by Tom Konrad, Ph.D., CFA

Of the few survivors of the dot com bust, Ebay (EBAY) is a perennial also-ran.  It owned the market for consumer-to-consumer (C2C) transactions in 2000, but has since repeatedly lost market share.  Nevertheless, the company remains a profitable business that enables the sustainable reuse of easy to ship items while returning cash to investors.

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The Competition for Sellers

In the early 2000s, Ebay lost sellers to Amazon’s (AMZN) marketplace, which had the advantage of getting listings in front of a larger group of buyers, and has since added more services for sellers, such as delivery services through Amazon’s impressive logistics arm.  More recently, specialist competitors like Etsy (ETSY) for crafts , and PoshMark for fashion have attracted younger users who prefer an app-based interface.

Many sellers prefer Ebay for its lower fees compared Amazon and other competitors, and its pure customer to customer model means that it has no inventory or warehouses, and its operations are not disrupted by trying to maintain social distancing.   Other sellers list on multiple platforms, but offer better prices on Ebay because of the lower transaction fees.

This is why I believe that social distancing is an opportunity for Ebay to claw back some market share from Amazon.  The stories of third party sellers being second class citizens on Amazon’s platform have been prevalent for years, most notably Amazon using its data to directly compete with third party sellers in any category that it starts to see as particularly profitable.  Sellers can succeed quickly through access to Amazon’s legion of buyers on its Marketplace, but if they become too successful, they will likely find themselves competing with Amazon itself.

Sellers discovered another problem with their reliance on Amazon when the company decided to prioritize the delivery of “essential” items in March.  While prioritizing life saving items over toys and knick-knacks is likely a good use of Amazon’s overtaxed warehouse workers, this is small consolation to a small online seller who needs the income to buy their own essential items.  These frustrations will likely lead sellers to be less likely to trust all their eggs to Amazon’s basket.

Looking Forward

Ebay’s revenues, and number of sellers and buyers have been basically flat in recent years, and the company did not expect that to change when it issued its guidance for 2020 at the end of January.  The company did expect single digit earnings per share growth, driven mostly by share repurchases.

Those share repurchases and the new dividend were motivated by activist investors who have forced the company to start returning value to shareholders in the absence of growth.  The company now has a new CEO and two new board members nominated by the activists.  They have also led Ebay to consider the sale of some of its properties, including the very fortuitously timed sale of StubHub for $4.05 billion (approx $5/share) in February.  Further shoring up the balance sheet, Ebay followed this sale by refinancing and extending the term $1 billion of its senior unsecured debt with lower interest notes due in 2030.

Before the crisis, the expectation had been that Ebay would use its strong cash position to invest in its platform, and accelerate its stock buybacks.  The new reality means that Ebay is in a good position to be a consolidator by buying up less well prepared rivals.

Sustainability

For me, “Reduce, Reuse, Recycle” is not just an alliterative list of sustainable actions which I incorporate in my personal life, it’s also a list of investing themes I try to incorporate in my portfolio.  For reduce, I have stocks that incorporate energy efficiency like Hannon Armstrong (HASI) and Ameresco (AMRC).  For recycle, I have Umicore (UMICF, UMICY, UMI.BR), Schnitzer Steel (SCHN), and Greystone Logistics (GLGI).  The essentially anti-consumerist nature of reuse makes it a particularly difficult investing theme to participate in.

I’ve wanted to include Ebay or another C2C marketplace as the first “Reuse” stock in my portfolio for a long time, but until recently, Ebay’s valuation and lack of dividend have kept me away.  The recently initiated dividend and stock decline have changed that.  Combine that now with potential opportunities to claw back market share from Amazon and potentially purchase distressed rivals, and I’m buying.

Or at least I’m selling cash-covered puts on Ebay.  I like to think of buying a stock as a bet that it will go up, or, if it doesn’t, that the dividend will exceed any decline.  Selling a cash-covered put, or buying the stock and selling a covered call are similar strategies that I think of as bets that the stock will not fall permanently.  If the stock falls below the option strike price, the investor will own the stock at a cost below what it was trading at when the bet was made.  If the stock rises, the investor keeps the option premium and cash.

In terms of Ebay’s prospects, the company is cash rich, and its operations are unlikely to be disrupted by the pandemic.  It may even see some upside.  The loss of income for too many people in this crisis will lead some to explore new ways to earn cash.  Selling off unneeded stuff on online platforms is an easy and quick option, especially people who want to avoid in person transactions.

Trading

Good valuation, a strong balance sheet, opportunities arising from people staying at home, and overall sustainability all led me to use a cash covered Ebay put as a new position in my 10 Clean Energy Stocks model portfolio at the start of the month.

