.0%.  But the year is still young.

Solar

The main reason this portfolio has underperformed broader clean energy was my decision not to include any solar stocks.  Solar stocks have been rapidly making large percentage gains from the miserable lows they hit at the end of last year.  The Guggenheim Solar ETF TAN is up 32% so far this year, and solar stocks are prominent among PBW's holdings.

I toyed with including a solar stock or two in the list, for similar reasons to those I discussed last October, but I decided to hold off simply because I don't follow solar closely enough to make informed selections. 

Finavera Wind Blows Back

In truth, the portfolio was doing considerably worse only a week ago, but recently got a boost from a couple stocks which had been lagging.  First, Finavera Wind Energy (FNVRF.PK)
 updated investors on progress towards environmental permitting of its projects, highlighting the fact that two of their projects are within months or receiving final permits:

Regularly published power industry data provides some context for the valuation of wind energy projects. The data illustrates the average multiples paid for projects in 2011. Early stage projects have sold for more than $60,000/MW. Projects that are fully permitted and have a power purchase agreement have sold for more than $500,000/MW. The jump in value from the early stage to the next stage is significant. Finavera currently finds itself at this inflection point. Our projects are being valued in the public markets as early stage, yet we are a few short months away from being fully permitted on our first two projects. We believe Finavera is on the cusp of a significant asset re-valuation.

At $0.43, Finavera is now up only 5% for the year, but if those permits are granted it has a lot farther to go.  Investors who bought the stock last month when it was trading in the $0.25-$0.30 range are already feeling smug (I added to my positions, but mostly between $0.35 and $0.40.)

New Flyer Puts the Pedal to the Metal

Second, New Flyer Industries (NFYEF.PK/NFI.TO) stock has been accelerating since January 19th.  The unusual action prompted regulators to ask New Flyer to disclose that New Flyer has been in discussions "regarding a potential commercial and strategic relationship."  But company CEO Paul Soubry says there are no deals closing, and several analysts agree.

The stock has been incredibly under-priced since last summer.  North American transit bus orders have been slow for the past two years, and New Flyer has been reducing its backlog as a result.  But the flip side of the slow bus market has been a rapidly aging bus fleet and increasing pressure on transit operators to replace aging buses. 

The share price run-up is most likely the result of investors realizing that this is a massively under-priced stock in a cyclical market which is about to enter an expansionary phase.

Conclusion

Although my stocks are suffering this year from my long-term decision to mostly avoid solar, I'm not complaining about the returns, and I'm very happy to see Clean Energy stocks finally heading in the right direction after a gruesome year in 2011.

DISCLOSURE: Long NFYEF, FNVRF, and puts on IWM and SPY.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 11:22 AM | Permalink | Comments (6)

Tom Konrad, CFA

There is a silver lining to the horrible year clean energy stocks had in 2011: the opportunity to buy clean energy stocks (often considered a growth sector) at prices one would expect from value stocks.

Each year since 2008 I have published an annual list of ten clean energy stocks I thought were good buys at the beginning of the year.  While the 2008 list was not really intended as an investment portfolio, my annual lists quickly evolved into a mini-portfolio of stock intended for hands-off investors who did not want to pay the high fees of clean energy mutual funds, but who, like me, saw shortcomings in the available clean energy exchange traded funds.  In particular, the clean energy exchange traded funds (ETFs) and most clean energy mutual funds) are far too focused on high profile sectors like solar and have hardly any exposure to the most economic clean energy sectors, such as energy efficiency, alternative transportation, and biomass.  Most clean energy ETFs come with relatively high costs for ETFs (usually around 0.6% to 0.7%), which is expensive enough that a small portfolio of clean energy stocks can be acquired for less over a modest holding period.

With that in mind, I now focus my annual list on the most economic clean energy sectors.  Within those sectors, I include stocks I currently consider relatively good values, similar to the clean energy model portfolio I wrote about in late 2009.

The relative results have been good, when compared to the returns investors would have gotten if they had invested in the clean energy ETFs I use as a benchmark.  (I've currently settled on the Powershares Wilderhill Clean Energy ETF (PBW) as a benchmark, because it is the most widely held of all clean energy ETFs, but I used GEX and ICLN in the early years.)  Over the past four years, my picks have outperformed the benchmark by 12% in 2008, 45% in 2009, 10% in 2010, and most recently by 4% in 2011, despite company-specific bad news for three of the stocks in the portfolio.

The Best Opportunity Since Early 2009

Despite the good relative performance, the last four years have been so bad for clean energy in general that someone who had been following the portfolio since 2008 would still be down because of large losses in 2008 and 2011.  The upside of this poor performance is that now is the best time to buy clean energy stocks since the start of 2009. 

In both 2010 and 2011, I cautioned readers that the stocks I listed were only good values relative to clean energy stocks in general.  This year, as in 2009, I have the pleasure of bringing you a list of ten clean energy stocks I think are good values at current prices.   This does not mean that my current crop of clean energy names can't fall, but it does mean that they have much more upside potential than they did in either of the last two years.  If this portfolio ends 2012 lower than it is now, I'm confident the decline will have been caused by a fall of the stock market as a whole: Bad news specific to clean energy seems to be more than adequately reflected in the current prices of clean energy stocks.

That said, the fragile economy and political paralysis in both the US and Europe hold many risks for the stock market in general in 2012, so investors in these stocks would probably be wise to hedge their positions with puts on broad market ETFs such as SPY and IWM.

The Picks

Energy Efficiency

A dimmable LED downlight. Photo by author

Energy Efficiency has long been a staple of my annual lists, because energy efficiency measures make sense in both good times and bad, both as a way to save money, and to stimulate the economy.  Because energy efficiency measures cost less than conventional energy, they stimulate economic activity twice: first when they are installed (as would any investment) and then for years to come, as the energy cost savings are spent on other goods.

My energy efficiency picks are:

 1.Waterfurance Renewable Energy (WFIFF.PK $15.3455, WFI.TO), a perennial favorite because of their profitable business selling geothermal heat pumps.  Waterfurnace recently increased their quarterly dividend to $0.24, for a 6% annual yield.

2. Lime Energy (LIME, $3.18) was one of my two top picks in the energy services sector, the other being Ameresco (AMRC.) I chose to include LIME in this list rather than AMRC because AMRC is already up 35% since I recommended it.  While I still like AMRC at current prices, I think LIME has better potential upside.

3. Honeywell (HON, $54.35) has a strong business providing building controls and efficient heating and cooling equipment, as well as a performance contracting arm.  I currently like the company's relatively modest trailing and forward P/E's of 16 and 12, respectively, strong cash flow, low debt, and 2.7% annual dividend yield.

4. Rockwool International (RKWBF.PK $82.29, ROCK-B.CO 473 DKK10) is an international insulation manufacturer whose share price has fallen because of the EU crisis along with many other Eutopean stocks.  Yet with only 43% of 2010 revenues originating in Europe and headquarters outside the Euro zone, the company seems relatively insulated from the full effects of a Euro crisis.  Rockwool pays an annual dividend, and has a yield of 2% based on the most recent dividend payment.

Biomass

By S. Müller (Own work) [CC-BY-2.5], via Wikimedia Commons

I think one of the best ways to play cellulosic biofuels is to buy the companies which control the cheapest potential feedstocks.  I'm not sure that the best use of trash is to make biofuel, but whether it is recycled, composted, digested, incinerated, or converted in to biofuel, I see trash as a future source of revenue in a resource constrained world, and who better to profit from trash than the companies that collect it?

Last summer, I highlighted environmental services companies as a way to invest in biomass in my article Trash Stocks Trashed: An Income Opportunity? 

5. Waste Management (WM, $32.71) was my top pick at the time.  Since then, the stock has since risen over $2 while continuing to pay its $0.34 quarterly dividend.

6. Veolia Environnement SA (VE, $11.05) was then trading around $16, and I was cautious about the compnay.  Today, Veolia seems too cheap to pass up, despite the fact that I expect its 2012 annual dividend to be significantly lower than the $1.47 (13.3%) paid in 2011.

Alternative Transport

By Steve Morgan (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons

Electric vehicles (EVs) may be cool and appeal to early-adopter techies and some conspicuously consuming greens, but I think EV adoption will be a long, hard slog.  The technologies which are likely to advance faster are those that are already economic, but also save transportation fuel.  Alternative transportation such as biking, light rail, and buses top my list.

7. Accell Group (ACCEL.AS, €14.15/$18.33) is a Netherlands based bicycle maker which I recently highlighted as a peak oil investment to buy now, because the  company has been battered by the EU crisis.  Accell is up 11% since then, although the stock still has significant Europe risk.

8. New Flyer Industries (NFYEF.PK $5.6492, NFI.TO) is the largest North American manufacturer of heavy duty transit buses, and currently looks like a steal, despite the fact that the cyclical bus industry is in a downturn, undermining profits. 

Both alternative transportation stocks pay healthy dividends, with Accell's over 6%, and New Flyer's expected to fall next year to a still healthy 8% to 9% at the current stock price.

Renewable Energy Developers

Western Wind's Kingman I Wind & Solar park. Photo courtesy of the company.

With overcapacity among solar module and wind turbine manufacturers, the consumers solar modules and wind turbines seem best placed to benefit.  Low prices are not only good if you are a homeowner looking to put a small PV system on your roof, they are also good for renewable energy developers.

Government subsidies may be cut, but manufacturers still have product to sell, and they'll continue to do so as long as the price exceeds their marginal cost of production... even if that means they'll never recoup the capital invested in their factories.

This is good news for renewable project developers who have projects locked in with the current subsidy regime, and who have the financing to build them.  The improved economics of owning solar farms can not be more aptly demonstrated by the purchase of a second solar farm by Warren Buffett controlled MidAmerican Energy Holdings.

While selling renewable energy equipment can be an extremely competitive business with constantly eroding margins, power production is one of the most defensive businesses there is, with electricity usually sold under long term (15-20 years) contracts at pre-determined prices.  Nevertheless, small renewable energy power producers are looking cheap compared to their future discounted cash flows. 

8. Finavera Wind Energy (FNVRF.PK, $0.409) is a wind project developer in Ireland and British Columbia.  Although the company is small, risk is much reduced by joint development agreements with industry heavyweight like GE Energy (GE), which will be providing the equity needed to develop the company's first 77 MW project in British Columbia, and has indicated interest in additional projects on similar terms.  This outside financial muscle is good, since the company's balance sheet is weak, but the company is working to rectify that:  Finavera just closed a $442M private placement at $0.45 a unit (1 share plus half a 12 month $0.55 warrant.)

9. Western Wind Energy Corp (WNDEF.PK, $1.96) just completed its 120 MW Windstar project in time to qualify for the 30% federal cash grant before it expired at the end of 2011.  Based just on the company's completed and advanced projects, I think the discounted cash flow value of Western Wind is now approximately $6, making the company a safe bet with an easy 2-3x upside.

10. Alterra Power Corp. (MGMXF.PK $0.40, AXY.TO), formed by the merger of Magma Energy and Plutonic Power Corp, Alterra has a solid cash position and a diversified base of producing assets across both technologies and geographies.  As the company continues to develop projects in-house and bulk up through mergers and acquisitions, I expect the stock price to increase towards the value of its assets, leading to outsize gains for investors who buy at the currently depressed price, which is currently half of book value, and includes $0.10 a share in cash.

Hedge

As discussed above, I think 2012 is a good year to hedge against a broad market decline, and buying puts is the simplest and safest way to do this. 

SPY ($125.50) tracks the S&P 500 and has a fairly liquid options.  In order to be able to hedge ten stocks with an equal investment in puts, we'll need to buy significantly out-of-the money puts.  For a complete hedge, we'd want the notional value of the underlying shares of SPY to be equal to the value of the hedged portfolio times the portfolio's beta.  Since I don't put a lot of faith in such calcualtions because betas and other correlations tend to change during market crises, so I'll just guess and use:

SPY January 2013 $110 Put (SPY130119P00110000, $7.81).  For every $781 put contract, the notional value of the underlyng is $11000.  If we assume our portfolio's beta is 1.1, each such put contract would be sufficient to hedge a $10,000 portfolio.  The beta of 1.1 is just a guess, but it makes for round numbers.  Betas are generally near 1, and are usually higher for riskier stocks.

This hedge not only provides us with some insurance against a large (greater than 13.4% = 1-110/125.5) decline in the S&P 500, it also makes the hedged portfolio greener than the unhedged one.  Puts and shorts are effectively dis-investments in the underlying stock or ETF, and to the extent that companies in the S&P 500 index reflect the generally "brown" economy, the hedged portfolio is greener than the unhedged one.

What will 2012 Bring?

I'm optimistic about 2012.  Unless we see a total economic meltdown (for which I suggest readers hedge their portfolios, as discussed above), I expect strong appreciation of this portfolio of undervalued clean energy stocks in 2012.

As usual, I'll track the performance with quarterly updates, with the stock picks benchmarked against PBW.

DISCLOSURE: Long WFIFF, LIME, AMRC, RKWBF, WM, VE, ACCEL, NFYEF, FNVRF, WNDEF, MGMXF, and puts on IWM and SPY.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 07:19 PM | Permalink | Comments (15)

Tom Konrad CFA

My clean energy portfolio outperformed again in 2011, but it was a Pyrrhic victory.

Without a doubt, 2011 was a horrible year for Clean Energy stocks, nearly as bad as 2008.  The difference was that, in 2008, the entire stock market was crushed, while this year, the broad market ended with only modest declines compared to clean energy stocks.

Based on 2010 and 2011 closing prices, the broad market (as measured by the performance of the Russell 2000 index), was down 10%, while clean energy stocks were down 52%, as measured by the most widely held clean energy ETF, the Powershares Wilderhill Clean Energy ETF (PBW), which I use as a benchmark for the sector.   For the fourth year running since I began publishing an annual list of picks, my portfolio again beat my clean energy benchmark, but only because of the miserable performance of PBW.  The portfolio as a whole lost 48% after taking into account the effect of dividends.  (My portfolio exceeded its benchmark by 12% in 2008, 45% in 2009, and 10% in 2010.)  You can find the original article introducing 2011's clean energy picks here.

What Happened?

I attribute my superior performance in previous years to better sub-sector selection.  I generally avoid solar stocks because I have long felt that the solar sector was too popular among people who should know better and too competitive for companies to retain consistent long term margins.  Declining solar manufacturing margins arrived with a vengeance in 2011, causing an implosion of solar stock prices, including a couple high-profile bankruptcies.

Energy Efficiency stocks are usually central to my portfolios, since energy efficiency has better economics that other energy technologies (including fossil fuels), although this year I chose to include two demand-response stocks EnerNOC (ENOC) and Comverge (COMV) among the energy efficiency picks and got badly burned, as demand-response seems to be becoming commoditized as well.

Despite the fact that I managed to squeak out a win over PBW, I consider 2011 my worst year to date.  Not only did I make the inauspicious choice to bet on demand response, but I also picked two geothermal developers, in the expectation that 2011 would be a good year for geothermal stocks.  In fact, not only did geothermal stocks fall even further out of favor in 2011, but both of my picks suffered from nasty surprises early in the year, with Ram Power (RAMPF.PK) reporting large cost overruns in the company's flagship San Jacinto-Tizate project in Nicaragua, followed by the resignation of the company's CEO Hezy Ram.  Ram later told me that he left over "Irreconcilable differences with the board and controlling shareholders, about the future course of the company and how to get there."

The news at Nevada Geothermal Power (NGPLF.OB) was even worse.  In May, the company announced a power production shortfall and forecast a gradual temperature (and output) decline at their flagship Faulkner 1 geothermal plant at Blue Mountain.  According to Nevada Geothermal CEO Brian Fairbank in a personal conversation, the problem was that fractured rock at Blue Mountain allows water from reinjection wells to travel much more quickly than anticipated to the production wells, which has the effect of cooling the produced water over time.

Bad news for specific stocks did not stop with these.  In April, American Superconductor, now renamed AMSC (AMSC) admitted that their major customer had refused shipments and had not paid for some previous shipments.  As details emerged, the news only got worse.  Sinovel had been helping to set up a Chinese supplier whose products competed with AMSC's, with some of the new rival's technology stolen from AMSC by a former employee.  AMSC is now pursuing Sinovel in Chinese courts, but Chinese courts are not known for their diligence in the protection of international intellectual property.

For stock-by-stock performance, see the chart and table below:

	Q1 change	Q1 div	Q2 change	Q2 div	Q3 change	Q3 div	Q4 change	Q4 div	Total Return
WFIFF	7%	0.9%	-12%	0.9%	-29%	0.9%	-9%	1.0%	-39%
COMV	-36%		-22%		-2%		-12%		-72%
ENOC	-19%		-15%		-19%		10%		-44%
CVTPF	10%		-17%		-26%		-8%		-41%
TLVT/NFYEF	9%		41%		-47%	5.5%	-7%	3.9%	6%
PCH	20%	1.6%	-10%	1.6%	-30%	1.6%	-1%	1.0%	-16%
NGLPF	-11%		-66%		-9%		-4%		-89%
RAMPF	-35%		-43%		-4%		4%		-78%
AMSC	-18%		-51%		-15%		-1%		-84%
VE	4%		-1%	5.8%	-55%		-12%		-58%
Portfolio	-6%	0.2%	-20%	0.8%	-19%	0.8%	-5%	0.6%	-48%
PBW	1%		-14%		-35%		-4%		-52%
Russell 2K	4%		1%		-27%		12%		-10%

Outlook for 2012

With fully 30% of the companies in my list suffering from unanticipated bad news, I'm a bit shocked that the portfolio still managed to beat its benchmark.  But with my portfolio down by almost half, this is a victory of the "Win the battle, lose the war" variety, and not one I care to repeat.  Fortunately, I don't think I'll have to. 

With so many clean energy stocks having fallen so far, I have been finding stocks which I consider good values for much of the last 6 months.  While 2011 felt a lot like 2008, I think 2012 has the potential to be a lot more like 2009 than any other year since I started this series.  In 2009, my picks were up 57%, while PBW was up 27%. 

Expect to see my new list for 2012 in the next few days.

DISCLOSURE: Long VE, RAMPF, NFYEF, WFIFF, CVTPF, and calls on AMSC.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:52 PM | Permalink | Comments (0)

Tom Konrad CFA

Three stocks I sold recently, and why.

Three years later, I'm still kicking myself that the severity of the 2008 financial crisis and stock market collapse took me by surprise. 

Not that I wasn't in good company.  If a majority of investors had been prepared for the crisis, it would never have happened in the first place: The overpriced CDOs and other securities which were a large part of the cause would never have become overpriced. 

But making excuses for past mistakes is not useful.  Learning from them is.  This time around, when the market began to again look overvalued in the latter half of 2009, I began hedging my portfolio, increasing that hedge as the overvaluation became more extreme over the last two years.  This has enabled me to opportunistically buy fundamentally sound, high yielding stocks among waste management companies, energy efficiency companies,  renewable energy power producers, and a solar balance of systems play over the last two months, because my hedges produced liquidity as the market fell.

I expect that the market has farther to fall, so my hedges are still in place, although I have not increased them to reflect my recent purchases. 

Despite the success of my hedging strategy (at least so far), last week I realized I was making one of the same mistakes I made in 2008: I had money tied up in companies that require functional financial markets to succeed. 

Any company which needs to raise money over the next year or two will almost certainly face significant share dilution in order to attract new capital.  Hence, I've taken the opportunity of this week's mini-rally to sell the companies I was holding that will need to raise new capital in the near future.  Even though these companies are already trading significantly below the value of their assets, shareholders are not likely to be able to realize the value of those assets if the companies cannot raise new funds and outside buyers do not appear. 

These companies are Comverge (COMV), EnerNOC (ENOC), and Nevada Geothermal Power (NGLPF.OB, NGP.V), which I said I was holding in my quarterly review of my ten clean energy stocks for 2011.  The parallels between 2008 and 2011 which I noted in writing that article, as well as some similar parallels noted by the Economist got me thinking about other parallels between the two years. That thought, in turn, led me to decide to dump these three stocks despite their current cheap valuations.
There's no law that says a cheap stock can't get cheaper, and when funding dries up, cheap companies that have to rely on external funding almost invariably get cheaper.  That's why I called 2009 the "Year of the Balance Sheet."  I now expect 2011 will also be a year of the balance sheet, and probably 2012 as well.  Which is why I've decided to grit my teeth and take my rather significant losses in these three stocks. 

I initially included Comverge and EnerNOC in my ten picks for 2011 because I was looking for smart grid stocks for the portfolio, and I did not see many others which looked like good values.  These two companies had fallen in late 2010, so they seemed relatively attractive.  When they continued to fall in early 2011, I began to buy them myself.  Nevada Geothermal was included because I thought a small rally in geothermal stocks starting in late 2010 was the start of something bigger.  The opposite turned out to be true, partly because of a raft of bad news at geothermal companies, not least at Nevada Geothermal.

In short, I let my enthusiasm for particular industries lure me into investments in particular companies.  Letting our enthusiasm for an industry or technology cloud our judgment about individual companies is also a common mistake in investing, especially among those of us drawn to clean energy. 

Lesson learned, I hope that admitting that mistake to myself (and you) will keep me from letting my enthusiasm for clean energy from doing my stock picking for me again.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 02:27 PM | Permalink | Comments (4)

Tom Konrad CFA

Few investors have good memories of 2008, but when it comes to the performance of my annual model portfolio of ten clean energy stocks, I'm finding the resemblance to 2008 remarkably striking. 

The good part of that memory is that my picks are once again out-performing my clean energy benchmark, the PowerShares Clean Energy ETF (PBW).  The bad news is that "out-performance" means down 44% for the portfolio, compared to down 48% for PBW: a Pyrrhic victory.  Over the same period, the broad market Russell 2000 index was down 22%.  For 2008, the results were down 55% for the whole portfolio, compared to down 67% for PBW and down 42% for the S&P 500.  (I have used the Russell 2000 as my broad market benchmark for the last few years because I think it is a better match for the types of stocks I pick for the portfolio.)


