Tom Konrad CFA
2015 got off to a rocky start for both the broad market in general, as well as clean energy. My Ten Clean Energy Stocks for 2015 model portfolio dd not fare any better, since the main bright spots for the portfolio were its three Canadian stocks, but these were dragged down by the 9% decline in the Canadian dollar for the month.
For the month, the model portfolio was down 3.6% in local currency terms, but fell 7.2% in dollar terms. For comparison the broad universe of US small cap stocks was down 3.3% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, was down 6.6%.
This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT).
PBW (-6.6%) is a good benchmark for the value and growth stocks, which fell 6.6% in local currency terms and 6.8% in dollar terms. The six income stocks fell 1.6% in local currency terms and 7.4% in dollar terms.
All three of the Canadian stocks mentioned above are income stocks, as is the lone European stock, which was hurt by the 6.8% decline in the Euro compared to the dollar. I have searched in vain for good benchmarks for equity income portfolios, but have not found any that do not contain some aspect of active management, making them poor benchmarks for differentiating between category performance and stock picking skill. The best I could come up with are JXI, the iShares Global Utilities index, since many income stocks are also global utilities. Global utilities are a very defensive sector, with JXI rising 1% for the month.
To date, there are no income oriented clean energy ETFs or mutual funds, so I instead settled on the Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), a fossil-free equity income strategy which I co-manage. GAGEEIP fails several tests of a good benchmark. Most importantly, it is actively managed in large part by me, meaning I’m simply comparing one of my strategies to another. It also is not a pure equity strategy, in that covered call options are used to reduce risk and increase income. The best benchmarks are easily investable, and GAGEEIP is not yet available to investors except as separately managed accounts through Green Alpha Advisors. For January, GAGEEIP fell 0.7%. The large difference between its performance and the income stocks in the model portfolio is mostly due to better diversification, and the advantage of the covered call strategy in a down market.
The chart below gives details of individual stock performance, followed by a discussion of January company news for each stock.
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.
Income Stocks
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
1/31/2015 Price: $13.70. YTD Dividend: $0. YTD Total Return: -3.7%.
Sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong did not announce any significant news for the quarter. Analysts at Roth Capital initiated the stock with a very bullish “buy” rating and a $19 price target. Zacks upgraded the stock from “underperform” to “neutral,” and now has a $14.60 price target on HASI.
2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72 (4.8%). Beta: 1.54. Low Target: $10. High Target: $30.
1/31/2015 Price: $11.44. YTD Dividend: $0. YTD Total Return: -23%.
International manufacturer of electrical and fiber optic cable, General Cable Corp. was already cheap as the month began, and sold off by more than a quarter in mid-January before staging a slight recovery to a loss of 23% at $11.44 at the end of the month. The decline seemed to halt when S&P removed its negative credit watch for the company’s bonds. Stock analysts were more bearish. Analysts and Longbow Research downgraded BGC from buy to neutral, those at DA Davidson dropped their price target from $14 to $12, while Stifel Nicolaus cut its price target to $13 from $17.
The company will release fourth quarter earnings after market close on February 4th.
3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48. Annual Dividend: C$0.77 (6.7%). Low Target: C$10. High Target: C$15.
1/31/2015 Price: C$12.74. YTD Dividend: C$0.064 YTD Total C$ Return: 11.0%. YTD Total US$ Return: 1.2%.
Analysts at Scotiabank increased their price target on Canadian yieldco TransAlta Renewables from C$13 to C$14, and this may have contributed to the stock’s 11% local currency gain for the month.
4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. Annual Dividend C$0.30 (9.4%). Low Target: C$3. High Target: C$5.
1/31/2015 Price: C$3.37. YTD Dividend: C$0. YTD Total C$ Return: 5.3%. YTD Total US$ Return: -4.0%.
Insiders at Canadian power producer and developer (yieldco) Capstone Infrastructure continue to purchase the stock on the open market. Their conviction, along with the generous dividend yield make me consider this the best risk-adjusted stock value available in the market today.
5. New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price: C$13.48. Annual Dividend: C$0.585 (4.3%) Low Target: C$10. High Target: C$20.
1/31/2015 Price: 13.72$. YTD Dividend: C$0.04875 YTD Total C$ Return: 1.8%. YTD Total US$ Return: -7.2%.
Leading North American bus manufacturer New Flyer announced its fourth quarter deliveries and backlog. Orders remain strong, and the company continues to rebuild its b
acklog of firm orders as the industry recovers from a prolonged downturn, and management expects that recovery to continue.
6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014 (4.0%). Low Target: €12. High Target: €20.
1/31/2015 Price: €13.50. YTD Dividend: €0. YTD Total € Return: -0.7%. YTD Total US$ Return: -7.4%.
The main news for bicycle manufacturer Accell Group was the decline of the Euro, which not only hurt the returns of US shareholders, but may eventually lead to price hikes from some of its European customers due to the increased price of parts sourced from Asia when bought in Euros. The flip side of this coin is that the strong dollar may help the company in its efforts to spread the adoption of e-bikes on this side of the Atlantic.
Value Stocks
7. Future Fuel Corp. (NYSE:FF)
12/31/2014 Price: $13.02. Annual Dividend: C$0.24 (1.8%). Beta 0.36. Low Target: $10. High Target: $20.
1/31/2015 Price: $10.99. YTD Dividend: $0. YTD Total Return: -15.6%.
Lee Mikles resigned as President of specialty chemicals and biodiesel producer FutureFuel, but will remain as a member of the board, and the retirement was not the result of a dispute, but for personal reasons. Analysts at Roth Capital maintained their $19 price target and buy rating.
8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35. Annual Dividend: $0. Beta: 0.52. Low Target: $5. High Target: $20.
1/31/2015 Price: $9.58. YTD Total Return: 14.7%.
Rail and solar investment trust Power REIT posted the transcript of the oral argument for summary judgement in its civil case with its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) to its website. This argument did not seem to include anything which was not already in the written arguments, but the stock has rallied.
9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00. Annual Dividend: $0. Beta: 1.36. Low Target: $6. High Target: $16.
1/31/2015 Price: $5.83. YTD Total Return: -16.7%.
Analysts at Northland Securities began coverage on energy service contractor Ameresco with an outperform rating. The stock’s decline seems to be due more to the general market decline than news.
Growth Stock
10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $6.50. Annual Dividend: $0. Beta: 0.78. Low Target: $5. High Target: $20.
1/31/2015 Price: $5.87. YTD Dividend: $0. YTD Total South African Rand Return: -9.0%. YTD Total US$ Return: -9.7%.
Vehicle and fleet management software-as-a-service provider MiX Telematics did not release any significant news.
Summary
In January, we saw a number of already very cheap stocks get even cheaper. I thought the start of the year an excellent time to initiate a position in any of these, and now I’m even more convinced.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC, RNW/TRSWF. I am the co-manager of the GAGEEIP strategy.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