Four Nasty Surprises

This year has been a rough one for my ten clean energy stocks for 2011.  Not only has the clean energy sector greatly underperformed the broad market, but three of my picks have revealed bad news which sent their shares tumbling.  Ram Power (RPG.TO, RAMPF.PK) revealed drilling cost overruns at their flagship geothermal project in Nicaragua, while Nevada Geothermal Power (NGLPF.OB, NGP.V) revealed problems at Nevada Geothermal's flagship Blue Mountain property.

If that was not bad enough, American Superconductor Corporation (AMSC) keeps going from bad news to worse.  In Q1, they reported problems with their main customer Sinovel Wind Group (601558.SS).  I discussed this situation in detail in a series of three articles, the first exploring what Sinovel's action might mean, the second looking into Sinovel's motivations and speculating as to Sinovel's future actions, and the third an attempt to value AMSC given all the uncertainty in the midst of a delayed annual report filing.  Most recently, we learned that AMSC was the victim of cut-price industrial espionage and that the company is suing Sinovel.  All this is happening while the company's eponymous high temperature superconductor business seems to be on the cusp of rapid growth, but I have to wonder if the ongoing fallout from the Sinovel saga won't overwhelm this much smaller part of AMSC's business.

Also since my last update, one of the companies I had expected to add some stability to a portfolio with several risky stocks, Veolia Environnement SA (VE) gave us its own nasty surprise with lower guidance related to restructuring because of declining trash volumes, plans to downsize, and an accounting fraud in its US division. 

One bit of good news in Q2 was that energy management leader Schneider Electric (SBGSF.PK) made a buyout offer for IT solutions provider Telvent Git S.A. (TLVT).  Since this list is not meant to be an actively managed portfolio, I decided to substitute bus manufacturer New Flyer (NFI.TO/NFYEF.PK) for Telvent during my last update.  So far, that has turned out to be a bad move, since New Flyer fell with other clean energy stocks in Q3, while Telvent stayed flat at a few cents below the buyout price.

Strategy Going Forward

These annual model portfolios are not meant to be actively traded; I intend them for the use of investors who prefer to fire and forget.  That said, many readers, like me, prefer a more active approach, so what follows is my current trading stance on each of the stocks in the portfolio.

Hold

The two Demand Response stocks Comverge (COMV), and EnerNOC (ENOC), as well as the two geothermal stocks Ram Power (RPG.TO, RAMPF.PK) and Nevada Geothermal Power (NGLPF.OB, NGP.V) have all fallen to levels where they are trading considerably below their book value.  Any and all of these could be buyout targets at current prices.  Since the market decline began in late July, however, I have turned my attention to buying possible income opportunities on the cheap rather than distressed companies such as most these.  While I have not sold my stake in any of these stocks, I am not looking to buy anymore, either.

I have not looked closely at Potlatch Corp. (PCH) recently.  The company was initially included in the portfolio as an income-style investment, but given the large decline in other stocks, I have seen plenty of other income style investments at similar yields recently, so I have not been tempted to revisit this one.

Hold or Speculate

American Superconductor Corporation (AMSC) is a similar case although I have a much harder time determining what the company's value actually is.  As such, in July I bought some $10 Calls on the stock expiring in January 2013, a position which limits my downside but gives me a possible payoff if all the bad news is replaced by some good.  Since the stock has fallen considerably since the lawsuit news, I would be more likely to buy calls with a strike price of $7.50 than $10 if I were again in a speculative mood.

Buy

I currently am heavily overweight in Waterfurance Renewable Energy (WFI.TO/WFIFF.PK) and New Flyer (NFI.TO/NFYEF.PK).  I recently added significantly to my position in Waterfurnace at $15.50 and wrote about it here.  With the stock now trading around $17.60, I think it's worth buying if you don't yet have any, but investors who already have decent sized positions should probably hold off and see if the ongoing market turbulence creates another such opportunity below $16.

I last added to my New Flyer position at $0.61 (re-organization-adjusted).  Since it's still trading around there and pays a very healthy dividend, I'd be filling up a bus with this stock if I had not already.  New Flyer recently announced that their planned 10 for 1 share consolidation has been approved by shareholders, so the stock should be trading in the low $6 range after October 5, rather than the low 60 cent range.

Veolia Environnement SA (VE) looks attractive below $15 because of the large dividend yield and relatively stable waste management and environmental services business.  Recent problems seem well-reflected in the price of the stock, and I have orders in to buy more on any share declines.  I bought at $13.38 on Tuesday.

CVTech Group's (CVT.TO/CVTPF.PK) electric power maintenance and construction business continues to win contracts, but the stock has fallen because of a big drop in profits and revenues last quarter which management ascribes to the current climate of financial uncertainty.  I think investor fears are overblown since the company still has a large backlog, and the company's bread and butter business of power line maintenance cannot be delayed forever.   CVTech is currently trading under book value at $0.90 and a yield of over 2% which is well covered by both earnings and cash flow (the payout ratio is only 14%.)  I think this stock is vastly under-appreciated because of its small size and low trading volumes, and management seems to agree, since they initiated a normal course tender offer to buy back stock in August.  This is a non-distressed company trading at distressed prices.

Conclusion

Now is an excellent time to be acquiring stakes in dividend paying businesses with depressed stock prices due to the current financial uncertainty.  I think the crisis is far from over, however, so continue to keep some powder dry as more opportunities continue to emerge.

DISCLOSURE: Long NFYEF, RAMPF, NGLPF, WFIFF, CVTPF, COMV, ENOC, VE, 2013 AMSC $10 Calls

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

Posted by Tom Konrad at 10:37 AM | Permalink | Comments (10)

Tom Konrad CFA

Corrected version 8/11/2011

Apologies to readers who have been missing my articles recently.  I've had little time to write as I have been too busy trading.  Long-time readers know that I've been bearish since the summer of 2009, and it has been a painful two years as I maintained my short positions and puts in the face of a generally rising market. 

Market Outlook

In my opinion, we are still a good distance from the bottom.  The rise of the stock market over the last two years has been predicated on stimulus spending at the Federal level and Quantitative Easing (QE) from the Federal Reserve (Fed).  Today, not only has stimulus spending ended, the recent debt limit deal sets the Federal government on a decidedly contractionary path.  While reducing government spending is prudent in the long term, it is bound to have negative effects in the short term. 

On the monetary side, rumors were circulating that the Fed  might announce a third round of QE at their meeting on Tuesday, but instead the chose to keep interest rates at record low levels into 2013.  As Chris Gaffney, CFA wrote in the Daily Pfennig, "the Fed was basically admitting the US economy will be stuck in a rut for the foreseeable future."  While low interest rates generally do provide a stimulus to the economy, that stimulus acts by stimulating borrowing.  But both taxpayers and governments are borrowing less in an attempt to get out of debt, meaning the stimulative effect of continued low interest rates is likely to be muted.

With that backdrop, and business confidence undermined by the current decline in the stock market, a double-dip recession seems likely, assuming you believe we ever left the recession.  This should lead to further market declines over the coming quarters, so I don't think that we have reached a bottom by any means. 

Buying Opportunities

On the other hand, the rapid declines over the last two weeks have lead to a combination of panic selling and forced selling due to margin calls, which is pushing many stocks out of their fair value range.  Further clean energy stocks had already been pummeled by significant declines over the last two years, even as the broad market was rising.

I now believe that selected clean energy stocks are trading at prices that we are unlikely to see again because of indiscriminate selling to meet margin calls.  What follows is a list of stocks I've purchased over the last couple weeks, and why I think they represent good values now.

New Flyer Industries (NFYIF.PK/NFI.TO)
New Flyer is currently going through a conversion from its former unusual stapled security structure to a more traditional structure (see here and here.) After conversion, management says that the stock will pay a dividend of approximately half the current level, or about C$0.48 annually.  With the stock trading at C$6.59 as I write, that's an annual dividend yield of 7.3%, which should be well covered by earnings.   I most recently bought shares for US$6.66 on Wednesday.

Note: If you plan to buy before the conversion deadline of Aug 18th, make sure that your broker has not set an earlier deadline.  Unconverted IDS's will be worth less than the exchanged shares.  However, if you can buy IDS's for C$6.50 or less, I think they will still be a excellent value even after the dilution caused when other New Flyer IDS shareholders exchange their notes for additional shares.

Beacon Power Corporation (BCON)
Beacon has been operating their first commercial scale 20MW flywheel energy storage plant  since early this year without mishap, achieving full capacity in June.  They are set to begin construction of their second 20MW plant later this year, 54% of the $53 million cost of which will be covered by state and federal grants, making the funding of the plant practical even for a company with a high cost of capital like Beacon.  If both plants continue the relatively trouble-free operation seen so far, that experience will pave the way for less capital-intensive turn-key sales for flywheel energy storage plants worldwide.  I most recently bought shares of BCON for $0.85 on Tuesday.

CORRECTION: There was a "mishap" at Beacon's Stephentown plant on July 27.  Since this undermines my thesis for buying the stock, and there are many other opportunities, I have sold my positions.  The fact that this was not mentioned in management's discussion and analysis section of the most recent quarterly report is troubling, in that it shows a lack of commitment to full transparency.  I did find it in Item 1A. Risk factors: "In July 2011, one of the 200 flywheels in Stephentown failed.  We are currently investigating the root cause and the appropriate corrective action for this failure. Our system operated as designed, and no other equipment was damaged.  However, over the life of the plant, if we incur significantly higher than anticipated repair and maintenance costs, it could have a materially adverse effect on our business."

Thanks to the commenter who brought this to my attention.

UPDATE 8/18/11: An in-depth look at the implications of the Stephentown "mishap."

Great Lakes Dredge and Dock (GLDD)
When I wrote about GLDD last year as part of my Peak Oil investments series, I said it seemed like a bargain at $4.50.  The combination of disappointing second quarter results due to equipment downtime and the general market decline dropped the stock back below $4.50 on Aug 8th, when I made my most recent purchase.  I'm not sure where the bottom for this stock lies, so that was a small purchase which I expect to add to if the stock continues to decline. 

Waste Management (WM)
Last week, I wrote about trash stocks as possible income investments on Forbes, just as the market was beginning the current downward leg of its decline.  My top pick at the time was WM due to a low debt to equity ratio and a relatively high dividend reasonably well covered by cash flow and income.  I bought some at $29.60 on August 8th, and plan to buy more if the stock declines further.

Conclusion

Market panics are always a good time to pick up solid income investments at discounted prices, a description which applies to both New Flyer and Waste Management.  Great Lakes Dredge recently raised their dividend to $0.08 annually, for a 2% yield at $4.50, and the dividend is very well covered by last year's earnings of $0.59 and even this year's expected earnings of $0.35, which does not make it an income stock, but does make it look like a good value bet.

The sole speculative company is Beacon, which is currently trading well below its book value of $1.19, and is in the process of rapidly increasing revenues, which give it significant upside potential.

In the current market climate, any of these stocks could fall significantly lower: panic selling and margin calls pay no attention to valuation.  But if they do fall farther, I will be buying more, at even better values than today.

DISCLOSURE: Long NFYIF, WM, BCON, GLDD.

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.

Posted by Tom Konrad at 04:37 PM | Permalink | Comments (5)

Tom Konrad CFA

Some investors buy clean energy stocks because it's the right thing to do, others because we know that the diminishing availability and increasing environmental impacts of traditional fuels will eventually force society to adopt more sustainable solutions.  Cartoonist Scott Adams says we're all wrong, and we should invest in companies we hate. 

Although Adams' column is meant to amuse, rather than as investment advice, it's funny because he touches on two very important truths about investing.

1. Although a few investors can outperform the market over the long run, the vast majority can't, and no one consistently produces superior results, year in and year out.  (One exception was Bernie Madoff, who was known for his unusually steady returns. We all know how that ended.)
2. Investing because it makes you feel good is a fairly reliable way to get into trouble in the stock market.  If you are buying a stock because it makes you feel good, you're probably not alone.  All those investors buying to make themselves feel good are probably driving the stock price up beyond what the company is worth, which will be a long term drag on returns.

Both those truths are on display as I look back on the first half performance of my annual list of ten clean energy stocks.  After three years in a row of outperforming my clean energy benchmark, my winning streak seems likely to end in 2011.  So far this year, my benchmark PowerShares Clean Energy (PBW) ETF is down 13.4% for the year, while my ten picks are down considerably more, at 25.2%.  Meanwhile, the broad market was up 5.2%, as reflected in the Russell 2000 index.

The pattern of losses, while in part due to bad luck, also comes from ignoring principle #2: I included too many stocks I liked, despite the fact that they were fairly expensive on conventional measures. 

The Good
 
The top performing stock in the list is IT solutions provider Telvent Git S.A. (TLVT), which I included in the list because of its smart grid and smart transportation solutions.  Energy management leader Schneider Electric (SBGSF.PK) has made an offer of $40 per share for Telvent which looks likely to go through.  For the second half of 2011, I will be replacing Telvent in the list with bus manufacturer New Flyer (NFI-UN.TO/NFYIF.PK) which is currently quite cheap because of investor uncertainty surrounding a change in the company's structure.  Although I thought New Flyer was too expensive (at $11.34) to include in this list at the end of last year, I now think it's a steal at $8.  Hence, for every share of Telvent in my model portfolio, I will replace each share of Telvent with 4.84 shares of New Flyer.  (4.96 = $38.90/$8.03, the ratio of the closing prices of New Flyer and Telvent on 6/30/11.)

The Boring

The two other winners are sustainable forestry company Potlatch Corp. (PCH), and environmental services company Veolia Environnement SA (VE).  Both produced modestly positive total returns, and seem excellent examples of how boring companies often do well.

Two companies that are down for the year, but roughly in line with the sector as a whole are Geothermal Heat Pump (GHPs) stock Waterfurance Renewable Energy (WFI.TO/WFIFF.PK), and Electric Transmission and efficient vehicle conglomerate CVTech Group (CVT.TO/CVTPF.PK).  CVTech seems to be down on lower first quarter revenues (despite higher profits.)  The revenue drop seems to be mostly weather-related, and the company's pipeline of work is healthy, with $14 million in new contracts being announced in June.

Waterfurnace stock is down from the start of the year because of narrowing margins despite increased sales in 2010.  Commodity prices have driven up component costs and the competitive marketplace for GHPs did not give Waterfurnace the market power to pass those costs on to customers.  Sales were down in Canada last year because of the end of that country's EcoEnergy Retrofit program.  That program will be re-instated this year, but so far it has only been renewed for one year, so the boost to sales will not be long term unless it is extended again.  The US GHP tax credit is currently slated to expire at the end of 2016, but given the current deficit reduction talks in Washington, this could conceivably be terminated prematurely.

I think all of these seem worth holding on to, and I've been buying more of CVTech and Waterfurnace at the recent lower prices.

The Bad

The two demand response companies, Comverge (COMV) and EnerNOC (ENOC) have been a big disappointment.  I've been trying to get a handle on why the stocks are down so much this year by doing a series of interviews with management of companies in the broader Energy Management industry.  So far I've written articles on World Energy Solutions (XWES) and EnerNOC.  When I interviewed EnerNOC CEO Tim Healy, I asked him what he thought.  He said, "I think people are overlooking the story for the next couple quarters," and that he has tremendous confidence about EnerNOC's medium to long term. 

I'll be talking with Comverge CEO Blake Young next week, and I intend to ask him the same question, but I think Healy got at the real problem: When I added these stocks to the list last December, I (like most investors at the time) was paying too much attention to the story of Demand Response, and not enough attention to the next few quarters.  The pendulum of investor attention tends to swing back and forth between the long term story and short term profitability, and the best time to buy a great story stock is when the company is being valued on current profitability.  So now is probably a good time to buy these two, if you do not already own them.

The Ugly

For my two geothermal picks, the first quarter had bad news for Ram Power (RPG.TO, RAMPF.PK), and Q2 held bad news for Nevada Geothermal Power (NGLPF.OB, NGP.V).  The former was poor drilling results, and the second was worse than expected resource productivity at Nevada Geothermal's flagship Blue Mountain property.  Although geothermal drilling is extremely risky, this was far more than the usual quota of significant bad news for the stock, and both have sold off sharply.  Both events significantly impacted the intrinsic value of the companies, bit I feel that this has been more than reflected in each stock's share price, as I discussed in May.

American Superconductor Corporation (AMSC) also had bad news in Q1, when they reported problems with their main customer Sinovel Wind Group (601558.SS).  I discussed this situation in detail in a series of three articles, the first exploring what Sinovel's action might mean, the second looking into Sinovel's motivations and speculating as to Sinovel's future actions, and the third an attempt to value AMSC given all the uncertainty in the midst of a delayed annual report filing.  At the current price of around $9 AMSC seems cheap, but while I have been tempted at several stages in this process to speculate on the stock, I decided in the end to stay out.  One thing that seems fairly certain was that AMSC management was not being completely frank about their relationship with Sinovel over the last half of 2010 and 2011 in that they were not discussing Sinovel's unwillingness to pay for product in a timely fashion.  Perhaps they were deluding themselves as well as investors, but in any case I've decided to stay away from a stock where I know I can't trust what management is telling me.

At $9, AMSC is so cheap right now that I'm going to leave it in my model portfolio, but I hope any readers who bought it because they were following my annual ten picks sold it around $12, the price at which I suggested getting out in May.

Conclusion

It's been a miserable six months for Clean Energy in general, and my picks in particular, and I don't see many signs of markets reversing the trend yet.  On the other hand, prices of many stocks are starting to look like good values, so patient value investors should seriously consider moving some money into the sector.  These ten stocks (minus American Superconductor) might be a good place to start.  Another would be my recent overlapping list of ten clean energy stocks I'm buying now. 

Sierra Club/Green Alpha Portfolio manager Garvin Jabush thinks Wall Street has irrationally turned its back on solar, so investors might also consider solar, although many companies will find their earnings undermined by the current PV module supply glut.  The question is, is Wall St getting carried away (on the downside) with the PV supply glut and falling subsidies story, and have prices already fallen far enough to discount all the future bad news?

Perhaps the group of investors who should be putting the most money into clean energy right now should be the growing chorus of high-profile Republicans who deny that climate change is even happening.  After all, didn't Scott Adams say that we should invest in what we hate?

DISCLOSURE: Long NFYIF,TLVT,RAMPF,NGLPF,WFIFF,CVTPF,COMV,ENOC

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

Posted by Tom Konrad at 08:38 AM | Permalink | Comments (2)

Tom Konrad CFA

Buying opportunities return to clean energy.

Two years ago I had a problem.  In the universe of clean energy stocks I watch, I could not find any that I thought were good values.  So I wrote an article saying "We're near the peak."

If you had been comparing that call to the performance of the broad stock market since then, you would have to conclude that I was ludicrously wrong.  The S&P 500 is up 40% since then.

If on the other hand, you'd been watching clean energy stocks, you would have found that the overall trend has been flat to down.  The PowerShares Clean Energy (PBW) ETF has basically been flat since then, while solar (TAN) and wind (FAN) ETFs are each down about 20%. 



I mention all this because I notice something new, that hasn't happened for almost two years: I'm again finding clean energy stocks that I think are bargains.  I think the sector and the market as a whole still have a lot of room to fall, but I'm encouraged to finally have companies to write about that I think are worth buying again.

Here are ten I've been buying, in no particular order.

1. New Flyer Industries (NFI-UN.TO) a bus manufacturer.  See article: Questions About Dividend Spook New Flyer Investors. Why I'm Buying.
2. CVTech Group (CVT.TO) a transmission and efficient vehicle company. See article: The Best Peak Oil Investments Meet the Strong Grid.
3-5. Comverge (COMV), EnerNOC (ENOC), which are demand response companies, and Ram Power Corp. (RPG.TO), a geothermal developer.  See article: Ten Clean Energy Stocks for 2011: Buying Opportunities.
6. Alterra Power Corp. (MGMXF.PK)  is a geothermal and hydropower developer, see: The Magma/Plutonic Merger.
7. Axion Power International (AXPW.OB) is a developer and manufacturer of PbC batteries: An Elephant Hunter Explains Market Dynamics
8. Nevada Geothermal Power (NGLPF.OB), another geothermal pick.  See: Blue Mountain Disappoints; Nevada Geothermal Power Looks Like a Takeover Target
9. Ambient Corp. (ABTG.OB) a smart grid stock.  See article: A Profitable Smart Grid Penny Stock Aims for a NASDAQ Listing
10. Rockwool International A/S B (RKWBF.PK) an international insulation company.  No article yet, but it's mentioned here: Canadian Insulation Companies Likely to Benefit from Next Budget.

Ten Clean Energy Stocks for 2010

Four of these stocks (Comverge, EnerNOC, Ram Power, and Nevada Geothermal) were part of my annual New Year's list of ten clean energy stocks I liked.  At the time, I only owned the two Geothermal stocks, because I was having trouble finding anything I thought was a good value.  That original list has been doing horribly so far this year, in large part because of the dismal performance of these four stocks and that of American Superconductor (AMSC).  I've been following AMSC's very real problems closely, discussing the refusal of their main customer Sinovel (601558.SS) to accept shipments, the likely reasons behind that refusal, and attempting to value the AMSC under the assumption that Sinovel will resume accepting shipments, but not at their former pace and without future growth.

Ram Power and Nevada Geothermal also had real problems at their geothermal projects, but I feel that the market has vastly overreacted to both, making the pair bargains by almost any measure, and also potential takeover targets in my estimation.  If I were picking my ten stocks today, it would be the list above, with the three Geothermal companies underweighted relative to the rest to avoid putting too much money into one tiny sector.

All in all, it feels good not to be sitting on the sidelines anymore.  Blood is on the streets for a lot of decent renewable energy and energy efficiency stocks, and experienced market hands know that it is often the best time to buy. 

But keep some cash on the sidelines.  Right now, I expect the market will get worse before it gets better.  If I'm right, and you'll want to have cash available to take advantage of other opportunities that arise down the road.

DISCLOSURE: Long NFI-UN, CVT, COMV, ENOC, RPG, MGMXF, AXPW, NGLPF, ABTG, RKWBF.
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.

Posted by Tom Konrad at 11:28 PM | Permalink | Comments (5)

Tom Konrad, CFA

The geothermal and demand response stocks in my annual portfolio of ten clean energy stocks for 2011 have fallen significantly since the start of the year, making this an excellent time to buy.

Every year since 2007 I've been publishing a list of ten renewable energy and energy efficiency stocks that I think will do well over the coming year.  For 2008-10, my list outperformed my clean energy benchmark.  This year so far looks like it is going to break my streak, but there is a very bright silver lining: I now think four of my picks are screaming buys. 

When considering clean energy stocks, I try to follow a contrarian strategy of focusing on sectors with relatively mature technology and relatively little investor attention.  This year, I put particular emphasis on the established smart grid technology, Demand Response, as well as one of the most economical but least talked about forms of renewable electricity, geothermal power.  These two sectors are responsible for all of the portfolio's decline this year, but I still like their prospects, and the reduced stock prices have me buying the demand response companies, and expanding my positions in the geothermal power stocks.

Ten Clean Energy Stocks of 2011

The following table and chart show how each of the picks has performed so far in 2011.

Company (Ticker)	Sector	% Change 12/31/10 - 3/18/11	Q1 Dividend
Waterfurance Renewable Energy (WFIFF.PK)	Energy Efficiency	7.4%	0.9%
Comverge (COMV)	Demand Response	-35.6%
EnerNOC (ENOC)	Demand Response	-19.0%
CVTech Group (CVTPF.PK)	Grid/Efficient Vehicles	9.9%
Telvent Git S.A. (TLVT)	Smart grid/Smart Transport	9.3%
Potlatch Corp (PCH)	Biomass	20.1%	1.6%
Nevada Geothermal Power (NGLPF.OB)	Geothermal	-10.5%
Ram Power Corp. (RAMPF.PK)	Geothermal	-34.7%
American Superconductor Corp. (AMSC)	Grid/Wind	-17.5%
Veolia Environnement SA (VE)	Conglomerate	3.9%
Portfolio return		-6.44%	0.25%
PowerShares Clean Energy (PBW)	Benchmark	0.67%
Russell 2000 (^RUT)	Benchmark	4.46%

Demand Response

I'm quite puzzled at the poor performance of demand response companies EnerNOC (ENOC) and Comverge (COMV) so far this year.  Demand response companies make money by helping utilities reduce electricity loads through agreements with electricity customers when the utility has trouble meeting demand with available generation capacity.

The news for Demand Response companies has been quite good, with the Federal Energy Regulatory Commission (FERC) recently establishing a landmark ruling which will require utilities to pay demand response companies as much as electricity generators are paid for power capacity.  Each market operator must implement this rule by July 22nd, and the resulting tariff changes should open up many new opportunities for demand response companies.

Earlier this quarter, EnerNOC was accused by grid operator PJM of market manipulation, but the case was later dismissed by FERC as having no merit, which is the best outcome EnerNOC could have hoped for.

Both companies had negative earnings surprises for the fourth quarter, with Comverge losing 38 cents compared to the 2 cent lost expected by analysts, but this loss was entirely due to one-time charges, most importantly a goodwill impairment charge. 

Regular readers may recall the asset impairment charge that eventually crushed C&D Technologies (CHHPD.PK) last year. The company is now recovering after a massive debt-for equity swap, with some bottom-fishers sitting on healthy profits of up to 100%, but shareholders who bought early in the year remain far underwater.  (I bought too early, but also added to my position at the bottom.  Overall, I'm in the red, but not deeply.) 

The reason Comverge is not likely to follow the same path as C&D is because Comverge has excellent liquidity, with no net debt and enough cash to fund operating losses and investment for a year or two.  EnerNOC is in an even stronger position, being profitable with $6.16 in net cash per share on the balance sheet.

I've purchased shares in both Comverge and EnerNOC since the favorable FERC rulings, and have been pleased to be able to do it at lower, rather than higher, prices.

Geothermal Power

The 35% decline in Ram Power Corp. (RAMPF.PK) is partly explained by large cost overruns in the company's flagship San Jacinto-Tizate project in Nicaragua, and the subsequent resignation of CEO Hezy Ram.  The most recent news for the Nicaraguan project has been good, with positive drilling results under a new drilling contractor, and the $20M in extra costs and project delays seem insufficient to account for knocking over $100M off the company's market cap since the start of the year.

Nevada Geothermal Power (NGLPF.OB) has also seen a decline since the start of the year, but the most significant news was NGP's purchase of geothermal assets in California's Imperial Valley from Iceland America.  I suspect that the decline arises mostly from sympathy with other geothermal stocks.

I'm still optimistic about geothermal power in 2011.  Since the start of the year, I've maintained my already large position in Nevada Geothermal, and added to my positions in Ram Power, US Geothermal (HTM), and Magma Energy Corp. (MGMXF.PK). Magma is no longer a pure-play geothermal company, having recently agreed to purchase run-of-river hydro developer Plutonic Power Corp (PUOPF.PK), but run-of-river hydro also conforms to my strategy of focusing on cost-effective renewable energy sectors that have not yet reached the awareness of most investors.

Conclusion

I've been frustrated with the high valuations of most clean energy companies for well over a year, so it's nice to see several of them coming down to prices where I'm comfortable buying.  If that means that my annual list of ten clean energy stocks does not beat its industry benchmark this year, I'll consider it well worth it (with apologies to anyone who bought the list at the start of the year.) 

The year is still young, and these stocks seem very cheap to me.  Although they're currently trailing my clean energy benchmark (PBW) by 7%, there are still three quarter to reverse that trend. 

DISCLOSURE: Long WFIFF, COMV, ENOC, CVTPF, NGLPF, RAMPF, HTM, MGMXF.

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.

Posted by Tom Konrad at 06:40 PM | Permalink | Comments (6)

Tom Konrad, CFA

My annual mini-portfolio of clean energy stocks which I expect to outperform in 2011.

This is my fourth annual list of renewable energy and energy efficiency stocks since I began the series in January 2008. 

The Purpose of this List

For myself, these lists serve as a record of my thinking on the market which I can look back on and learn from over the following year.  When I publish the list, I state my reasons for selecting each stock, and then track the portfolio's performance over the following year in quarterly updates.  This allows me to not only track how well the portfolio performed, but to check that performance against what I expected over the previous year.

For the reader, these annual lists are meant as a mini-portfolio of individual stocks that a small investor can buy to get exposure to clean energy without the high expenses of clean energy mutual funds, or the historical poor performance of clean energy Exchange Traded Funds (ETFs).

Each year, I have measured my success at stock picking against two benchmarks: a broad market index, and a clean energy index fund.  My strategy has changed somewhat since the first list in 2008, as I have gained in my understanding of the sector (I have only been following clean energy closely since the end of 2005.) 

Past Performance

The period over which I have been publishing these lists has been a very bad one for clean energy.  All the public clean energy ETFs are down since the start of 2008, and all but one of the clean energy mutual funds are also down. 

In 2008, my ten picks fell 55%, compared to the clean energy index, which fell 67%.  In 2009, my picks were up 57%, compared to the benchmark which was only up 12%, while the most recent list in 2010 was up 3%, compared to the benchmark, which fell 7%.  All told, if you'd invested in the ETF benchmarks, you would still be down 66%, while an investor in my ten picks would only be down 27% over the same period. 

Outlook

As I told Stephen Lacey in a recent Renewable Energy World podcast, if the overall stock market does not collapse and drag clean energy with it, I believe that 2011 has the potential to be an excellent year for clean energy stocks after these three years of heavy selling.  Yet I continue to worry that a broad market decline would hold the sector down or drag it lower.

Clean Energy Sector Selection

As long-time readers know, I favor the less exciting clean energy sectors (and enabling technologies) that make few headlines but have higher current profits.  Chief among these are energy efficiency and conservation (where the greatest short-term potential for reducing the reliance on fossil fuels lies), the electric grid (an enabler for variable renewable resources such as wind and solar), and alternative transportation technologies that can reduce the use of the electric car. 

I prefer the most cost effective renewable energy technologies, which are biomass, wind, and geothermal.  Wind and Geothermal power are particularly interesting this year, because the sectors have fared particularly badly in recent years.  I'm putting more emphasis on renewable energy sectors (as opposed to efficiency and the electric grid) in 2011 than I have in the past because I'm more bullish about clean energy in general.  While not as volatile as renewable energy's poster boy, solar power, Wind and Geothermal tend to be more volatile than the relatively defensive efficiency and supporting technology sectors.

Company Selection

When picking individual stocks, I gravitate towards value stocks with low Price/Earnings and decent dividends, where available.  Since financing is still hard to get in the current climate, I also like companies that can fund their operations and investment plans from internal resources if they are not currently profitable.  Finally, I tend to gravitate towards companies with charts that look like they are bottoming.

Without further ado, here are my picks, with prices as of the 2010 close (December 30.)

Energy Efficiency and Smart Grid Stocks

Waterfurance Renewable Energy (WFI.TO, WFIFF.PK US$24.77) is a long time favorite because it's the only pure-play geothermal heat pump stock I know.  David Gold made the case for geothermal heat pumps as an investment in October, so follow the link if you'd like the details.  This is the third year running that Waterfurnace has been in my list, and while it has not appreciated much in that time, it has consistently paid a dividend over 3% (C$0.22 per quarter, or 3.6% annually) while the business has continued to grow.

Comverge (COMV $6.92) is a leader in providing Demand Side Management solutions to electric utilities, both in the form of Demand Response(DR), and energy efficiency.  Demand Response allows utilities to maintain less peak capacity while still maintaining a stable grid (see Drawing the Right Lessons from the Texas "Wind" Emergency) while Comverge's energy efficiency solutions allow utilities to build less base load capacity.  Both DR and Efficiency can be delivered at much lower cost than new baseload or peaking plants, and have the added advantage of no carbon emissions.

The stock has been badly beaten up since its 2007 IPO and can now be bought for one third of the IPO price, and less than one fifth the smart-grid euphoria induced 2007 peak.  While Comverge is still not profitable, they have enough cash on hand to fund the current level of operations for three years, giving them time to raise future funds while negotiating from a position of strength.

EnerNOC (ENOC $23.91) also provides Demand Response to electric utilities, but unlike Comverge, they are currently (if marginally) profitable.  With no net debt and plenty of cash in the bank, EnerNOC has not been beat up quite as badly as Comverge since they both IPO'd in 2007, so this is a safer pick than Comverge with somewhat less upside potential. 

Electric Grid and Clean Transportation Stocks

CVTech Group (CVT.TO, CVTPF.PK $1.30) provides electricity system construction and maintenance to electric utilities, as well as efficient continuously variable vehicle transmission systems for small vehicles such as the Tata Nano.  The company is profitable and pays a C$0.02 annual dividend, for a yield of 1.5%. 

Telvent Git S.A. (TLVT, $26.42) provides management solutions to infrastructure markets including electric utilities, pipeline operators, and transportation authorities.  Better management in these sectors has great potential to lead to large cost and energy savings.

I covered both of these stocks in considerable detail in my Best Peak Oil Investments series.  The article about CVTech is here, and the article about Telvent is here.  The reason neither of these stocks made my list of four top peak oil stocks but are included here is that most of those four have since risen considerably, and I also wanted to limit this list to stocks that are easily purchased by a North American investor.

Biomass Stock
Potlatch Corp (PCH, $32.55) is a US Timber REIT which is a leader in seeking stringent FSC sustainability certification for its timberland.  I wrote about Potlatch in late 2009 in an article highlighting the role of forestry in a clean energy portfolio. Potlatch has a 6.3% forward annual dividend yield.

Geothermal Stocks

Geothermal exploration and production stocks seem to have bottomed in the fall of 2010, but they have not yet really taken off.  I think that could easily happen in 2011, so I include two of my favorites here: Nevada Geothermal Power (NGP.V, NGLPF.OB $0.76) and Ram Power Corp. (RPG.TO, RAMPF,PK $2.22.)  I've recently written about both of these companies in my
Geothermal Stocks Overview and in Three Top Geothermal E&P Companies.

Wind

American Superconductor Corporation (AMSC, $28.59), despite its name, is largely a wind component supplier to Chinese wind manufacturers.  Yet it also has an intriguing electricity transmission business based on its eponymous superconducting cables.  The company is profitable, although it trades at a fairly hefty multiple of 45x trailing earnings based on widespread expectations of continued high growth.

Others

Veolia Environnement SA (VE, $29.36) is a global conglomerate providing water, waste water, energy systems (including renewable energy), and transportation system management.  As such Veolia provides services in a wide variety of clean energy sectors, and is a good balance to the usual volatility of a clean energy portfolio with its relatively stable earnings and high 4.1% dividend yield.

As usual, I'll provide quarterly updates on this list throughout 2011.

DISCLOSURE: Long WFIFF.PK, CVTPF.PK, RAMPF.PK, NGLPF.OB.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:47 AM | Permalink | Comments (0)

Tom Konrad CFA

My ten annual stock picks have outperformed their clean energy benchmark for the third year running.

Each year, I publish a list of ten renewable energy, energy efficiency, and cleantech stocks that I feel will outperform their peers in the coming year.  In both 2008 and 2009, my picks have beaten their industry benchmark, the PowerShares Wilderhill Clean Energy ETF (PBW), the most widely held industry ETF and the one that I recommend for making short-term bets on the clean energy industry.  The 2010 list is here.

This year has been an interesting one for my picks, with one pick (C&D Technologies [CHHP.PK]) going through a bankruptcy reorganization from which it just emerged, and another pick (Portec Rail Products [PRPX]) the subject of a repeatedly delayed friendly takeover that took ten months due to lawsuits and negotiations with antitrust authorities.  The takeover was finally consummated in December. 

This year I offered two alternative lists, one of a full ten stocks, and a second that used two clean energy subsector ETFs to substitute for three of the stocks each.  The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) was my stand-in for the three electric grid stocks in the portfolio, while the Powershares Global Progressive Transport (PTRP) stood in for the three transportation stocks in the portfolio.  Unfortunately, PTRP also ceased trading in December; the fund sponsor closed it due to lack of investor interest (although certainly not for lack of trying to drum up interest on my part.) 

Here is a chart of the two portfolios:



The inner ring is the portfolio using the two ETFs, while the outer ring represents the full portfolio.

Performance

For the year from December 27th to December 27th, the portfolio using the ETFs was up 6.9%, while the ten stock portfolio was up 2.8%.  For comparison the industry benchmark PBW fell 6.6%, and the broad stock market, as represented by the Russell 2000 index was up 13.6%.


The individual stock performance is below:

Security (Ticker)	% Change	% Yield
General Cable (BGC)	9.34%
MasTec (MTZ)	15.95%
C&D Technologies (CHHP.PK)	-83.67%
New Flyer Industries (NFI-UN.TO, NFYIF.PK)	17.44%	12.08%
FristGroup PLC (FGP.L) (in US$)	-6.73%	7.41%
Portec Rail Products (PRPX)	19.46%	2.35%
Waterfurnace, Inc. (WFI.TO, WFFIF.PK)	2.90%	3.17%
Linear Technology Corp (LLTC)	13.19%	2.99%
Flir Systems, Inc. (FLIR)	-7.48%
Waste Management (WM)	8.47%	3.73%

The number for Portec assumes that the cash payment from the takeover was reinvested in the benchmark when received.

Overall, my long time favorite stock New Flyer was the biggest winner, with an almost 30% total gain, while the biggest loser was C&D Technologies.  That company will probably recover a bit more now that they have a much stronger balance sheet with the bankruptcy restructuring behind them.

Coming up

I'm running a little late this year putting together my ten picks for 2011, but you should see them on AltEnergyStocks.com during the first week in January. 

DISCLOSURE: Long CHHP, NFYIF, WFIFF, LLTC. 

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:12 PM | Permalink | Comments (0)

Tom Konrad CFA

Cherry picking the holdings of green energy mutual funds.

So far in this series I've concentrated on trying to pick the best of the Alternative Energy and Climate Change Mutual Funds.  This is a difficult task, because while I found in Part III that most of the funds' performance has been better than comparable index ETFs, these mutual funds' costs are quite high, even by the standards of most mutual funds, as I discussed in Part I.  In part II, I tried looking at the sector breakdown of the funds' holdings, to see if I could explain some of their performance that way.  It turns out that funds that buy the most solar stocks have underperformed in the past.

The underperfomance of solar-heavy funds confirms one of the principles of alternative energy sector selection that arise from common misunderstandings about how Alternative will re-shape our economy.  I went into them in more detail in part II, but in short they are:

1. Underweight Solar
2. Overweight biomass producers compared to their customers, biofuel producers.
3. Focus on Energy Efficiency and Conservation.
4. Invest in the Electric Grid.
5. Favor Alternative Transport over the personal car.

What follows is my attempt to build a portfolio from the stocks owned by these mutual funds, but conforming to the principles above.

Fund Holdings: Solar Stocks

Many of the funds own large quantities of First Solar Inc (FSLR), SMA Solar Technology (S92.DE), MEMC Electronic Materials (WFR), and JA Solar Holdings (JASO).  First Solar is the largest holding of these mutual funds overall, accounting for 6.6% of the Winslow Green Growth Fund (WGGFX).  Overall, the average fund is about 24% allocated to solar, something I hope to improve on by leaving them out of the portfolio I'm building.

Fund Holdings: Biomass

By far the largest holding biomass holding in these companies is Sino-Forest Corp. (TRE.TO), a commercial forest plantation operator in China.  The second largest holding is Deltic Timber Corp. (DEL), but it's only held by one fund, the DWS Climate Change Fund Class S (WRMSX).  I'm looking for stocks held by at least two funds for this portfolio.

Fund Holdings: Energy Efficiency and Conservation

The top energy efficiency holding is also my personal favorite, Waterfurance Renewable Energy (WFI.TO), a manufacturer of Geothermal Heat Pumps.  Also held in quantity are Rubicon Technology (RBCN), which sells mono-crystalline sapphire and other crystals to the Light Emitting Diode (LED) industry, and LED industry leader Cree Inc (CREE).  In conservation, we have water system repair firm Pure Technologies Ltd. (PUR.V).

Fund Holdings: Electric Grid

The top electric grid holdings were meter-maker Itron (ITRI), and transmission contractor Quanta Services Inc (PWR), both of which I've written about in these pages. 

Fund Holdings: Alternative Transport

These funds are more focused on Climate Change than peak oil, so alternative transport stocks are few and far between, but one that's owned by three funds is Smart Grid and Smart Transport stock Telvent Git S.A. (TLVT).  In order to get a little more representation in this sector, I'm also going to include rail supply company Wabtec Corporation (WAB), even though it's owned by only one fund, WGGFX.

Green Energy Portfolio

This is my suggestion of a portfolio, which should perform better than most of the green energy mutual funds because of better sector selection and lower costs: TRE.TO, WFI.TO, RBCN, CREE, PUR.V, ITRI, PWR, TLVT, and WAB, equally weighted.  That's 11% Biomass, 45% Efficiency and Conservation, 27% Electric Grid, and 17% Alternative Transportation.  It's not representative of the market, but we're trying to beat the market here, not just match it.

I'll take a look back at this portfolio next year to document how it has performed relative to the mutual funds.

DISCLOSURE: Long PUR.V, WFI.TO, PWR.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 09:44 PM | Permalink | Comments (0)

John Petersen

Short sellers are the bane of every securities lawyer who represents small public companies. In over thirty years of practice I've never advocated a short sale because I hate the idea of profiting from someone else's misery. Based on recent quarterly reports filed by my short-list of pure play energy storage companies, which includes Tesla Motors (TSLA) as an honorary member, I'm compelled to break with tradition and suggest a paired trade that involves a short sale of Tesla coupled with a long purchase of Exide Technologies (XIDE).

The following table summarizes the year-to-date and quarter-to-date performance of the short-list companies. On a year-to-date basis, Tesla has been a runaway success while Exide languished. For the reasons discussed below, that dynamic is sure to change over the coming year.



Most of us know that money managers, analysts and investors tend to follow the herd without asking whether the herd's behavior is rational. Even a simplistic comparison of business fundamentals and market realities shows just how irrational the herd has become over the last year as electric vehicle hype reaches the peak of inflated expectations.

The following table is complex and I apologize for that, but it highlights the huge disconnects between market values and financial statement values that are common in the sector. To keep things comparable I started with data in the most recent quarterly reports filed by the short list companies and adjusted for financing transactions that occurred after the last balance sheet date. The columns with gold headers are business fundamentals derived from financial statements. The columns with green headers are market driven variables.



Why I Would Short Tesla - It doesn't take much market experience to know that companies cannot long sustain market capitalizations of almost twelve times book value, but that's exactly what Tesla is doing. When you drill down into the disclosures in Tesla's most recent quarterly report, you'll find that $88 million of its $202 million in working capital is set aside as restricted cash for capital investments in facilities construction, which leaves a paltry $114 in real working capital to cover anticipated operating losses and the pre-production costs for the 2012 introduction of its Model S sedan.

Any way you cut it, Tesla does not have enough cash to support its business for another year and it's already tapped Panasonic and Toyota. That means Tesla will have to go into the financial markets for additional cash – lots of additional cash. While stock market investors frequently ignore financial statement fundamentals when making investment decisions, I've met very few professionals with a similarly blasé attitude. The probability that hundreds of millions in new capital will be available to Tesla at anywhere close to a 1,200% premium to book value is remote beyond reckoning and it's a virtual certainty that substantial transactions with independent investors will not happen at anything close to the current market price.

Since the market can stay irrational longer than many of us can stay solvent, the safest way to play the likely price collapse will be a long-dated out of the money put option. For purposes of tracking the performance of this long-short pair over time, I'll use the publicly traded January 2012 $25 put, which last traded for $6. The short won't be profitable unless Tesla's price falls below $19, but I still like the risk/reward ratio.

Why I Would Buy Exide - I've discussed Exide at length in other articles including "Valuation Primer For Energy Storage Companies – Lesson #1." The short story is that it's taken Exide five years to emerge from Chapter 11 and restructure its manufacturing operations to a point where consistent long-term profitability is likely. Exide's current price earnings ratio is significantly below normal valuations of 15 to 18 times earnings and its prospects for rapid and sustained growth over the next five years are outstanding due to technological changes like stop-start idle elimination that are sweeping the automotive sector and will improve margins in both its OEM and after-market replacement business. While the financial analysts that follow Exide have an average price target of $10, my sense is that a price toward the high end of the $10 to $15 range is more likely.

Why Valence Terrifies Me - Valence Technologies (VLNC) has been around for years and is making significant progress in its efforts to commercialize a good lithium-ion battery technology. For several years it has depended on the commitment and generosity of a principal stockholder to keep the doors open. Currently Valence has a $7.3 million working capital deficit and a whopping $75.3 million stockholders equity deficit. As long as the principal stockholder is willing to continue providing additional financing on terms that are little more than gifts to the public stockholders, Valence stands a chance. If it is forced to go to unrelated investors that are unwilling to be sugar daddies, the likelihood that it will be able to raise over a hundred million dollars of new capital at prices that bear any relation to the current market price is less than slim. While I have often been forced to rely on the kindness of strangers, hope is not an investment strategy.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and has a substantial long position in its common stock.

Posted by John Petersen at 08:41 AM | Permalink | Comments (0)

Tom Konrad CFA

Although green stocks did better than un-green (or brown) stocks since Newsweek's 2009 Green Rankings were published, the big winners were the greenest stocks in the brownest sectors.

Newsweek has released its 2010 Green Rankings for America's 500 largest corporations, and the companies at the top of the list are happily gloating about being greener than their rivals.  More important to investors is the question: Do the greenest companies beat the market?

Marc Gunther notes that the top 100 companies in the 2009 Green Rankings outperformed the S&P 500 by 6.8%. 

My experience is similar.  When last year's rankings came out, I suggested that investors might not just gain by looking for out performance among the greenest companies, but "turning the list upside down" and looking for under performance among the least green (or brownest) companies at the bottom of the list.  I picked five stocks that investors might short as a hedge for their other investments.  They were: Peabody Energy (BTU), Consol Energy (CNX), ConAgra Foods (CAG), Bunge (BG), and Vulcan Materials (VMC).  I highlighted Vulcan at the time as the stock I'd be most likely to short (I ended up shorting Peabody and Vulcan, although I've since closed out my Vulcan position.)

As a group, my short five picks ended up under performing the S&P 500 by 7.07% over the 13 months since I wrote that article.  Vulcan Materials (the one I said at the time I'd be most likely to short) in particular was down 31.56% over the last 13 months, again suggesting that green companies have an edge over brown ones.

Correlation and Causation

Marc Gunther asked Cary Krosinsky of Trucost if the out performance of sustainable stocks is part of a more general trend.  Trucost is one of the outfits Newsweek relies on to crunch the numbers behind the rankings.  No surprise, Mr. Krosinsky thinks this year's gains are part of a larger trend in which sustainability drives shareholder value.

While I agree with Mr. Krosinsky's conclusion, I wonder if the out performance of Newsweek's 100 greenest companies came because they are green, or because of some other factor.  Two other possible factors come to mind. 

First, although both Newsweek's list and the S&P 500 are drawn from the largest American companies, the lists are not quite the same.  One example I found was Boston Properties (BXP), which is in the S&P 500, but not in Newsweek's Green Rankings.  If the companies that are in the S&P but not in Newsweek's' list underperformed those companies in Newsweek's Rankings but not in the S&P, that would explain the out performance.  If we want to determine if Newsweek's Green Rankings are relevant to performance, we should only compare Ranked companies with other Ranked companies.

Second, industry biases may go a long way to explaining the out performance of the most green companies over the brownest ones.  The top echelon of the Green Rankings is stuffed with Technology companies (Eight of the top ten), while the bottom ranks are full of Basic Materials (3 of the bottom ten), Utilities (4/10), and Food and Beverage companies (3/10.)  Perhaps the reason that the 100 top ranked companies outperformed the S&P 500 and my five shorts underperformed it was simply that Technology had a good year, or Basic Materials, Food and Beverage, and Utilities had a bad year.

If we want to know if green stocks (as measured by Newsweek) do better than brown stocks, we need to

1. Only consider stocks ranked by Newsweek.
2. Only compare stocks within sectors.

That is precisely what I did.

Comparing Green to Brown

Newsweek used fourteen different industry sectors: Banks and Insurance, Basic Materials, Consumer Products & Cars, Financial Services, Food and Beverage, General Industrials, Health Care, Industrial Goods, Media Travel & Leisure, Oil & Gas, Pharmaceuticals, Retail, Technology, Transport & Aerospace, and Utilities.  In the table below, I've ranked how green the industry is by looking at the Newsweek rankings of the greenest and brownest companies in each industry.  I also show the performance of the greenest and brownest companies in that industry from September 16, 2009 when the 2009 Green Rankings were published until October 21, 2010 when I compiled the table.



The amount by which the greenest company in each sector outperformed the brownest company is shown in the second-to-last column, labeled G-B.  My sector-by-sector analysis does not show as much green out performance as we saw when just looking at the 100 greenest companies, or at my five picks to short, but it was still there. 

The "Rank" column shows how green the sector is relative to other sectors.  The lowest ranked sectors have the most companies with the lowest green rankings.  This ranking of sectors leads to two surprises:

• Brown Sectors Outperformed Green Sectors.  Although the greenest stocks outperformed the brownest stocks, the greenest sectors underperformed the browner sectors.  The G+B/2 column shows the average performance of the greenest and brownest company in each sector.  The twelve companies I looked at in the six greenest sectors lost, on average, 1% of their value, while the average change for all 30 stocks I looked at was +12%.  The twelve companies in the six brownest sectors gained, on average, 14%.
• In green sectors, the brownest stocks outperformed the greenest stocks by a slight margin.
  
• In brown sectors, the greenest stocks strongly outperformed the brownest stocks.

Any of these trends may be one-off, but if we believe that sustainability makes a difference in stock performance, it begins to make sense that the difference between stock performance would be greatest in the brownest sectors.  In a brown or "dirty" sector, there is a lot of scope for a company to change its ways to reduce its environmental impact.  On the other hand, the greenest sectors such as technology are inherently low-impact, and so there is much less scope for a company to differentiate itself by becoming more green to gain a competitive advantage.



A Long-Short Portfolio From the 2010 Green Rankings

Since the top of Newsweek's rankings are dominated by the greenest companies from the greenest sectors, investors who just buy stocks from the top of the list are missing out on the most lucrative potential gains from green investing.  These gains are to be had by investors who buy the greenest stocks in the brownest sectors and short the brownest stocks in those sectors.

In the 2010 list, the bottom of the list is again dominated by Basic Materials, Utilities, and Food and Beverage.  I built a small long-short portfolio from the list by shorting the five lowest ranked companies (two each from Basic Materials and Food & Beverage) and one from Utilities, and buying equal numbers of the greenest companies in those same sectors.  

Here is the list:

Sector	Stock to Buy	Price 10/22/10	Stock to Short	Price 10/22/10
Basic Materials	Ecolab (ECL) # 26	$51.56	Peabody Energy (BTU) #500	$51.04
Food and Beverage	Coca-Cola Enterprises (CCE) #54	$24.63	Bunge (BG) #499	$61.74
Utilities	PG&E (PCG) #20	$47.66	Ameren (AEE) #498	$28.83
Food and Beverage	H. J Heinz (HNZ) #84	$49.55	Monsanto (MON) #497	$57.15
Basic Materials	Praxair (PX) #92	$92.18	Consol Energy (CNX) #496	$39.03

Note that while all my green companies from brown sectors are among the 100 highest ranked firms, most are not even in the top 50.  Of the top 100 ranked companies in 2010, only seven are from these three brownest sectors where, if 2009 returns are any guide, the greatest benefts of greenery are to be had.

Will 2011 be a repeat of 2010?  I'll take a look at these to see how the portfolio has done when Newsweek publishes the 2011 rankings.

DISCLOSURE: Short BTU.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 06:44 PM | Permalink | Comments (2)

Tom Konrad CFA

To my surprise, the market came back in the 3rd Quarter, and my portfolio of put options designed to hedge a market decline is predictably down.  However, my benchmark (a put against the Dow Jones Industrials has performed even worse than my picks.)

I don't have a lot to say about the performance of my Ten Green Gambles for 2010 so far this year.  These gambles were a bet on a market decline in 2010.  Since we're now into the 4th quarter and the market is still basically flat for the year, it's no surprise that they are down.


The chart above shows the performance of this hedging portfolio over the nine months since it was published.

Overall, the original portfolio is down 73% for the first 3 quarters.  Also shown in the graph below is "Portfolio 2" which is what would have happened to your money if read the second update, and agreed with my suggestion that "if you want to maintain your hedge, it makes sense to add to it now with some more puts on some of the higher-flying travel and transport stocks, such as Starwood Hotels (HOT), Southwest Airlines (LUV) and JB Hunt (JBHT) at strike prices closer to the current stock price." 

Portfolio 2 is only down 70% so far this year, since my short-term timing on that was good.  (Unlike my overall timing in calling for a likely a market decline.)

Picking Hedging Strategies

Like my last performance update for my Ten Clean Energy Stocks for 2010, I don't expect this article to draw in a bunch of readers who are impressed by my stock picking abilities or performance. 

Although both of these portfolios have beaten their benchmarks so far this year, they are also both down, which is what most investors (as opposed to money mangers) care about.   Hedging strategies based on equity puts, like this one, have the advantage that the cost is capped in the event of a strong bull market, but they have the disadvantage that they lose money when markets are flat.  In the accounts I manage, I choose the hedging strategy based on the level of options and margin allowed in the account.  Put-based hedges are the best strategy available in retirement accounts such as IRAs, so that is the one I use for IRAs.  In accounts with full option privileges, I use a mix of short call spreads and puts, a strategy which can cost more in the case of a upward trending market, but is more likely to break even in a flat market.

In retrospect, the best choice would have been to not hedge at all this year.  However, if we could make our investment decisions after the fact, we'd never need to hedge at all.

DISCLOSURE: Short LUV, HOT, JBHT.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 08:04 PM | Permalink | Comments (0)

Tom Konrad CFA

The best four stocks I've found in my six month quest to find the best peak oil investments.

I apologize for being a tease. 

Since March, I've been writing this series I've called "The Best Peak Oil Investments," but in many cases what I've actually done is to warn readers to stay away from particular sectors.  This bait-and-switch was compounded for my syndicated readers at Seeking Alpha when their editors decided to re-title the early articles in this series "Peak Oil Investments I'm Putting My Money On." 

If you've stuck with the series for the last seven months and twenty-five articles despite the sometimes misleading titles, I'm going to (finally) try to make it up to you.  After mentioning over fifty stocks in the course of this series, and dismissing entire sectors, I'll narrow my stock picks down to the four I like best at current prices.

My Criteria

These stocks are chosen to do well in what I called "The Methadone Economy" in part nine.  If oil prices continue to rise, I expect it to take a toll on economic growth and the availability of funding will probably remain tight.  I'm looking for companies that have solid balance sheets and can fund investment from internal cash flow.  I'll be looking for positive free cash flow, low debt, and high current ratios. 

I'm also looking for companies that typically reduce the use of the personal car, rather than simply making the car more efficient to drive.  More efficient vehicles do reduce fuel use per mile, but because of their lower operating costs may encourage driving, and fail to reduce overall fuel use as much as the efficiency number might lead us to believe.  I also see problems with most alternative fuels, mainly because there are limits to supply, which should lead to the prices of any widely adopted alternative fuel to track the price of oil.

The stocks I do like are Alternative Transportation stocks such as rail and bus companies, bicycle and e-bike companies, and Smart Transportation companies that combine information technology and pricing schemes to reduce waste in the transportation system by making the markets for travel services more efficient.  Unfortunately, I was not able to find any pure-play or nearly pure-play smart transport stocks that meet my financial strength and liquidity criteria.  Portable Navigation Device (PND) maker Garmin (GRMN) has the financial strength I'm looking for, but the increasing competition from GPS-enabled smartphones kept the company out of this list, even though I'm personally an avid user of the company's PNDs.

Top Four Peak Oil Stocks

#1 Advanced Battery Technologies (ABAT) is a Chinese company whose core business in making polymer Lithium-ion batteries.  The company recently bought an e-bike manufacturer which uses ABAT's batteries in its bikes.  I consider batteries in general the best way to invest in vehicle electrification, and ABAT's focus on e-bikes rather than cars also appeals to me.  At the recent stock price of $3.47, ABAT trades at a trailing price earnings multiple of 6.7, has an off-the charts current ratio of over 32.  Free cash flow has been negative over the last year, but turned positive in the last two quarters, and the company has enough cash on the balance sheet to internally fund operations for many years at current rates.  I discuss ABAT in more detail in this article on six electric vehicle and hybrid electric vehicle stocks.

#2 Stagecoach Group (SGC.L) is an operator of rail and bus services in the UK and North America, and it was my favorite of the three mass transit operators I've found because of low debt, relatively strong liquidity, and low price/earnings multiple.

#3 Accell Group (ACCEL.AS) is my top pick among bicycle company stocks.  Accell has a large stable of brands controlling leading positions in many European bike markets and segments.  High gas taxes and dense cities have helped Europe establish a lead in adoption of bikes for commuting and short trips, meaning that Accell has more experience meeting the needs of such riders, who grow in number with oil price rises.  Although I also like the business of bike component manufacturer Shimano (SHMDF.PK), Accell currently trades at a much better valuation.

#4 Vossloh AG (VOS.DE) German commuter and high-speed rail supplier Vossloh trades at an inexpensive price/earnings ratio of 11, with decent growth and dividends that are well covered by income and cash flow.  You can read more about Vossloh in my recent article on mass transit supplier stocks.

Honorable Mentions

In a recent article, I implied I'd pick my five favorite peak oil investments, not four.  When it came to actually picking, I found myself eliminating potential candidates on one criterion or another until I had just four. 

However, I do have two honorable mentions.  The first is the Powershares Progressive Transport Portfolio (PTRP), which I said "The Powershares Progressive Transport Portfolio (PTRP) is a good option for investors looking for a one-stop shop of non-oil related stocks that are better prepared to cope with rising oil prices." One caveat: as some commenters on the original article pointed out, PTRP trades at very low volume, so PTRP is only appropriate for a long term investor and should always be traded using limit orders to minimize price impact.

A second honorable mention is Kandi Technologies (KNDI), which was profiled in a series of guest posts here.  Kandi is a profitable but little known Chinese company making electric mini-cars.  I bought a small position on the speculation that it might become better known, but I did not want to include it in this list because I consider it much riskier than the somewhat similar ABAT, which is already in the list.

Trading

For US based investors like myself, it's unfortunate (if not surprising) that only one of these companies is listed on a domestic exchange, and that one is a Chinese company.  To trade the three European companies, North American investors will need to go through the world trading desk of their broker, and this will involve paying much higher transaction costs.  The high transaction costs mean that these stocks should only be purchased as long-term investments to be held for several years.  However, that should not be a problem for peak-oil motivated investors, since we already can only be certain that oil prices will rise over the long term; short term price changes are anyone's guess.

I personally do not yet have a position in any of these stocks because I expect the stock market to continue to decline in the near term.  I'm waiting to make my purchases (of a possibly slightly different set of peak oil stocks) at even more attractive valuations.

Benchmarking

Even though I'm not buying these stocks today, I find it useful to look back on my stock picks and see how they have performed over time.  As I write on September 11th, a $10,000, equally weighted portfolio of these four stocks would contain 720 shares of ABAT, 878 shares of SGC.L, 61 shares of ACCEL.AS, and 24 shares of VOS.DE.   Since I've come out saying that investing in oil exploration and production companies is not the best way to invest in peak oil, I plan to test my theory by comparing this portfolio in the future to 183 shares of the Energy Select Sector SPDR (XLE), which is composed of oil E&P companies. 

[Late note: This article was not published until October 3, at which point the portfolio had risen 5.8%, while XLE was up by 4.0% between writing and publication.  While this makes the relative valuation of the companies less attractive, the reasons for choosing them over oil and gas companies are unchanged.  I have not yet bought any of them because I'm still expecting a significant market correction, and am waiting for even more attractive prices.]

Conclusion

These are my top oil related picks, but I have to admit I'm as curious as you are as to how they work out.  Can you do better?  Leave your picks in the comments, and I will track them along with my own when I check back to see how these stocks and XLE are doing.


DISCLOSURE: None.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:44 PM | Permalink | Comments (0) | TrackBacks (0)

Tom Konrad CFA

I like to think that one of the things that distinguishes me from the mass of investment bloggers and newsletter writers is that I write about my mistakes, as well as my great calls.  This is not just a service to readers, but a service to myself. 

Overconfidence and why I write about my mistakes

One of the most pernicious cognitive errors common among stock market investors arises from our wish to see ourselves as great investors.  One of the ways we accomplish that goal is to selectively and unconsciously self-edit our memories so that we can tell ourselves (and others) that we were correctly able to predict what was likely to happen.  While this may make us feel good, it has the pernicious effect of persuading ourselves and others that we're a lot better at investing than we really are.  Such overconfidence is particularly dangerous for an investor, because it leads us to put too much faith in our predictive abilities, and leads us to mistake our guesses for insights.
 
 Investors who mistake their guesses for insights often put too much money on them.  Betting too much is dangerous in two ways.  Most obviously, we lose money when those guesses are wrong.  When those guesses are right, we make money but end up even more overconfident than before.  That leads us to put even more money on the next guess.  If we keep on guessing right, our belief in our infallibility grows along with our fortune, until the odds catch up with us, and we go broke making one enormous bet a on guess we mistook for an infallible prediction.

At this point, most of my readers are probably patting themselves on the back for having avoided such dangerous overconfidence.  I'm a very lucky writer to have readers who are the product of millions of years of evolution favoring overconfidence, but who have mostly managed in various clever ways not to fall under the influence of that overconfidence when it comes to investing in the stock market.

Unfortunately, I am not made of such stern stuff, and I must resort to all sorts of ruses in order to remind myself that I'm far from infallible.  One such ruse is my discipline of writing every quarter about how my annual ten renewable energy and energy efficiency stock picks have been faring throughout the year. 

This quarter, I'm getting in touch with my humility.

Q3 Returns
In the three months since I last wrote about my Ten Clean Energy Stocks for 2010, the overall market has risen strongly.  My broad market benchmark, the Russell 3000 index has risen 5.9%, while my industry benchmark, the Powershares Wilderhill Clean Energy Index (PBW) has risen 9.3%.  In contrast, my ten stock picks have gained only 1.1% on average, while the alternative portfolio that substituted two ETFs, the Powershares Global Progressive Transport Portfolio (PTRP) and the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID), for six of the stocks did slightly better, gaining 5.2%.

C&D Technologies

In large part, my poor performance this quarter is explained by one stock on which I was quite decidedly wrong: C&D Technologies (CHP).

C&D's financing was tight at the end of last year when I recommended it, but I expected that they would have enough liquidity to meet their obligations without much improvement.  To make a long story short, quarterly results were not quite as good as I had hoped, and the declining stock price became a self-fulfilling prophecy, cumulating in a massively dilutive debt-for-equity swap that left stockholders owning only about 5% of the company.  The restructuring will greatly increase C&D's liquidity by removing $127 million of debt and the associated interest obligations.  This should leave the company in a much better position going forward.  But, since the debt swap valued CHP at about $0.25 per share according to my calculations, investors who bought it at the $1.40 stock price at which it was included in this list are unlikely to recoup their losses for quite a while.  On the other hand, investors who saw my September 15th comment that $0.21 seemed like a good price, as well as ones who bought with me at $0.30 the day before could see decent appreciation before the end of the year.

Portec Rail Products

As I mentioned in my recent article on Mass Transit supplier stocks (where I also discussed New Flyer Industries (NFI-UN.TO/NFYIF.PK)), L. B. Foster's (FSTR) friendly attempt to take over Portec Rail Products (PRPX) was extended to August 30 when FSTR increased the offer price to $11.80 per Portec share and agreed to pay $2 million to Portec if the deal does not go through.  Shareholders have tendered sufficient shares, but the deal is awaiting Department of Justice approval.  Foster management seems confident that they will get this approval before year-end.

First Group PLC

In a recent article on Rail and Mass Transit Operator companies, I concluded that I preferred Stagecoach Group, PLC (SGC.L) to FirstGroup PLC (FGP.L) because of their relatively low debt and strong liquidity.  I will continue to track FirstGroup in my year-end performance update, but if you're considering purchasing one of these now, my preference is Stagecoach.


YTD Performance

As you can see from the chart above, my picks are down 8.0% for the stock portfolio and down 0.4% for the stock/ETF portfolio for the year.  These results fall between the mediocre +2% performance of the broad market and the dismal -14.4% performance of Clean energy sector benchmark, PBW.  In other words, nothing to brag about.

I'll continue my humility building exercises in a couple of weeks with my quarterly review of my ten gambles for 2010.

DISCLOSURE: Long CHP, NFI-UN.TO/NFYIF.PK, PRPX

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 06:37 PM | Permalink | Comments (0)

Tom Konrad CFA

My speculative green gambles still have chips, but the mild decline of the stock market so far this year is not enough to make them really pay off, yet.

In January, I brought readers a collection of nine bearish puts on non-green companies and ETFs and one tiny energy efficiency company with a chance of taking off big before the end of the year.  They considered of bets against three fossil energy companies, four travel and leisure stocks, a Mexico ETF [EWW], a Trucking company (JB Hunt [JBHT]), and a long bet on Power Efficiency Corp [PEFF.OB].   These puts are intended as a complement to my more conservative Ten Green Energy Stocks for 2010, and as a possible hedge for those stocks in a green portfolio.

The energy companies are Consol Energy [CNX], Peabody Energy [BTU], and Chesapeake Energy [CHK], all of which have fallen considerably since the start of the year, making the Puts against their stocks the best performers in the portfolio.  The fall in these coal and shale gas companies seems to be mostly unrelated to BP's Deepwater Horizon oil spill, since the fall relative to the general market predates the disaster.

The travel stocks I thought worth betting against are airlines Delta Airlines [DAL], AMR Corporation [AMR], and Southwest Airlines [LUV], trucking company JB Hunt [JBHT], and Starwood Hotels [HOT].  These stocks have been strong this year, making the puts against them the worst performers of the lot.  The two remaining gambles were puts against the Mexican ETF [EWW].  My one long bet was Power Efficiency Corporation, which has also fallen since the start of the year.

Overall Performance

Overall, a speculator who decided to buy this portfolio in January, would still be at the table six months late, having lost about a quarter of his money.  However, in my most recent update on these gambles in late April, I concluded that "it makes sense to add to it now with some more puts on some of the higher-flying travel and transport stocks, such as Starwood Hotels (HOT), Southwest Airlines (LUV) and JB Hunt (JBHT) at strike prices closer to the current stock price."   That has so far turned out to be excellent advice, since I gave it right before the stock market started falling in April.

The chart below shows the performance of the portfolio of all ten gambles (dark blue), and each of the portfolio segments (Travel, Energy, and Miscellaneous) against a benchmark that is 80% composed of a put against the Dow Jones Industrials and 20% of the Powershares Wilderhill Clean Energy Index (PBW).  The light blue "Portfolio 2" line shows the returns that would have accrued to an investor who followed my April 27 suggestion, and moved 30% of his invested funds into additional puts against HOT, LUV, and JBHT.  An investor who had invested new funds in the puts on HOT, LUV, and JBHTwould have done even better.

Although the market as a whole has fallen this year, the fall has not as yet been drastic enough for most of these gambles to pay off, although investors who followed my April 27th suggestion to increase their bearish gambles would be slightly ahead for the year so far. 

The Second Half

Going forward, I remain bearish for the second half of the year.  At the start of the year, stocks were generally priced for a swift economic recovery, which I have long though was unlikely to happen, and now the general economic consensus seems to me moving in my direction.  If the stock market begins to price in a double-dip recession or just a long period of little or no economic growth as I expect, we will see further economic declines.

I continue to think that these gambles are an excellent hedge against the very real possibility of a considerable market decline in the second half of 2010, and since they are mostly focused on fossil fuel producers and fossil fuel dependent industries, they will also continue to make your portfolio that much greener while providing protection against general stock market declines.  You can find the full list of ten green gambles here, although if you are considering investing now, it probably makes sense to choose puts on the same underlying stocks that will expire in January 2012, rather than January 2011.

Security/Index	Change since 1/7/2010
CHK Jan 2011 17.500 put	36%
CNX Jan 2011 35.000 put	97%
BTU Jan 2011 30.000 put	8%
DAL Jan 2011 7.500 put	-41%
AMR Jan 2011 5.000 put	-32%
LUV Jan 2011 7.500 put	-70%
HOT Jan 2011 25.000 put	-57%
JBHT Jan 2011 20.000 put	-46%
EWW Jan 2011 30.000 put	-30%
Power Efficiency (PEFF.OB)	-38%
Portfolio	-24.0%
Portfolio 2	-0.3%
Benchmark	-13.6%
Energy	49%
Travel	-50%
Misc	-34%

DISCLOSURE: Short CNX,BTU, DAL, AMR, LUV, HOT, JBHT, EWW.  Long PEFF.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:40 AM | Permalink | Comments (0)

John Petersen

The second quarter was brutal for publicly traded energy storage companies which saw their stock prices fall by an average of 24.1% after a first quarter drubbing of 16.2%. Frankly I'm astonished that investors are chasing a battery-powered IPO like Tesla Motors (TSLA) and ignoring the energy storage technologies that will make EVs possible, and perhaps cost-effective, while making wind, solar and other renewable energy sources stable. At times like these I need to remind myself that energy storage is the beating heart of cleantech and take comfort in the fact that while Goldman Sachs began covering advanced batteries as a sector on June 27th, I've been focused on the energy storage sector for almost two years.

The following table provides comparative second quarter performance data and key valuation metrics for the 17 pure-play energy storage companies I track. All values have been adjusted to reflect disclosed material changes since the last reporting date. In the working capital columns, I've included my subjective assessment of working capital adequacy based on historical operating results and disclosed capital spending plans. The "Blue Sky" value is the spread between the book value shown on a company's balance sheet and its current market capitalization. For this quarter only, I've included Tesla as an honorary member because it's blue sky premium equals 118% of the blue sky premium for the 17 energy storage companies combined.



The following graph compares the composite price performance of my five categories with the Dow Jones Average since November 14, 2008, when I first started tracking the sector.



The following table summarizes the portfolio performance a hypothetical investor would have realized over the last three months if he invested $1,000 in each company and the three broad market indexes on March 31, 2010.

Broad Market Indices	-11.29%
Cool Emerging Companies	-31.47%
Cool Sustainable Companies	-10.71%
Cheap Emerging Companies	-35.19%
Cheap Sustainable Companies	-17.94%
Chinese Battery Companies	-25.23%

Cool Emerging Companies

My Cool Emerging Companies category includes four companies that are developing cool but expensive energy storage technologies that are not yet commercialized. The companies in this category are Ener1 (HEV), Valence Technology (VLNC), Altair Nanotechnologies (ALTI) and Beacon Power (BCON). The Cool Emerging group fell an average 31.47% in Q-2 and have fallen an average of 58.65% since November 2008.

The following table provides quarterly price information for each company's stock and is accompanied by a graph that illustrates their relative price performance compared with their closest peers and the Dow.



Valence, Ener1 and Beacon do not have sufficient working capital to support their operating losses and capital spending plans for more than three to six months without relying on financing transactions where shares are sold into the public market on a regular basis for the purpose of providing working capital, which can put significant pressure on stock prices. Until their working capital positions improve, I'd be cautious.

While Altair will likely need additional financing within the next year, it does not appear to have any pressing needs and its low market capitalization of $31.6 million and miniscule blue sky premium of $1.7 million leave significant room for outsized gains if it successfully implements its business plan.

Cool Sustainable Companies

My Cool Sustainable Companies category includes three companies that manufacture cool but expensive energy storage devices and generate substantial recurring revenue. The companies in this category are A123 Systems (AONE), Maxwell Technologies (MXWL) and Ultralife (ULBI). The Cool Sustainable group fell an average 10.71% in Q-2 and have fallen an average of 2.47% since November 2008

The following table provides quarterly price information for each company's stock and is accompanied by a graph that illustrates their relative price performance compared with their closest peers and the Dow.



In the Cool Sustainable category Ultralife strikes me as a bit of a sleeper because of its diversified product lines and customer base. It has larger revenues and smaller losses than either of its peers and is currently trading at a modest discount to book value. It certainly merits further analysis.

Cheap Emerging Companies

My Cheap Emerging Companies category includes two companies that are developing effective and objectively cheap energy storage technologies that are not yet commercialized. The companies in this category are Axion Power International (AXPW.OB) and ZBB Energy (ZBB). The Cheap Emerging group fell an average 35.19% in Q-2 and have fallen an average of 43.51% since November 2008.

The following table provides quarterly price information for each company's stock and is accompanied by a graph that illustrates their relative price performance compared with their closest peers and the Dow.


 
ZBB does not have enough working capital to support its operating losses and capital spending plans for more than three to six months without relying on financing transactions where shares are sold into the public market on a regular basis for the purpose of providing working capital. ZBB's recently announced financing plans are more company friendly than others I've reviewed, but future pressure on its stock price cannot be ruled out. Conversely its miniscule market capitalization of $7.3 million and very small blue sky premium of $3.3 million leave significant room for outsized gains if it successfully implements its business plan.

In the two emerging company categories, Axion Power is the only company with enough working capital to support a couple years of operations and significant expansion of its manufacturing capacity.

Cheap Sustainable Companies

My Cheap Sustainable Companies category includes four companies that manufacture effective but objectively cheap energy storage devices and generate substantial recurring revenue from product sales. The companies in this category are Enersys (ENS), Exide Technologies (XIDE) C&D Technologies (CHP) and Active Power (ACPW). The Cheap Sustainable group fell an average 17.94% in Q-2, but gained an average of 76.43% since November 2008.

The following table provides quarterly price information for each company's stock and is accompanied by a graph that illustrates their relative price performance compared with their closest peers and the Dow.



Chinese Battery Companies

My Chinese Battery Companies category includes four companies that manufacture a variety of energy storage devices including lead-acid, NiMH and lithium-ion batteries, and generate substantial recurring revenue from product sales. The companies in this category are Advanced Battery Technology (ABAT), China BAK Batteries (CBAK), China Ritar Power (CRTP) and Hong Kong Highpower (HPJ). The Chinese Battery group fell an average 25.23% in Q-2, but has risen an average of 36.69% since November 2008..

The following table provides quarterly price information for each company's stock and is accompanied by a graph that illustrates their relative price performance compared with their closest peers and the Dow.



China BAK is very weak from a working capital perspective and has not publicly disclosed its plans to remedy the problem. Until its working capital position improves, I'd be cautious.

My Murky Crystal Ball

For two years I've been telling readers why energy storage will be a core enabling technology for the cleantech revolution and cautioning that valuations in the cool technology groups were less attractive than valuations in the cheap technology groups. On that basis alone, I've consistently suggested that the cool technology groups were likely to stagnate or underperform on a go-forward basis while the cheap technology groups were likely to outperform. I think the comparative price performance charts say it all.

These are heady times because times and technologies are changing rapidly and risky times because many of the highest profile technologies like electric vehicles are not cost-effective and may never reach that goal. In my opinion, the biggest challenge for energy storage investors is separating business reality from press release hype and establishing a realistic timeline for expected changes in the energy storage sector.

During the information and communications technology revolution, we got used to the idea that Apple (AAPL) could announce a new product and sell millions of copies within a few months. In cleantech the development timelines will be longer and until we build a substantial experience base with some of these exciting new technologies, adoption rates will be slow and uncertain. One of the most useful graphs I've seen for energy storage and cleantech investors is set forth below.


My last table is arranged in declining order of blue sky premiums and summarizes where I believe the pure-play energy storage companies I track fit on the technology adoption lifecycle graph.



For my investment dollar, companies that have already crossed the chasm, together with developers like Maxwell and Axion that have a good shot at crossing the chasm in the next 12 to 18 months are better opportunities than riskier business models that face a three to five year development cycle and uncertain customer acceptance.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its stock.

Posted by John Petersen at 06:30 PM | Permalink | Comments (3)

Tom Konrad CFA

In the six months since I published my annual clean energy mini-portfolio, it has far outperformed my industry benchmark, the Powershares Wilderhill Clean Energy Index (PBW).  The dismal performance of renewable energy stocks so far this year is likely to lead to great buying opportunities in the rest of the year.

2010 is the third year in a row that I've published a list of ten renewable and energy efficiency stocks that I expect to perform well over the coming year. The details on the list for 2010 are here; this article is my second quarterly look back at the performance of the ten stocks so far this year.

These stocks are intended for small investors wanting to put some money in the sector, but not satisfied with the performance or holdings of clean energy mutual funds or clean energy exchange traded funds (ETFs). Please consult your investment advisor to decide if any or all of them are appropriate for your portfolio.

The diagram below shows the two versions of the my Ten Clean Energy Stocks for 2010 mini-portfolio, with the outer ring denoting an equal weight portfolio of ten stocks, including three energy efficiency stocks, three electric grid stocks, three alternative transportation stocks, and one biomass/waste to energy stock. The inner ring denotes a simplified portfolio, which substitutes the Smart Grid Infrastructure Index Fund (GRID) for the three electric grid stocks and the Powershares Global Progressive Transport ETF (PTRP) for the three alternative transportation stocks. For future reference, I'll call the portfolio shown in the outer ring "10 stocks for 2010" and the portfolio shown in the inner ring "4 stocks plus 2 ETFs for 2010."

Performance

Since December 27th, the Russell 3000 broad market benchmark has fallen 3.67%, while the Powershares Wilderhill Clean Energy Index (PBW) has fallen 21.7%. Both portfolios are trailing the broad market by less than 2%, while outperforming the industry benchmark by almost 16%, producing a nearly identical -5.21% for the ten stocks for 2010 and -5.34% for the four stocks plus two ETFs for 2010.

Coming Opportunities

While the performance against PBW is impressive, most investors would have probably been happier if they had simply stayed out of the market, or hedged their market exposure so far this year, which is exactly what I've been urging readers to do (see here, here, and here.) Although I saw some brief buying opportunities in clean energy at the end of May (I picked up a little Exide (XIDE) at $3.85 and US Geothermal (HTM) at $0.70) those opportunities were short-lived, and probably do not represent the market bottom for clean energy.

If the year continues to progress as I expect, the broad market will continue to decline, as will the clean energy sector. Individual clean energy stocks will likely continue to present excellent buying opportunities when the market as a whole has been declining rapidly. Buying opportunities in clean energy are likely to lead buying opportunities in the market as a whole, because the rapid decline of the whole clean energy sector over the last year is already producing great valuations. These great valuations broaden the appeal of clean energy stocks beyond the base of committed environmental investors, drawing in dyed-in-the-wool value investors who may not even think that Global Warming is happening, but know a good value stock when they see one.

I personally am still maintaining an overall short position in the market, but expect to be buying clean energy stocks with a focus on profitable micro-cap companies opportunistically.

Since these ten stocks have held up better than clean energy as a whole, we're liable to find fewer than average great buying opportunities in this list. C&D Technologies (CHP), currently trading at $0.95 is the best value I see among them at the moment, and this company may have already see its low for the year ($0.90 on June 10.)

One opportunity for short term gain may have just re-emerged in Portec Rail Products (PRPX). The company is the subject of a takeover bid from LB Foster (FSTR) which I covered in detail on June 1. The judge in a shareholder class action lawsuit lifted her earlier injunction blocking the merger on June 25th. The merger is not a done deal, however, since, as of May 28, only 59% of Portec shares had been tendered, and 65% are needed for the successful completion of the buyout. Foster may have to raise the offer price in order to consummate the deal.

Conclusion

At some point, I hope to be able to say it's time to buy this portfolio as a whole, but I think that time is not yet. Just the best strategy for the first six months of the year so far has been to stay in cash, and I think that will continue to be the best strategy for at least few more months. Now is still a time to remain mostly in cash, while keeping an eye out for individual buying opportunities.

DISCLOSURE: Long CHP, NFYIF, PRPX, WFIF, XIDE, HTM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 07:35 AM | Permalink | Comments (0)

Tom Konrad, CFA

The stock market is up, and my bets against it are down, except in energy.  It's time to double down.

Earlier this week, a client asked me if I'd found any buying opportunities while doing research for my "Best Peak Oil Investments" series.  The answer is, "no," although I've found a few companies I'm hoping to buy at lower prices, later. 

As regular readers know, I've been bearish since June 2009, after I cashed in on the quick rally in March, April, and May of that year.  My last ten months of sitting on the sidelines as the general market has risen 30% has been far from fun, but it has not made me question my decision to get out.  At the time, I judged that the potential gains did not justify the downside risks, and I believe the rise since then has only reduced any potential gains and increased the risks of staying in.

When I published my 10 Green Energy Gambles for 2010 in January, I had just these risks in mind, and suggested that readers use them to hedge any long stock positions, or use them to speculate on a decline. 

Readers who took this advice have lost about a third (34%) of their money, which is about what we've seen from my benchmark, composed of puts on the broader market and a clean energy ETF (down 38%).  If they had used this portfolio of puts as a hedge against the S&P 500 by investing $1 in this portfolio for every ten in the S&P 500, they would have acheived a net 2.5% gain, compared to a 4% unhedged gain on the S&P.

The following table shows how the individual picks have performed so far this year:

Security	Weight	Underlying	sector	1/9/10*	4/27/10*	Gain
EWW Jan 2011 $30 Put	20%	iShares Mexico (EWW)	Misc	$0.825	$0.40	-52%
CHK Jan 2011 $17.5 Put	7%	Chesapeake Energy (CHK)	Energy	$0.865	$0.955	+10%
DAL Jan 2011 $7.5 Put	7%	Delta Airlines (DAL)	Travel	$0.975	$0.60	-39%
AMR Jan 2011 $5 Put	7%	AMR Corp (AMR)	Travel	$0.85	$0.655	-23%
LUV Jan 2011 $7.5 Put	7%	Southwest (LUV)	Travel	$0.50	$0.10	-80%
CNX Jan 2011 $35 Put	7%	Consol Energy (CNX)	Energy	$2.325	$3.30	+42%
BTU Jan 2011 $30 Put	6%	Peabody Energy (BTU)	Energy	$1.45	$1.13	-22%
HOT Jan 2011 $25 Put	10%	Starwood Hotels (HOT)	Travel	$1.725	$0.30	-83%
JBHT Jan 2011 $20 Put	10%	JB Hunt (JBHT)	Travel	$0.65	$0.20	-69%
Power Efficiency Corp	20%		Misc	$0.275	$0.26	-7%
Portfolio	100%					-34%
Benchmark
DIA Jan 2011 75.000 put	80%	DIAMONDs (DIA)		$1.49	0.84	-44%
Powershares Wilderhill Clean Energy (PBW)	20%			$11.74	$10.08	-14%
Benchmark	100%					-38%
* Prices given are the midpoint between the bid and ask at the close on the given date.

I've also categorized these picks as "Travel" (including airline, trucking, and hotel stocks), "Energy" (including coal and shale gas stocks), and "Misc" including my bet against Mexico's peak oil economy and the energy efficiency company Power Efficiency Corp. (PEFF.OB).  The following chart shows how the portfolio as a whole and these sectors have performed against the benchmark.


As you can see, the portfolio (blue) as a whole is tracking the benchmark (orange) closely, but the energy companies have fallen (and the puts have risen) despite the market trend, while the travel companies have outperformed the market (and the puts on travel companies have fallen.) 

The star performer was the put on Consol Energy (CNX) a firm with interests in both shale gas and Appalachian coal.  The main reason for its share price decline has been a large dilutive issue of common stock, priced at $42.50 a share that has depressed the share price.  The stock was trading at $56 when I first priced the option.

Outlook

The occaisional stock on the list may fall due to specific news, but if these gambles are going to pay off, it will require either a spike in oil prices that causes a steep decline in the price of the travel stocks, or a significant broad market decline, or both.  I think either or both is likely this year, and the recent market rise makes a decline from these levels more likely. 

If you've been hedging your portfolio with some or all of these puts, you should realize that as stock prices rise, the value of  these puts as a hedge against relatively small declines in stock prices falls.  Hence, if you want to maintain your hedge, it makes sense to add to it now with some more puts on some of the higher-flying travel and transport stocks, such as Starwood Hotels (HOT), Southwest Airlines (LUV) and JB Hunt (JBHT) at strike prices closer to the current stock price. 

DISCLOSURE: Short EWW,DAL,AMR,LUV,CNX,BTU,HOT,JBHT,DIA.  Long PEFF.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 11:24 PM | Permalink | Comments (0)

Tom Konrad, CFA

Three months have passed since I published my annual clean energy mini-portfolio.  So far, these stocks have beaten the Powershares Wilderhill Clean Energy Index (PBW) handily, but they trail the broader market.

This is the third year in a row I've published a list of ten stocks for the year ahead at the end of December.  In 2008 my list trailed the broader stock market but beat the clean energy index, and last year it outperformed both.  So far, this year looks more like 2008 than 2009.  In addition to the portfolio of ten stocks, I gave an alternative portfolio which substituted two specialized exchange traded funds for six of the stocks.  You can read the original article here.

For the first quarter, the portfolio was up 1.3%, including dividends, and the alternative portfolio with 4 stocks and two exchange traded funds (ETFs) was down 1.2% with dividends.  These two results were bracketed by the broad Russell 3000 index (up 4.03%) and my sector benchmark, the Powershares Wilderhill Clean Energy ETF (PBW), which was down 11.57%. 



Individually, here is how the stocks have performed:

Electric Grid Stocks

General Cable (BGC): Down 14.8%. The company fell on lowered earnings guidance on February 11.  I took an in-depth look at General Cable's prospects shortly thereafter.
MasTec (MTZ): Up 0.4%.
C&D Technologies (CHP): Up 12.2%.

Collectively, these three stocks were down 0.7%, which beat the substitute ETF, the Smart Grid Infrastructure Index Fund (GRID), which was down 5.5%

Efficient Transportation Stocks

New Flyer Industries (NFI-UN.TO, NFYIF.PK): up 16.0%
Firstgroup PLC (FGP.L): down 15.5%
Portec Rail Products (PRPX): up 14.2%.  Portec is the subject of a cash takeover by L. B. Foster Company (FSTR).  If the merger goes through, I plan to look for a replacement.

Collectively, my transport picks are up 4.9%, compared to a 1.1% gain for the substitute ETF, the Powershares Global Progressive Transport ETF (PTRP.)

Energy Efficiency Stocks

Waterfurnace, Inc. (WFI.TO, WFIFF.PK): up 9.5%
Linear Technology Corp (LLTC): down 8.4%
Flir Systems, Inc. (FLIR): down 13.4%

Collectively, my energy efficiency picks were down 0.7%.  There is no efficiency ETF with which to compare them.

Biomass Stock

Waste Management (WM): up 2.9%.

Conclusion

The biggest surprises of the quarter were the relative poor performance of the clean energy ETFs, PBW, GRID, and PTRP.  I've long thought that stock picking can be useful in clean energy because it is a new, rapidly changing sector that is not yet closely followed by many Wall Street analysts.  Three months of outperfomance compared to these exchange traded index funds means very little.   But now that we have over two years of outperfomance relative to the clean energy ETFs, it is starting to look like a trend. 

This year was the first year the sub-sector ETFs GRID and PTRP were available, and they allow us to dissect the portfolio's performance in more detail.  In general, I think the broad clean energy ETFs such as PBW over-emphasize popular sectors such as solar, and under-emphasize less exciting sectors such as efficiency.  GRID and PTRP  underperformed my corresponding picks by about four percent each, but the broad clean energy ETF underperformed my picks by about 13%.  Assuming my outperformance was not luck, we can attribute 9% of it to the emphasis on Energy Efficiency, Electric Grid, and Clean Transportation sectors over Solar and Wind.  The other 4% outperformance would be from old fashioned stock picking within sectors.

Even successful stock picking is not likely to lead to profits when the market as a whole is down, as we saw in 2008.  My picks that year only looked good in comparison to PBW.  I continue to expect a general market decline in 2010, and so I continue to wait before I commit much money to any of these picks.  When I do, I'll let you know.

DISCLOSURE: Long BGC, CHP, NFYIF, PRPX, WFIFF, and WM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 09:20 PM | Permalink | Comments (0)

Tom Konrad, CFA

A quick update of last month's list of speculative puts, to reflect the new options symbols.

In January, I put together a list of nine puts and one small energy efficiency stock I expect to do well this year.  I normally only do updates on these every quarter, but because of the recent change option symbols, I thought I'd revisit my 10 Green Energy Gambles.  The links in the original article have stopped working; this new table shows the current list.

Here's the list: with updated option symbols.

Security	Portfolio Weight	Underlying	1/9/10*	2/11/10*	Gain
EWW Jan 2011 $30 Put	20%	iShares Mexico (EWW)	$0.825	$1.00	21%
CHK Jan 2011 $17.5 Put	7%	Chesapeake Energy (CHK)	$0.865	$1.225	41%
DAL Jan 2011 $7.5 Put	7%	Delta Airlines (DAL)	$0.975	$0.925	-6%
AMR Jan 2011 $5 Put	7%	AMR Corp (AMR)	$0.85	$0.68	-20%
LUV Jan 2011 $7.5 Put	7%	Southwest (LUV)	$0.50	$0.35	-30%
CNX Jan 2011 $35 Put	7%	Consol Energy (CNX)	$2.325	$3.20	37%
BTU Jan 2011 $30 Put	6%	Peabody Energy (BTU)	$1.45	$2.12	46%
HOT Jan 2011 $25 Put	10%	Starwood Hotels (HOT)	$1.725	$1.65	-5%
JBHT Jan 2011 $20 Put	10%	JB Hunt (JBHT)	$0.65	$0.70	8%
Power Efficiency Corp	20%		$0.275	$0.275	-2%
Portfolio	100%				8.4%
Benchmark
DIA Jan 2011 75.000 put	80%	DIAMONDs (DIA)	$1.49	1.885	27%
Powershares Wilderhill Clean Energy (PBW)	20%		$11.74	$9.53	-19%
Benchmark	100%				17.4%

* Prices given are the midpoint between the bid and ask at the close on the given date.

After a little over a month, it's too early to draw any conclusions about the portfolio's performance.  I'm naturally happy that the portfolio is up, but disappointed with its performance relative to the benchmark.  On the other hand, I don't know any theory behind benchmarking options portfolios, let alone mixed option and stock portfolios. 

Anyway, it's nice that the portfolio is up for the month, so I shouldn't complain that I'm not meeting my self-imposed benchmark. 

For those of you keeping score at home, my long-only Ten Clean Energy Stocks for 2010 portfolio is down 5% since December 27, 2009, compared to a drop of 14% for PBW and a drop of 4% for the Russell 3000 index.  The simplified version of the portfolio, which substitutes the ETFs PTRP and GRID for six of the stocks is down 8%.


DISCLOSURE: Short EWW,DAL,AMR,LUV,CNX,BTU,HOT,JBHT,DIA.  Long PEFF.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 05:17 PM | Permalink | Comments (0)

Tom Konrad, CFA

Given the small size of its economy and rather lackluster approach to climate change, Canada has many of the Cleantech stocks with the best prospects.  Canadian listed firms come from a broad range of sustainable sectors, and a lack of attention from United States investors means that many trade at very attractive valuations.  Corporate Knights' has picked ten of the best.

I'm often surprised at how many of my favorite green stocks are listed in Canada.  This year, two of my Ten Clean Energy Stocks for 2010 are Canadian listed.  The same was true for my 2008 list, while my 2009 list contained three stocks from Canadian exchanges.  I mostly stick to companies that are traded on North American exchanges, so it's not surprising that more Canadian-listed companies appear than, say, companies listed in Britain (only one over three years.)  It's also surprising that there are so many Canadian listed firms, given that Canada's economy is only about one tenth the size of the United States' economy.  Canada's largest exchange, the TSX, has 3841 companies with a combined market capitalization of about $1.4 trillion, compared to 3615 $10.8 trillion for the NYSE and 2249 at $2.8 trillion for the NASDAQ.

The number of stocks on Canadian exchanges is key to the number of great Cleantech stocks listed there.  While Canada's relative market capitalization parallels the relative size of the economy, the number of Canadian listed stocks is about 2/3 of the number of stocks listed in the United States.  Small companies often find that listing on the TSX is faster and easier, and often comes with less burdensome reporting rules than a NASDAQ listing [powerpoint pdf.]  This means that American Cleantech investors interested in the many new companies going public find ourselves with relatively few options on US exchanges, while a bumper crop of Cleantech IPOs heads towards Canada.

However, the less burdensome listing requirements for Toronto listed firms are a two-edged sword: investors looking at these companies not only have to sift through more of them, but they need to be more careful with the ones they choose to consider in more detail.  Many investors decide the extra work is not worth the bother, and stick to the relatively few US listed firms.  Their reluctance is good for those of us willing to venture across the Northern border and do our homework: a smaller pool of investors means we can often buy these companies at much better valuations.

Sorting the Wheat from the Chaff

With many more Cleantech stocks to choose from, it helps to narrow down your focus on a few companies before doing the many hours of due diligence that should accompany any stock market investment.  I often start with companies that are part of third party indexes.  Beyond that, I tend to focus on a few Cleantech sectors such as Energy Efficiency Stocks, Clean Transportation Stocks, and Electric Grid stocks which get less attention than more popular sectors such as solar.  

Companies in indexes have garnered enough shareholder attention that there will decent liquidity.  This can be surprisingly important, even for a small investor.  I became interested in a TSX-traded energy efficiency firm over the holidays, did hours of due diligence, and even wrote an article.  The stock typically trades 1,000 to 2,000 shares a day, and I have only been able to buy 1700 shares at what I consider to be an attractive price.  I'm waiting to publish the article until I've made my purchase.  Given that the stock has risen since I bought it, I may never get the chance to buy more at the prices that prevailed when I did my research.  Researching higher-liquidity stocks means that you can get in when you want without greatly moving the market.

The Cleantech 10^TM

Corporate Knights calls itself "The Canadian Magazine for Responsible Business," and they publish (in collaboration with The Cleantech Group) an annual list of ten "technology-driven growth companies that have big impacts on resource efficiency and the environment—not simply those re-branding themselves as ‘green.’"  By starting with a list like this one, I know I'm only looking at companies with businesses I would like to own.  What I don't know is if the stocks are good values, if they strong financially, or if management has the skills necessary to have them succeed against the competition.  These latter three questions are the ones I try to answer during due diligence.   In 2009, their list outperformed the TSX/S&P Composite by 38%.

They published the most recent Cleantech 10^TM list in October 2009. With one replacement because of the buyout of Canadian Hydro Developers, here is their list, along with a few of my observations about each company.  The first ticker is the Canadian ticker (in Canadian dollars,) and the second ticker is the US ticker, denominated in US$.

1. Westport Innovations (WPT.TO, WPRT)

Vancouver-based Westport trades on the NASDAQ as well as the Toronto Stock Exchange.  This means the company may be less interesting to investors looking for less-noticed stocks.  The company's alternative engines and drive trains will probably do well if oil prices continue to rise.  Although the company can fund about two year's worth of operating cash losses from the balance sheet, I prefer profitable companies which are actively paying down their debt.

2. RuggedCom (RCM.TO, RUGGF.PK)

I took a close look at Smart Grid company Ruggedcom in November, and I concluded that, although I liked the business and had a generally good feeling about management, I felt it was overvalued at US$16.60.  Since it's currently trading around $20, I'm in no hurry to buy.

3. WaterFurnace Renewable Energy (WFI.TO, WFIFF.PK)

Waterfunace is a long-time favorite of mine, having appeared in both my own top stock lists in 2009 and 2010.  In fact, I first learned about the Cleantech 10 list because it showed up in a news story about Waterfunace.  

The Fort Wayne-based company manufactures a broad range of geothermal heat pumps, a clean energy technology that not only saves energy compared to other forms of heating and cooling a building, but also shifts electricity use to seasons during which wind based power is plentiful.

The company also provided me with some extra confirmation that US based investors tend to ignore Toronto listed companies: A contributing writer for the Motley Fool called me to ask about the company in January, after a relative had recommended one of their heat pumps for his home.  He was researching it for his own portfolio, and when I asked him if he was likely to write about it, he said that he probably wouldn't.  The Motley Fool pays him to write articles that are likely to be popular, and, he said, that companies without US tickers don't interest many of their readers.

4. Magma Energy Corp. (MXY.TO, MGMXF.PK)

Vancouver based Magma Energy Corp went public in July last year, with the intention of buying up interests in geothermal electricity projects.  Geothermal is one of my favorite renewable energy sectors, since the electricity it produces is competitive with wind, but the power is much more reliable, but I have not yet taken the time to analyze Magma and decide if it's a good value.

5. 5N Plus (VNP.TO, FPLSF.PK)

Montreal based 5N Plus provides purified metals, and is probably most interesting to investors because it supplies pure metals used in the Solar photovoltaic panels.

6. Carmanah Technologies Corp. (CMH.TO, CMHXF.PK)

Victoria based Carmanah manufactures LED lighting with integrated solar panels and batteries which allow for use in remote locations without a grid connection.  Not having to lay wires for a grid connection means that Carmanah's products are often the most cost effective lighting solution, despite the high cost of both the batteries and solar.  I owned the stock from late 2005 until I sold it in September 2008 in response to the financial crisis, because I did not think that the company had the financial muscle to weather the storm.  

The company last traded at $0.80, still below the $0.95 at which I sold despite almost doubling since March 2009, but I have not looked at the company again to see if they have done what I consider to be sufficient work repairing their balance sheet and cash flows.

7. NEO Material Technologies (NEM.TO, NEMFF.PK)

Toronto based NEO Material Technologies is one of the companies that made this whole exercise of going through the list worth doing.  I was not previously aware of this manufacturer of rare-earth and Zirconium based magnets, which are used in high-performance electric motors (Recall John Petersen's recent Storm Warning about the availability of rare earths for hybrid and electric vehicles.) Despite worries about rare earth supply, if NEO Materials is able to pass higher supply costs on to its customers, the company could be very profitable.  Will it?  Finding out is where the work comes in.

8. Stantec (STN.TO, STN)

Also new to me is Edmonton based Stantec, a design firm geared towards sustainability.  Stantec is worth further research because energy efficiency is more often about design than about products.  In other words, design firms can often do more to reduce energy use than can be accomplished by simply slotting more efficient products into the same systems.  

9. Hemisphere GPS (HEM.TO, HEMGF.PK)

Calgary based Hemisphere GPS manufactures GPS equipment for farming equipment which allows farmers to better gauge the amount of fertilizer or pesticide applied to a specific part of the field to the needs of the crop there.  This more efficient use of resources not only improves the economics for the farmer, but is less wasteful and polluting to the environment.

10. Innergex Renewable Energy Inc. (INE.TO, INGXF.PK)

Innergex is a developer and operator of hydroelectric and wind projects, with the majority being hydroelectric.  This makes the company an interesting play because the economics of upgrading old hydroelectric plants are far better than even building new coal plants, while new hydropower projects have economics that are comparable with the best other renewables, wind and geothermal.  Like most of these, I have not looked at Innergex's valuation, but I consider it worth a look.

 

The Cleantech 10 List from Corporate Knights on Vimeo.

Next Steps

NEO Materials, Stantec, Magma, and Innergex all are interesting enough to me that I may do further research.  With interesting prospects like these, my next step is to start monitoring the news for these companies, and perhaps do a preliminary valuation based on simple metrics such as P/E, cash on hand, current ratio, and cash flow from operations.  If the stock price falls to a point where the valuation looks good, and the news does not account for the change, it will be time to do the real work of reading through annual and quarterly reports.

DISCLOSURE: The author and/or his clients own WFI. 

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 11:03 AM | Permalink | Comments (0)

Tom Konrad, CFA

If you like to take risks, want to fight climate change and prepare for the impact of peak oil, and would also like a chance to make a big return on your investments, here are ten investments you can make that might do all of those things. 

Note (4/28/2010): A performance update for these picks is available here

A small part of my portfolio is usually in small, risky green companies with the promise of big returns.  This year, however, I'm too bearish to own many small, risky companies, but I'm still making some long-shot bets that could pay off big.  Last year, my list of ten green energy gambles had two stocks that returned over 100%.  This year, I'm hoping to do better by looking for profit on the short side of the market.

In December, I made the case that green and peak oil investors should be looking to the short side of the market.  Declining supplies of oil and gigantic debt are bound to be a drag on the economy for years to come.  Some companies and industries will be hurt more than others.  Action to reduce carbon emissions will have both winners and losers.  No matter how many green jobs are created, some industries will be hurt.  Spotting the companies that will be hurt is easier than spotting the beneficiaries: They're the ones trying hardest to derail climate legislation. They may succeed, but if they fail, we'll see it in their stock price.

Putting Your Money Down

On the short side, these gambles are going to be puts on companies or industries I highlighted in my Green Energy Investing for Experts series.  I'm using puts because they have the right sort of payout for gamblers: if the stock does not fall much, you lose the premium you paid for the put.  If the stock falls a lot, the put pays off in a big way.

One other advantage of puts is that they are more accessible to the ordinary investor than shorting.  It's much easier to get trading authority to buy options from your broker than it is to get permission to sell calls or short stocks.  It's even possible to buy puts in a brokerage IRA, where federal regulation prohibits shorting. Because this is a list of picks for 2010, I'm only going to use puts that expire in January 2011, giving us a target date of one year.

Should you be buying puts in your IRA? Your investment advisor would almost certainly tell you "no."  But he'd probably also tell you that "you should hold stocks for the long run." This conventional wisdom makes no sense if you expect peaking fossil fuels to cause economic decline.  Holding stocks for the long run also didn't make sense when Jeremy Siegel's book with that title was published in 1998.  If you'd bought the S&P 500 at the high in 1998, and sold at the high in 2009, you would have lost 9% over 11 years.  If you'd bought at the low in 1998, and sold at the low in 2009, you'd have lost 27%.  

That's not the kind of performance I want in my account.   Nevertheless, you should use puts judiciously.  This is gambling, even if peak oil is tilting the odds in our favor.  For myself, the money in this type of bet is a very small part of my portfolio.

The Picks

Security	Ticker*	Portfolio Weight	Underlying	Price 1/9/10**	Related articles
EWW Jan 2011 $30 Put	XBLMD.X	20%	iShares Mexico	$0.825	Experts part II - Shorting Mexico
CHK Jan 2011 $17.5 Put	VECMW.X	7%	Chesapeake Energy	$0.865	Experts Part III - Shale Gas
DAL Jan 2011 $7.5 Put	ZQIMU.X	7%	Delta Airlines	$0.975	Experts Part IV - Airlines
AMR Jan 2011 $5 Put	VMRMA.X	7%	AMR Corp	$0.85	Experts Part IV - Airlines
LUV Jan 2011 $7.5 Put	VUVMU.X	7%	Southwest	$0.50	Experts Part IV - Airlines
CNX Jan 2011 $35 Put	VTLMG.X	7%	Consol Energy	$2.325	Experts Part V -Coal, Experts III Shale Gas
BTU Jan 2011 $30 Put	ZZTMF.X	6%	Peabody Energy	$1.45	Experts Part V -Coal
HOT Jan 2011 $25 Put	VVOME.X	10%	Starwood Hotels	$1.725	Experts/Index - Travel
JBHT Jan 2011 $20	ZORMD.X	10%	JB Hunt	$0.65	Experts/Index -Trucking
Power Efficiency Corp	PEFF.OB	20%	n/a	$0.275	see below

*These ticker symbols will change after the second quarter 2010.

**Since options are typically illiquid and often go without trading for days, this price is not the most recent trade, but the average of the bid and ask price.

My Long Pick

On the long side, I have one energy efficiency stock that I decided not to add to my Ten Clean Energy Stocks for 2010 because of liquidity concerns.  

This stock is Power Efficiency Corporation (PEFF.OB.)  I first heard about them over two years ago when BJ Lackland, the company CFO called us up and said he wanted to advertise on AltenergyStocks.com.  They had read one of the many articles I write about energy efficiency, and why it should be at the core of a clean energy portfolio, and decided that our readers would get the benefit of cutting energy use of escalators, elevators, rock crushers, and other variable-load, constant speed motors with clever controllers.  Did you realize that a single escalator can draw about 6kW?  One kW is about the amount of energy used by a typical home. Power Efficiency's controller cuts that to about 4kW.  In other words, if an escalator runs 12h a day, one of their controllers will save enough energy to run an entire home. 

When they first became an advertiser, I was reluctant to give them an extra boost by mentioning them in articles, because of the conflict of interest.  I did mention them a couple times, but never as prominently as this, and always with a disclosure about the relationship.  Last fall, however, I finally decided to take the plunge, and made a significant investment in the company, simply because I think it's a good investment.  Now that my own money is where my mouth is, I feel much better writing about the stock.  I can now honestly say that this is a company that I would invest in myself.

Liquidity matters because PEFF trades on the Bulletin Boards.  If too many readers rush to buy, the price will shoot up and make it no longer a good value.  This happened in a small way to C&D Technologies (CHP) which I included in the top 10 list.  That stock was up over 20% the three trading days after I published my top 10 stock list, despite the fact that CHP had a daily turnover of about $300,000 and there was no other news.  There was news of an Army contract the following day, though, so part of the run-up could have been driven by people in the know illegally trading on the information.  I've come to believe that that type of insider trading is quite common, because I often see stock prices moving in anticipation of this sort of announcement.

Power Efficiency only has a daily turnover of a little over $1,000.  Since you're gamblers, I'll just suggest that you get in early, or wait and hope for a correction after this article bumps up the stock price.

Weights

You'll note in the table that I've assigned weights.  These are mostly intended for tracking the performance of the portfolio over the year, and were chosen to reflect my general confidence in each of the bets.

I expect that readers are not going to buy all these securities in these proportions. In fact, you will probably be better off if you only buy a few of the suggested puts, and use different strike prices than the ones I've listed.  Only buying a few will save you money on commissions, while using different strike prices will help you get reasonable prices on these illiquid securities.  I'd suggest using limit orders as well, to limit the price impact of your individual orders. 

How Much to Buy

Unlike last year, this portfolio is meant as a complement to my 10 Green Picks for 2010.  If you have a larger portfolio and an account where you can buy options, this portfolio can be used as a complement to that portfolio if you are worried about a fall in the market as a whole.  The dollar investment in these puts should only be around one to five percent of your total long portfolio positions if you're trying to hedge your exposure.  If you are confident that the market will fall drastically and hope to profit from such an event in 2010, you might invest more.  I personally don't have that much confidence in my own sense of timing.  I have a long history of being much too early on my market calls, going back to the start of my investing career in the late 90s, when I thought this Internet fad was going to end at any time. It took three more years.

Benchmarks

Because this is a mostly a portfolio of Puts, ordinary benchmarks don't make sense.  Instead, in order to compare like to like, I plan to use a put on an index ETF which also expires in January 2010.  My first choice for an underlying ETF would be SPY, but long dated puts on SPY expire in December, not January.  Instead, I'll use a put on the DIAMONDS Trust (DIA), which tracks the Dow Jones Industrial Average.  In particular, my benchmark will be DIA Jan 2010 $75 Put for the 80% of this portfolio on the short side. This put is currently trading under the ticker ZAVMO.X, with the average of bid and ask prices at $1.49. For the long side of the portfolio, I'll use the Powershares Wilderhill Clean Energy ETF (PBW), with a 20% weight, which closed on January 8 at 11.74.

How the portfolio performs relative to this benchmark will give some indication of how useful my sector and stock picking  is, even though the profitability of this portfolio will mostly be determined by the direction the market takes in 2010.  If we have another year like 2008, this portfolio should be profitable no matter how bad my sector picks were, while if next year is a repeat of 2009, no amount of sector picking is going to save this portfolio from a loss (barring some catastrophic event for one of the particular companies.)  In other words, the benchmark is there to test how good my ideas in Green Energy Investing for Experts really were.

I'll update you on how this portfolio and my top 10 picks are doing each quarter, just like I did last year.  

DISCLOSURE: Long PEFF.  Short EWW, DAL, AMR, LUV, BTU, CNX, HOT.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:26 PM | Permalink | Comments (0)

Year in Review: Ten Green Energy Gambles for 2009

Tom Konrad, CFA

My speculative renewable and alternative energy stock picks for 2009 had mixed results. The gambles came nowhere near the performance of my 10 Clean Energy Stocks for 2009, and only kept pace with their benchmarks.  The reasons why can be found on the companies' balance sheets and cash flow statements.

In January 2009 in response to popular demand, I gave readers ten picks of speculative green energy stocks.  I tend to buck the general trend that renewable energy investors tend to be gamblers, but my annual stock picks draw a wider audience, and I decided to give the crowds what they wanted, picking ten green stocks I thought were on the risky side.  I summarized my expectations for these stocks by saying, "that although all of these have a chance of spectacular returns, I think the portfolio as a whole will fall, unless financial market conditions improve rapidly."

Financial market conditions did improve rapidly in 2009, but they did not improve uniformly.  Lenders and other suppliers of capital became much more discriminating, allowing the strong to raise money at reasonable rates, while the weak fell by the wayside.  

What Happened

My green energy gambles were collectively up 22%, compared to returns of 31% for the Powershares Wilderhill Clean Energy Index (PBW), and 9% for the iShares S&P Global Clean Energy Index (ICLN), the two ETFs I specified as benchmarks for comparison when I published the original list.

This is an uninspiring performance, so I'm not happy with the overall results.  After all, my ten conservative green picks were up an average of 57% in 2009 solidly beating their benchmarks, but my speculations didn't even beat both benchmarks.  In a strong bull market year like 2009, I would normally expect riskier stocks such as these to outperform my more conservative picks.  That did not happen, and it did not happen by a wide margin.

I did get some "spectacular returns."  Had I known last January that the S&P 500 would be up 28% in 2009, I would have expected at least three of these to return more than 100%.  As it was, UQM Technologies (UQM) and Cosan (CZZ) more than doubled returning 252% and 116%, respectively.  Nevertheless, it's disappointing in such a good year for the market as a whole.

What happened?

The Weak and the Strong

When I presented these gambles, I broke them up into three categories:

Unprofitable Companies Without Strong Balance Sheets

1. Beacon Power Corporation (BCON), up 7%
2. Axion Power International  (AXPW.OB), up 17%
3. Valence Technology, Inc. (VLNC), down 48%
4. Composite Technology Corp (CPTC.OB), no change
5. Environmental Power Corp. (EPG), down 76%
6. Emcore Corp. (EMKR), down 15%

Unprofitable Companies, Somewhat Stronger Balance Sheets

1. UQM Technologies (UQM), up 252%
2. Cosan, Ltd.(CZZ), up 116%
3. Raser Technologies, Inc. (RZ), down 63%

Profitable Companies, For Now

1. Zoltek (ZOLT), up 30%

The companies is the first category performed extremely poorly compared to the companies in the latter two categories, with the last four stocks returning an average of 84%, and the first six stocks returning -19%. Because of this (and the out performance of my ten conservative picks), I call 2009 "The Year of the Balance Sheet."  Hindsight, of course, is 20/20, but at least I separated the companies by financial strength for readers who had a better idea of what 2009 would look like than I did.

For 2010, I'm going to try something a little different for any green-minded gamblers out there.  Readers of my Green Energy Investing for Experts series have been getting a preview of what I'm talking about.  I plan to publish the new list Sunday night or Monday morning.

DISCLOSURE: Long AXPW.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 05:09 PM | Permalink | Comments (0)

Tom Konrad, CFA

A mini-portfolio of stocks that not only are green, but should outperform the market in an environment of increasing concern about climate change and peak oil.

This is the third annual list of green stocks I have published.  In 2008, it was a list of ten speculative alternative energy companies (in three parts) that I thought might catch public notice that year.  As we all now know, 2008 was a horrible year for speculative stocks, and my stocks were no exception, losing an average of 55% that year, although that still ended up being better than seven out of nine of the sector mutual funds and ETFs that I was then tracking.

In 2009, my ten green stock picks were more conservative, with a focus on profitable companies with good cash flow.  The results have been better than I hoped.  These 10 picks gained an average of 57%, beating my benchmarks by an even wider margin.  I'll be surprised if I do as well in 2010, but if there's one thing the stock market delivers reliably, it is surprises. 

10 for '10

In November, I wrote a series of articles for the beginning investor in clean energy, and I plan to follow my own advice with this list, putting emphasis on those clean energy sectors that most investors are not giving enough attention.  Once you've decided how much of your portfolio to put in clean energy, splitting that investment evenly between these ten stocks should give you exposure to the best clean energy sectors, as well as decent diversification.  In other words, these ten stocks are intended as a substitute for a clean energy Exchange Traded Fund (ETF).

In late 2008, when I was putting together my list for 2009, I had a relatively easy time.  Fear was rampant, and there were many great companies selling for single-digit multiples of earnings.  Today, complacency and greed have returned to the markets, and good values are very hard to come by.  The following 10 are mostly the result of culling through our Alternative Energy Stock lists for companies in my favored sectors that look ready for the premature end of the recovery: Companies with strong balance sheets, good cash flow and profitability at not-too-expensive multiples.

Electric Grid & Electricity Storage (30%)

• General Cable (BGC)  
• MasTec (MTZ)  
• C&D Technologies (CHP) 

-or-

• Smart Grid Infrastructure Index Fund (GRID)

Efficient/Clean Transportation (30%)

• New Flyer Industries (NFI-UN.TO, NFYIF.PK)
• Firstgroup PLC (FGP.L)
• Portec Rail Products (PRPX)

-or-

• Powershares Global Progressive Transport ETF (PTRP)

Energy Efficiency (30%)

• Waterfurnace, Inc. (WFI.TO, WFFIF.PK)
• Linear Technology Corp (LLTC)
• Flir Systems, Inc. (FLIR)

Biomass, Waste to Energy, Recycling - 10%

• Waste Management (WM)

Simplified Portfolio

I've provided an alternate, simplified portfolio by substituting the clean energy sector ETFs GRID and PTRP for the stocks in the Electric Grid/Storage and Efficient Transport sectors.  This simplified portfolio is better suited for investors who have smaller accounts and want to control transaction costs by making fewer trades.  Some investors may also find it difficult to buy London-traded FirstGroup PLC.  Such investors may choose to substitute PTRP for FGP.L or for all three efficient transport stocks.

Notes on Stocks

I plan to write about many of these stocks in more depth over the next few months, but here are some links to relatively recent articles for those who want more information before they invest:

• John Petersen on C&D Technologies (December 2009)
• New Flyer Industries update. (October 2009)
• MasTec and General Cable. (June 2009)
• Flir Systems (March 2009)
• Portec Rail Products (February 2009)

Choice of Weights

I was roughly sticking to the sector breakdown I recommended in my Green Energy Investing Target Portfolio, shown here,

but I was constrained by only working with 10 stocks, and wanting to keep the weights equal for simplicity.  People who use the simplified version with the two ETFs substituting for six stocks may come closer to the target portfolio, because those ETFs (especially GRID) also contain significant numbers of companies which I would categorize as falling in other clean energy sectors.

Tax Considerations

New Flyer and Waterfurnace pay dividends and trade on Canadian exchanges.  Canada withholds 15% of such dividend payments to US-based investors, an amount which can usually be offset as "foreign tax paid" when filing US taxes.  Unfortunately, if the stock is held in a non-taxable US account, I don't believe that it is possible to claim this deduction.  In other words, most US based investors will probably do better by holding these stocks in taxable accounts, although you will probably want to consult a tax advisor if you are investing significant sums in these stocks, since your circumstances may not match my experience. 

Performance Updates and Benchmarks

As in previous years, I plan to monitor the performance of these stocks quarterly, and to do that, I need benchmarks.   An appropriate benchmark should be widely available, consist of the companies in the investment universe from which the portfolio is drawn, and be defined in advance.  Since I tend to take a broader view of clean energy than the designers of most clean energy indexes, I historically have used two benchmarks: one broad market benchmark, and one sector-specific benchmark.

In the past, I've used the S&P 500 index as my broad market index, but some readers have rightly criticized it because it is mostly composed of larger capitalization stocks than my picks, so this year I will use the Russell 3000 index. For in industry benchmark, I'll used the oldest and most widely held of the clean energy ETFs, the Powershares WilderHill Clean Energy Portfolio (PBW.)

Security (Ticker)	Price 12/27/09	Shares* in a $10,000 10 for '10 Portfolio:	Shares* in the $10,000 Simplified Portfolio
General Cable (BGC)	$32	31.25	n/a
MasTec (MTZ)	$12.54	79.745
C&D Technologies (CHP)	$1.47	680.27
Smart Grid Infrastructure Index Fund (GRID)	$32.58	n/a	92.081
New Flyer Industries (NFI-UN.TO, NFYIF.PK)	$9.4853	105.43	n/a
Firstgroup PLC (FGP.L) (in US$)	$6.6246	150.95
Portec Rail Products (PRPX)	$10.21	97.943
Powershares Global Progressive Transport ETF (PTRP)	$27.1885	n/a	110.34
Waterfurnace, Inc. (WFI.TO, WFFIF.PK)	$24.0335	41.609
Linear Technology Corp (LLTC)	$30.77	32.499
Flir Systems, Inc. (FLIR)	$32.24	31.017
Waste Management (WM)	$33.76	29.621
Total		$10,000	$10,000
Russell 3000 (^RUA)	660.44	15.14142
Powershares WilderHill Clean Energy Portfolio (PBW)	11.15	896.861

*Fractional shares would not be used in a real portfolio, and there would of course be transaction costs reflected here as well.  These are simply the weights I'll be using to track my model portfolio.

DISCLOSURE: Long CHP, LLTC, NFYIF, WFIFF, PRPX, and WM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 08:02 PM | Permalink | Comments (3)

Tom Konrad, CFA

2009 was a banner year for my clean energy stock picks, which are up 57% over 12 months, greatly exceeding their benchmarks.

Over the last 12 months,  my ten green energy stocks for 2009 are up 57% vs. 29% for the S&P 500, and 12% for my clean energy benchmark, the iShares S&P Global Clean Energy Index (ICLN), the two indexes I specified for benchmarks when I published the list a year ago.

Below is a detailed rundown of the results.  

Company	Ticker	Change 12/27/08 to 12/27/09	Dividend & Interest
The Algonquin Power Income Trust	AGQNF.PK	113.04%	13.13%
Cree, Inc.	CREE	265.60%
First Trust Global Wind Energy ETF	FAN	26.86%	0.46%
General Electric	GE	-3.32%	5.13%
Johnson Controls	JCI	64.64%	3.07%
New Flyer Industries	NFYIF.PK	43.72%	16.21%
Ormat	ORA	27.66%	0.84%
Trinity Industries	TRN	7.24%	1.87%
Warterfurnace Renewable Energy	WFIFF.PK	60.22%	4.37%
-2x  S&P Depository Receipts + 3x Cash (was SDS until Feb 13)	3x $ - 2x SPY	-72.44%	-0.18%
Total Portfolio		57.15%
Benchmarks
Standard & Poors 500 Index (S&P500)		29.07%
iShares S&P Global Clean Energy Index (ICLN)		12.14%

The somewhat cryptic last pick, "3x $ - 2x SPY" is a hedge against a possible market decline.  Rather than using a pure short, I wanted to give it approximately equal weight to the other picks.  In order to have an initial investment of $1 in each pick, including the short, I sold a hypothetical $2 worth of SPY short, but kept the $2 cash proceeds, along with an extra $1 cash allocated to the pick.  Hence that pick is a combination of $2+$1 = $3 cash and -$2 short of SPY.  (I left out a few details here for simplicity.  All the gory detail is here.) 

Outlook for 2010

In the panic of late 2008, picking good companies at reasonable prices was like shooting fish in a barrel.  Today, the world is much different, with confidence back and many investors scouring the markets for relative (if not absolute) value stocks.  My soon-to-be-published list of ten clean energy stocks for 2010 was much harder to choose, so although I expect to beat the market for a third year running, I don't expect to do so by as much as I did in 2009.   Only two of these stocks, Waterfurnace and New Flyer, made it onto the 2010 list.

I also expect the market as a whole to fall in 2010, although probably not so badly as it did in 2008.  I'll publish my list of ten clean energy stocks for 2010 in the next couple days in order to continue the tradition, despite my opinion that now is the wrong time to buy.  A better option might be to buy my list of ten clean energy stocks for 2010, but hedge the resulting market exposure with a selection of the short ideas in my Clean Energy Investing for Experts series.  For non-experts, you can simply wait in cash a few months for the market to fall.  In the stock market, avoiding the big losses is worth it even if you also miss out on the big gains.

DISCLOSURE: The author and/or his clients own AGQNF, CREE,  GE,  NFYIF, ORA, TRN, WFIFF.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:00 AM | Permalink | Comments (0)

Tom Konrad, CFA

I never thought 2009 would be a good year for risky stocks, but my readers asked for them anyway.  The market's strong third quarter have paid off for risk-takers who gambled on my 10 Green Energy Gambles for 2009.

I started out the year by providing readers with a portfolio of ten relatively conservative plays on green energy.  That portfolio was representative of how I planned to approach the market this year, and has produced stronger returns and less volatility when compared to both green energy stocks and the market as a whole.  Many of my readers are looking for big gains on little stocks, so I also provided (but did not endorse) ten such green energy gambles.

I went into some detail on each, but I generally felt that most of those stocks would benefit disproportionately from an easing of the credit crunch.  In Q1 and Q2, those gambles performed in-line with the green energy sector indexes, but the return of optimism in the third quarter has allowed these risky stocks to shoot ahead of the sector with the turbo-charged performance that I hoped they would provide.  They've even managed to pull ahead of my extremely strong conservative portfolio (by 44% to 41%.)

If the fourth quarter is anything like the third, I'd expect the portfolio to end the year with a double.  I don't expect that to happen, but I've been wrong about the length of this rally before.

The following table and graph show stock-by-stock performance for the first three quarters:

Ticker	1/9/09 close	4/9/09 close	7/13/09 close	10/8/09 close	Gains 1/9 to 10/8/09
BCON	$0.46	$0.47	$0.637	$0.686	49%
AXPW.OB	$1.20	$0.85	$1.34	$2.14	78%
VLNC	$1.77	$2.23	$1.51	$1.60	-10%
CPTC.OB	$0.30	$0.23	$0.245	$0.489	63%
EPG	$0.86	$0.34	$0.54	$0.44	-49%
EMKR	$1.43	$0.84	$1.07	$1.32	-8%
UQM	$1.72	$1.70	$2.46	$5.97	247%
CZZ	$4.18	$4.45	$5.00	$7.91	89%
RZ	$3.62	$4.13	$2.00	$1.46	-60%
ZOLT	$7.47	$7.98	$8.46	$10.62	42%
Portfolio	$1,000	$900.20	$986	$1443	44%
Benchmarks
ICLN	$21.93	$19.40	$21.01	$23.08	5%
PBW	$9.01	$8.55	$9.15	$10.81	20%

 

Benchmarks

The two benchmarks, the iShares S&P Global Clean Energy Index ETF (ICLN) and the PowerShares Clean Energy Index ETF (PBW) most likely produced such different results because 

• US-based clean energy companies received more of a boost from the ARRA or stimulus package than global firms
• The global firms in ICLN's portfolio tend to be better established and more profitable than those in PBW's portfolio, which means that ICLN will typically outperform PBW in down markets, and underperform in up markets.  This is exactly what we have seen this year, with the best performance coming from ICLN in the dismal 1st quarter, but PBW gaining ground since then.  

Compared to these two, the portfolio has done quite well.  Even in the down first quarter, the highly volatile companies in the portfolio managed to perform better than the slightly more stable companies in PBW, but they were able to take off much faster than PBW when the market turned around.

Notes Individual Stocks

With the exception of Axion Power (AXPW.OB) and a small option position on Raser Technologies (RZ), I've sold my stake in all of these, and no longer follow them.   

That said, the best place to go for information on the three energy storage stocks (Axion Power International (AXPW.OB), Beacon Power Corporation (BCON), and Valence Technology Inc (VLNC)) is John Petersen.  He recently discussed how the stocks in the energy sector were performing here. 

The best performer so far has been UQM Technologies (UQM).  In January, I said "an auto bail-out which forced the big three to produce many more hybrid and electric vehicles could prove a bonanza for UQM."  We had such an auto-bailout, but UQM's success did not come solely from government stimulus.  Rather, the stock began to take off when they announced a deal to supply drive trains for an electric sedan from Coda Automotive, and then accelerated when they received a $45m award of ARRA funds. 

A similar story to UQM was my lone nod to biofuel, Brazilian ethanol producer Cosan, Ltd.(CZZ).  I said, "Either a return to high oil prices, or a reduction in America's ethanol import duty could greatly help the stock."  Since then, there has been a lot of talk that the administration is considering ending ethanol import tariffs. The recent rise in oil prices also seems to be helping the stock.

My least successful bet has been Raser Technologies, Inc. (RZ).  I began to think the stock had fallen far enough in my six month review of these stocks, and soon after called  Raser "too cheap to ignore" with the idea that an announcement or government loan guarantees or other funding might cause the stock to take off, just as it did to UQM.  A month later, the DOE denied the loan guarantees, and I sold my stake except for a few $5 calls (one of their ships may still come in.)  I'm now even more bearish on Raser with the revelation that they were a bit overoptimistic about delivering power from low temperature geothermal sources.  Fortunately, I got out with only a small loss.

I have not been watching Composite Technology Corp (CPTC.OB), Environmental Power Corp. (EPG), Zoltek (ZOLT), or Emcore Corp. (EMKR) since I sold them.

DISCLOSURE: Tom Konrad and/or his client have positions in AXPW and RZ.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:43 PM | Permalink | Comments (3) | TrackBacks (0)

My annual green energy stock picks continue to hold up, but the Obama Effect for clean energy seems to have been lost in the summer's healthcare debate.

Tom Konrad, Ph.D., CFA

For the first 9 months of 2009,  my ten green energy stocks for 2009 are up 23.4% vs. the S&P 500, and up 20.4% over my clean energy benchmark, the iShares S&P Global Clean Energy Index (ICLN).  For the third quarter, that amounts to a loss of 1% relative to the S&P 500, and a gain of 7% relative to ICLN.

In my second quarter update, I attributed the out-performance of both clean energy in general, and my picks to the Obama Effect.  That is, green energy outperformed the market strongly in the first half of the year because of the strong political and financial support it received from the new administration and Congress.

In the third quarter, with the administration and congress distracted by the health care debate, the market as a whole made up a lot of ground against my general green energy index, but my picks were able to hold on to almost all of their gains, despite the less favorable climate.

Below is a detailed rundown of the 9 month results.  The somewhat cryptic last pick, "3x $ - 2x SPY" is a hedge against a possible market decline.  Rather than using a pure short, I wanted to give it approximately equal weight to the other picks.  In order to have an initial investment of $1 in each pick, including the short, I sold a hypothetical $2 worth of SPY short, but kept the $2 cash proceeds, along with an extra $1 cash allocated to the pick.  Hence that pick is a combination of $2+$1 = $3 cash and -$2 short of SPY.  (I left out a few details here for simplicity.  All the gory detail is here.)

Company	Ticker	Change 12/27/08 to 9/30/09	Dividend & Interest
The Algonquin Power Income Trust	AGQNF.PK	77.42%	11.16%
Cree, Inc.	CREE	144.02%	0%
First Trust Global Wind Energy ETF	FAN	37.42%	0.46%
General Electric	GE	2.82%	4.51%
Johnson Controls	JCI	50.89%	2.30%
New Flyer Industries	NFYIF.PK	26.73%	9.98%
Ormat	ORA	37.03%	0.44%
Trinity Industries	TRN	0.24%	1.40%
Warterfurnace Renewable Energy	WFIFF.PK	68.63%	3.27%
-2x  S&P Depository Receipts + 3x Cash (was SDS until Feb 13)	3x $ - 2x SPY	-54.81%	-0.17%
Total Portfolio		41.51%
Benchmarks
Standard & Poors 500 Index (S&P500)		17.13%
iShares S&P Global Clean Energy Index (ICLN)		21.11%

 

My Trades & Updates

I continue to expect a market decline, and am now more worried than 3 months ago, when I had sold most of my positions in Cree, Ormat, and General Electric.  In the meantime, in addition to increasing the overall level of market hedging for my portfolio, I sold more of my GE stake.

If you want to delve deeper, I recently published an update on the Algonquin Power Income Trust.  I'll also have an update on New Flyer Industries which will be published at the preceding link early next week (now published).  The original article has more information on the other picks.

Three months ago, I told readers, "If I had to buy any of these stocks today, it would be Trinity."  In the three months since then, Trinity has risen 29%, compared to a rise of 14% for the S&P 500, a rise of 6% for ICLN, and a rise of 11% for my portfolio as a whole  (relative to their prices at the time.)  Trinity was not the best performer for the quarter, but readers who chose to buy it then will probably be happy with the results.  

If I had to buy any of these stocks today, I wouldn't.  I'd take a position shorting the market (i.e. 3x $ - 2x SPY.)  Let's see how that works out in three months.

Other Portfolios I'm Tracking

I recently published the half year update for my quick mutual fund tracking portfolio. That portfolio had continued to outperform the mutual funds it was designed to track, and, in my investigation, I discovered it was because the portfolio had higher market risk (beta) than the funds it was drawn from.  Since I've now determined that it is not a good tracking portfolio, I don't intend to update readers on its performance again, but I may use some of the lessons learned in future portfolio design.

I also need to update my ten green energy gambles for 2009, which I intend to do (schedule permitting) about 6 months after the list was published, or around October 11.  The six month update is here.  That portfolio also continues to do well, although it is much more vulnerable to a market decline than the 10 stocks I discussed here. 

DISCLOSURE: The author and/or his clients own AGQNF, CREE, FAN, GE, JCI, NFYIF, ORA, TRN, WFIFF.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

Posted by Tom Konrad at 09:54 PM | Permalink | Comments (0) | TrackBacks (1)

Tom Konrad, Ph.D., CFA

My Quick Clean Energy Tracking Portfolio continues to outperform all benchmarks and expectations... is it luck, or did I stumble onto a better way to invest in green energy stocks?

I continue to be stunned at how the portfolio which I intended as an easy way to duplicate green energy mutual fund performance at much lower cost continues to blow those green mutual funds out of the water.  I last published an update on this portfolio at the end of May, and was shocked to find that it had beaten the funds it was intended to replicate by over 20% in 3 months.  The trend continues... it's now almost 7 months later, and the portfolio has widened its lead over the mutual funds by 30%.

Winners and Losers

In May, I hypothesized that the out performance might have been due to how I constructed the portfolio: I chose five stocks from the top holdings of the mutual funds which had performed worst over the preceding three years.  I did this because there is a fairly well-documented winner-loser effect [pdf], that shows systematic price reversals in stocks that show long-term gains or losses.  In particular, stocks showing long term losses are more likely to make gains in following years than long term winners.

I tried to test if the out-performance was solely due to winner-loser effects by going back to my original data and seeing how a portfolio constructed with winners rather than losers would fare.  To my surprise, the "winners" portfolio also significantly outperformed the mutual funds (by 10% over 3 months).  I've updated the performance of the "winners" portfolio as well, and it also has increased it's gains compared to the mutual fund portfolio, and is now outperforming by 15% over 7 months.

Winner-loser effects seem to be playing a role, but at most, they explain about a quarter of the out-performance of the "Losers" portfolio so far.  There may be other, as yet unknown, causes of the superior performance of the "Losers" portfolio.  

No matter what the cause, for winner-loser effects to explain all of the difference, the "Winners" portfolio would have to be under-performing the mutual funds by about as much as the "Losers" portfolio is outperforming.  Where did the other three quarters of the out-performance come from?  Is it just luck?

"Losers" Tracking Portfolio

Company	Shares	Price 2/27/09	Close 9/24/09	% Change
Citrix Systems (CTXS)	48	$20.58	$37.65	82.94%
Echelon Corporation (ELON)	165	$5.99	$12.82	114.02%
SunTech Power (STP)	162	$6.09	$15.96	162.07%
Cemig (CIG)	94*	$10.47*	$14.66	40.02%
Vestas Wind Systems (VWSYF.PK)	22	$44.85	$69.50	54.96%
Total		$4998.65	$9,415.06	88.35%

*Dividend and split adjusted.

"Winners" Tracking Portfolio:

Company	Shares	Price 2/27/09	Price Close 9/24/09	% Change
LSB Industries (LXU)	114	$8.66	$15.34	77.14%
Echelon Corporation (ELON)	165	$5.99	$12.82	114.02%
First Solar Inc (FSLR)	9	$105.74	$150.62	42.44%
South Jersey Industries (SJI)	28*	$35.11*	$34.83	-0.80%
American Superconductor (AMSC)	23	$13.46	$29.73	120.88%
Total		$4975.30	$8,394.90	71.10%

*Dividend adjusted.

Mutual Fund Portfolio

Mutual Fund	Shares	Price 2/27/09	Close 9/24/09	% Change
CGAEX (Calvert)	122.19	$6.82	$10.29	51%
ALTEX (First Hand)	171.47	$4.86	$7.20	48%
GAAEX (Guinness Atkinson)	205.76	$4.05	$6.49	60%
NALFX (New Alternatives)	29.75	$26.68	$41.51	56%
WGGFX (Winslow Green Growth)	111.71	$7.46	$12.28	65%
Total		$4999.98	$7,794.71	56%

The Other Three Quarters

Since I did the first update, I've come up with three hypotheses to explain the phenomenon:

1. Higher Beta: The stocks I picked may be more sensitive to market moves than the mutual funds as a whole.  Since the market has been rising, the "Winner" and "Loser" portfolios have been rising more.
2. Cleantech sectors: My picks put more emphasis on certain Cleantech sectors than do the funds; perhaps the overweight sectors have driven the out-performance.
3. Mutual Fund Manager skill: The mutual fund managers are likely to hold more of their favorite stocks than they hold of other stocks.  If they each have a few good ideas, then I am taking advantage of those good ideas by selecting my portfolios from the mangers' top five holding.  The high diversification of the mutual funds keeps mutual fund shareholders from fully benefiting from their managers' skill.

Below, I've graphed the performance of the "Winner" and "Loser" portfolios against several possible benchmarks: the blended performance of the mutual funds, the S&P 500 index, and five green energy ETFs (ICLN, QCLN, PBW, PBD, and GEX.)  Since the ETFs each track a difference index for the Cleantech sector, it's reasonable to assume that they represent the performance of the average Cleantech stock.

 

This promises to be a fairly long investigation, so I plan to break it up into a series that I'll publish over the next few days.  I'll add links to the articles here as I publish them.  The first one, in which I look into my "Higher Beta" hypothesis, will be published here shortly.

It could turn out that none of my hypotheses explain the out-performance we've seen.  In that case, it could be luck, or it could be something I have not thought of.  

Easy Green Money... Too Good to be True?

I'm hoping that I find some evidence for mutual fund manager skill.  To do that, I'll need to eliminate the other possibilities. If I can, we can expect this method to produce out-performance in the future, and under any market condition.  In other words, my attempt at a tracking portfolio might just be a better way to play green stocks.  An easy way to play green energy, without having to pay high fees?  It sounds to good to be true, but in the wild west of green energy investing, in might last for a year or two.

What do you think?  Is there  something else I should investigate?  If so, please leave your suggestion in the comments.

DISCLOSURE: Tom Konrad and/or his clients own LXU, ELON, and AMSC. The Guinness Atkinson Fund is an advertiser on his website, AltEnergyStocks.com

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

Posted by Tom Konrad at 06:57 AM | Permalink | Comments (0) | TrackBacks (4)

Index to the Clean Energy Shopping List Series, and a few Bonus Stocks.

Tom Konrad, Ph.D., CFA

I started my "Clean Energy Shopping List" series on the premise that the market was near a peak, and it would be better to wait than to buy now.  My market call turned out to be premature (or just plain wrong... time will tell) and the market has since advanced more than I thought it would.  But I feel the challenges facing our economy and financial system are too grave not to bring down the market from its current heights eventually, so each rise simply makes me more bearish.

However, I feel the shopping list series is getting tired (or at least I'm getting tired of it), so I'm going to end it now, with just a list of stocks in the series and the articles that cover them.  In addition, I'll throw in the few companies I've been thinking about using but have not made it in so far. 

Article	Companies
Clean Transportation Stocks	NFYIF.PK, PRPX, FGP.L, WAB, PTRP
Energy Efficiency stocks	ERII, LXU, WFFIF.PK, FLIR, CREE
Electric Transmission Stocks	BGC, ABB, PIKE, MTZ, PWR
Landfill Gas and Geothermal Stocks	WMI, VE, ORA, RZ, NGPLF.PK
Solar Stocks	SMLNF.PK,  SATC, PWER, STG.V, AEIS
Smart Grid Stocks	BCON. AMSC, ELON, ITRI, TLVT

It's also worth noting that soon after I included Raser Technologies in my Geothermal Shopping list, I decided that the sale was already on, and decided to buy now.  The company is holding above the $2.00-$2.05 range at which I bought it, but it will be interesting to see if it continues to hold if the downturn I expect materializes.

Bonus Picks

All along, I've been thinking about writing a list of battery stocks I like, but John does that so well, I've decided just to reference him.  Among the battery stocks John follows, the ones I'll be looking to scoop up if they fall in a general market decline are the ones he refers to as "Cheap" (in reference to the value of their products, not necessarily the stock prices.) I like both the "Cheap Sustainable" group that can fund their operations out of existing cash flow, and the "Cheap emerging" ones developing new inexpensive battery technology.  Here are John's lists of battery stocks.

There are also a couple other efficiency stocks that didn't make the list... I was thinking about doing a second list of five, but instead I'll just give you three honorable mentions here: Owens Corning (OC), Linear Technology Corp (LLTC), and Power Efficiency Corp (PEFF.OB).

Thaaat's All Folks!

For a guy who said at the start of the year that I wanted to reduce my individual positions to no more than 50 companies, I clearly have conflicts: I just listed 39 companies I'd like to buy (at the right price.)  At least I already own 2/3 of  the list.  But it's clearly time to stop while I'm behind.  

I just noticed I didn't list any wind stocks.  There's always FAN...

DISCLOSURE: Tom Konrad and/or his clients own AMSC, ELON, ITRI, TLVT, SATC, STG., WMI, VE, ORA,  RZ,  NGLPF, BGC, ABB, SI, PIKE, MTZ, PWR, ERII, LXU, WFIFF, FLIR, CREE, NFYIF, PRPX, OC, LLTC, and FAN.  PEFF is an advertiser on AltEnergyStocks.com


DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 06:27 PM | Permalink | Comments (4) | TrackBacks (0)

Tom Konrad, Ph.D., CFA

I never thought 2009 would be a good year for risky stocks, but my readers asked for them anyway.  So far, my risk taking readers have not been burnt too badly, and the portfolio as a whole continues to track its benchmarks.

In my first quarter update for my green energy gambles for 2009, I noted that the portfolio had lost about 10%, between the benchmark returns (-12% and -5%), but not very impressive.  Since then, the portfolio as a whole has gained a little ground, and is almost exactly midway between the benchmarks.

The following table shows stock-by-stock performance.

Ticker	Price (1/9/09 close)	Price (7/13/09 close)	Percent gain
BCON	$0.46	$0.637	38.5%
AXPW.OB	$1.20	$1.34	11.7%
VLNC	$1.77	$1.51	-14.7%
CPTC.OB	$0.30	$0.245	-18.3%
EPG	$0.86	$0.54	-37.2%
EMKR	$1.43	$1.07	-25.2%
UQM	$1.72	$2.46	43.0%
CZZ	$4.18	$5.00	19.6%
RZ	$3.62	$2.00	-44.8%
ZOLT	$7.47	$8.46	13.3%
Portfolio	$1,000	$986	-1.4%
Benchmarks
ICLN	$22.05	$21.01	-4.7%
PBW	$9.01	$9.15	1.6%

In January, I made two predictions about this portfolio:

1. The portfolio as a whole would fall, unless financial market conditions improve rapidly.
2. All of these stocks have a chance of spectacular returns.

Prediction #1 continues to be on target.  As of July 13th, the market as a whole is basically flat for the year, and the portfolio is down a smidgeon.  

Prediction #2 is harder to judge.  The best performing stocks, Beacon Power (BCON) and UQM Technologies (UQM), are up only 38.5% and 43.0%, respectively.  While these are not bad returns, after six months, my more conservative 10 Clean Energy Stocks for 2009 best performers were up 73% (Algonquin Power Income Fund (AGQNF.PK), with dividends) and 60% (Cree Inc (CREE)).  

On the other hand, since that portfolio was up 27.5% overall, or 29% more than this one, the best two performers among these gambles did relatively much better than their peers.  That's clearly small consolation if you bought this portfolio rather than the less exciting one with my more conservative picks, which outperformed in the harsh economic climate.

I continue to own small stakes in a few of these, in conjunction with covered calls.  At current prices, Raser Technologies (RZ) is my favorite, which is why it made my Clean Energy Stocks Shopping List: Landfill Gas and Geothermal.  However, it's still a risky stock, and could as easily go down as up.  

Given my bearish short term expectations, I expect the portfolio as a whole will end the year lower than it is today.  I'm still willing to buy most of these at the right price, but, for most, the right price is significantly lower than the current price.

DISCLOSURE: Tom Konrad has positions in AXPW, EMKR, RZ, and ZOLT.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 08:03 PM | Permalink | Comments (0) | TrackBacks (0)

The Obama Effect continues to make my annual ten picks shine.

Tom Konrad, Ph.D., CFA

This is the second performance update on my 10 Clean Energy Stocks for 2009.  In the first quarter, the model portfolio was up a tiny 1.6%, but still managed to beat the benchmarks handily (by 8% and 9%), since they were both down significantly.

In the last three months, the market has turned around, logging significant gains, but my ten picks have continued to outperform.

Company	Ticker	Change 12/27/08 to 7/2/09	Dividend & Interest
The Algonquin Power Income Trust	AGQNF.PK	+64.97%	8.17%
Cree, Inc.	CREE	+59.96%
First Trust Global Wind Energy ETF	FAN	21.88%	0.46%
General Electric	GE	-28.24%	3.88%
Johnson Controls	JCI	22.14%	1.53%
New Flyer Industries	NFYIF.PK	+26.23%	5.98%
Ormat	ORA	+33.27%	0.44%
Trinity Industries	TRN	-21.97%	0.93%
Warterfurnace Renewable Energy	WFIFF.PK	+17.77%	2.16%
-2x  S&P Depository Receipts + 3x Cash (was SDS until Feb 13)	3x $ - 2x SPY	-14.45%	-0.16%
Total Portfolio		27.05%
Benchmarks
S&P 500		2.59%
iShares S&P Global Clean Energy Index (ICLN)		13.95%

In the second quarter, the portfolio has added 16.5% relative to the broad market index, and 4.1% relative to the clean energy ETF, for a total of 24.5% and 13.1% out performance for the first half.

I continue to attribute my out performance to the Obama Effect, and the fact that clean energy has been outperforming the market as a whole supports this hypothesis.  If it's not just luck, the reason I've been beating the clean energy ETF is also probably due to the Obama effect: my pick are concentrated on sectors which are not only green, but likely to deliver the biggest boost to jobs.

My Trades

As readers are well aware, I don't expect market gains to continue, and have been moving into cash.  I got called out of most of my Cree position, as well as a little of my FAN, shed much of my Ormat position as well, and managed to lighten up on GE when it hit $14.50, but I still like all four companies, and will buy again when I feel the price is right.  The others I've been holding, although I sold some calls on Johnson Controls.  

If I had to buy any of these stocks today, it would be Trinity.  

Despite all this trading, I'm keeping this model portfolio as it is.  I expect these 10 to continue to outperform, even if (as I expect) both the market and this model portfolio head down in the third quarter.

Up Next

Stay tuned for updates on my Ten Clean Energy Gambles for 2009 (now slightly outperforming the benchmarks - Q1 update here) and my Quick Clean Energy Mutual Fund Tracking Portfolio (building on previous gigantic gains - Q1 update here) as these come up on 6 months after the articles were published.

DISCLOSURE: The author and/or his clients own AGQNF, CREE, FAN, GE, JCI, NFYIF, ORA, TRN, WFIFF.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

Posted by Tom Konrad at 12:19 PM | Permalink | Comments (2) | TrackBacks (0)

Charles Morand

There was an interesting post in Barron's tech trader daily on Monday discussing how solar PV stocks are coming under pressure, in part because product prices are falling further than expected. About a month ago, I discussed the potential return effect for households in given states of removing the $2,000 ITC cap. Such measures, it seems, are failing to kickstart demand, and solar recovery might end up being significantly slower than many had been expecting.

Case in point, since hitting a high of $11.49 on June 11, the TAN ETF is down about 12%. KWT, for its part, hit a high of $17.35 on June 10 and is down 11% since. The S&P 500, in comparison, is down about 4% from its June 12 high. While both TAN and KWT are up >30% on the S&P 500 over the past six months, neither is up on the benchmark index over the past 12 months.

I took a long position in TAN in early March at $5.00 when an automatic buy order I had had on it for a while kicked in. At the time, I stated:

This is still very much my belief. I took some profit at $10.00 when an automatic sell order kicked in, and I'll gladly purchase a little more if it goes back down substantially. It must be said, however, that I use sell orders at set return levels to protect profit and not in an attempt to time the market.

Overall, those who are investing in one the two solar ETFs today and hanging on will be happy they did so two years from now and beyond. The road there, however, will be fraught with volatility.

DISCLOSURE: The author is long TAN.

Posted by Charles Morand at 11:21 PM | Permalink | Comments (2)

My Quick Clean Energy Tracking Portfolio has solidly outperformed its benchmark... was it bad design?

Tom Konrad, Ph.D.

On February 27, I used the top holdings of the (then six) clean energy mutual funds to design a tracking portfolio intended to replicate the performance of those funds at much lower cost.  If my methodology was sound, the tracking portfolio should produce returns within the range of returns of the mutual funds on which it was based. If all went well, the returns would be at the upper end of that range because of the way I chose to emphasize stocks which had underperformed over the previous three years.

Tracking Portfolio

Company	Shares	Price 2/27/09	Price 5/27/09	% Change
Citrix Systems (CTXS)	48	$20.58	$30.23	45.0%
Echelon Corporation (ELON)	165	$5.99	$7.12	17.3%
SunTech Power (STP)	162	$6.09	$15.46	150.6%
Cemig (CIG)	94*	$10.47*	$12.67	19.4%
Vestas Wind Systems (VWSYF.PK)	22	$44.85	$75.10	65.8%
Total		$4998.65	$7973.54	59.5%

*Dividend and split adjusted.

And here is the performance of the five remaining clean energy mutual funds:

Fund	Shares	Price 2/27/09	Price 5/27/09	% Change
CGAEX (Calvert)	122.19	$6.82	$9.58	40.5%
ALTEX (First Hand)	171.47	$4.86	$6.47	33.1%
GAAEX (Guinness Atkinson)	205.76	$4.05	$6.13	51.4%
NALFX (New Alternatives)	29.75	$26.68	$36.02	28.6%
WGGFX (Winslow Green Growth)	111.71	$7.46	$10.35	38.8%
Total		$4999.98	$6922.87	38.5%

As you can see, the tracking portfolio outperformed all the mutual funds in question, with the portfolio's performance 9.4% better than the best performance (Guinness Atkinson) of the five funds, and 21% better than the average of the five funds.  

Oops

Out performance for a tracking portfolio is not necessarily good news: it may be a sign that the methods used to construct the tracking portfolio are flawed, and the portfolio may be as likely to produce underperformance as out performance.  Hence. we should ask:

1. Is the out performance statistically significant?
2. If yes, is it caused by some systematic factor?
3. If a factor or factors can be identified, are they likely to produce out performance in all market conditions, or will they produce underperformance under different market conditions?

Significance

After only 3 months, it's a little early to draw any conclusions, but the standard deviation of the five mutual fund returns is only 8.6%, so the "Tracking" portfolio's performance was 2.43 standard deviations above the mean (p-value = 2.43).   We can be 99% certain that the returns of the tracking portfolio do not come from the same distribution as the returns of the mutual funds, assuming the fund returns follow a bell curve.

In other words, this is a significant result, and deserves further investigation.

Possible Causes

My first thought was that the out performance was due to my choice to pick the stock in each sector with the worst three year performance record, in order to take advantage of the tendency of long-term losers to outperform in subsequent periods.  This is a strategy I've discussed before in my article on selling cash covered puts.  In order to test this theory, I took a look at what would have happened if I'd chose the best performing stock in each sector, rather than the worst performing stock.  The results are shown in my "Winners Portfolio" below:

Winners Portfolio:

Company	Shares	Price 2/27/09	Price 5/27/09	% Change
LSB Industries (LXU)	114	$8.66	$15.09	72.0%
Echelon Corporation (ELON)	165	$5.99	$7.12	17.3%
First Solar Inc (FSLR)	9	$105.74	180.69	68.6%
South Jersey Industries (SJI)	28*	$35.74*	$33.35	-7.9%
American Superconductor (AMSC)	23	$13.46	$26.47	94.1%
Total		$4975.30	$7387.38	48.5%

*Dividend adjusted.

The Winners Portfolio also outperformed the mutual funds, although not at a statistically significant level.  Nevertheless, if the out performance of the tracking portfolio were to be described only by winner/loser effects, we would expect the Winners Portfolio to under-perform the funds.  Although it seems like winner/loser effects might be part of the explanation, they are far from complete.

Other Potential Biases

Two other biases to consider are

1. The sector weights in my tracking portfolio are 20% in each sector, which does not mirror the funds' sector  weights (and underemphasizes Wind and Solar.)
2. I chose the stocks from the top five holdings of each fund, rather than the complete holdings of all the funds.

Upon examination, explanation #1 fails, since the four stocks (Suntech, Vestas, First Solar, and American Superconductor) had better performance than either the tracking or winners portfolios as a whole.  If I had increased the allocation to any of these stocks, the new portfolios would have performed even better than these two.

The explanation I'm left with is #2.  The top five holdings of the funds are those stocks that, for whatever reason, the funds feel most comfortable holding in large quantities.  If we assume that the fund managers are good enough at their jobs that their judgments are useful, then concentrating on the top five holdings might mean that we are simply benefiting more from the fund mangers' skill (by holding a relatively undiversified portfolio) than investors in the funds are themselves.  However, there is some question as to whether most mutual fund manages add value.  On the other hand, research shows that mutual fund disclosure does hold useful information on outperforming the market.

On the other hand, mutual funds might be holding more of certain stocks because of factors other than expectations of future performance.  For instance, they might only want to hold large quantities of companies which are more liquid, are larger, or are currently more profitable or growing faster.  To the extent that any of this is true, we should be concerned that while the market has favored these preferred types of companies over the last three months, that could change at any time, and cause under-performance in the future.

Conclusion

My guess is that my focus on only the top five holdings of each fund caused much of the significant tracking error.  To avoid this tracking error in the future, I would need to look at the funds' full portfolios. 

I will revisit this tracking portfolio again next quarter to see if it continues to outperform, or if the trend reverses itself, and to see if I can draw any further conclusions. 

DISCLOSURE: Tom Konrad and/or his clients own LXU, ELON, and AMSC. The Guinness Atkinson Fund is an advertiser on his website, AltEnergyStocks.com

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

 

Posted by Tom Konrad at 11:08 PM | Permalink | Comments (0) | TrackBacks (0)