The market and Ebay stock fell the following day, and have since recovered, so readers who follow the model portfolio would have had an opportunity to make the trade.  If you missed that window, I expect the market to remain volatile in both directions for months to come as investors sort out what this pandemic and the response to it mean for the economy.

It is that expected volatility that leads me to prefer cash covered puts to the direct purchase of stocks in current market conditions.  If your account does not have sufficient options permission to sell cash covered puts, purchasing the stock and selling a covered call has the exact same risk/reward profile.

If you do not have options permission at all, watching several stocks you think are good prospects and starting with a small position which you increase if the stock falls is probably the best option.  Unfortunately, that strategy is difficult for anyone who does not pay daily attention to the market.

Disclosure: Long HASI, EBAY, UMICF, SCHN.  Small long positions in AMRC and GLGI.

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.

The post Ebay: A Sustainable Social Distancing Stock appeared first on Alternative Energy Stocks.

Energy efficiency stocks are publicly traded companies using a wide range of technologies to deliver the same energy services using less energy in the built environment. This includes efficient lighting such as LED lighting stocks, insulation, efficient motors, efficient appliances and appliance replacement services, sensor and control technologies, the internet of things, efficient power conversion and generation, and energy efficient design, construction, and retrofits.

See the list of efficient vehicle stocks and alternative transportation stocks for companies reducing energy used in transportation.

This list was last updated on 7/20/2022.

Acuity Brands(NYSE:AYI)
AIXTRON SE (AIXA.DE)
Ameresco, Inc. (AMRC)
Appliance Recycling Centers of American (ARCI)
Aspen Aerogels, Inc. (ASPN)
Carmanah Technologies Corporation (CMH.TO, CMHXF)
ClearSign Combustion Corporation (CLIR)
Compagnie de Saint-Gobain S.A. (SGC.PA, CODGF)
Cree, Inc. (CREE)
Energy Focus (EFOI)
Energy Recovery (ERII)
EPISTAR corporation (2448.TW)
FLIR Systems, Inc. (FLIR)
Hannon Armstrong (HASI)
Kingspan Group plc (KGP.L)
Koninklijke Philips N.V. (PHG)
Kontrol Energy (KNR.CN, KNRLF)
Lighting Science Group Corporation (LSCG)
Lime Energy (LIME)
LSB Industries, Inc. (LXU)
LSI Industries Inc. (LYTS)
Neo-Neon Holdings Limited (1868.HK)
OMRON Corporation (6645.T, OMRNF, OMRNY)
Orion Energy Systems, Inc (OESX)
Owens Corning (OC)
Power Integrations, Inc. (POWI)
Revolution Lighting Technologies, Inc. (RVLT)
ROCKWOOL International A/S (ROCK-B.CO, ROCK-A.CO, RKWBF)
Rubicon Technology, Inc. (RBCN)
SemiLEDs Corporation (LEDS)
Universal Display(OLED)
Veeco Instruments Inc. (VECO)
Waturu Holding A/S (WATURU.CO)
Willdan Group, Inc. (NASDAQ: WLDN)
Zumtobel Group (ZMTBF, ZAG.VI)

If you know of any energy efficiency stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

The post List of Energy Efficiency Stocks appeared first on Alternative Energy Stocks.

Tom Konrad, Ph.D., CFA

2016 was generally a good year for the stock market, but the average clean energy investor did not share in the gains.  Clean energy investors naturally gravitate toward exciting stocks developing solar and, more recently, electric vehicles.  These technologies are bringing great benefits to the planet and customers (including me- I installed a solar array on my home in in 2014, and my wife and I just bought a Toyota Prius Prime plug-in.) 

Investors’ lousy returns are due to a common problem in sectors with rapidly improving technology: Competition within the industry constantly undermines profitability.  I’ve been warning about this problem since 2009, and I believe that this awareness is a large part of the reason that my “10 Clean Energy Stocks” model portfolios have outperformed the most widely held clean energy ETF, PBW, in every year except 2013.  Over the nine model portfolios (2008 to 2016) have had positive returns in six of those years, compared to just two (2009 and 2013) for PBW.

2016 was no exception to this trend, with the Ten Clean Energy Stocks for 2016 model portfolio up 20%, while PBW fell 22%.  Again, the culprit was solar, with the industry suffering from overcapacity and rapidly falling module prices.  These low solar module prices are great for the planet and have made new solar farms able to compete with fossil generation purely on price, but they lead to non-existent profits for solar companies and investors.

With this backdrop, the list has increasingly featured a new class of stocks, Yieldcos.  Yieldcos are the customers of wind and solar manufacturers because they invest in wind and solar farms.  As an added bonus, they pay out most of their cash flow in the form of dividends to investors.  Given my focus on Yieldcos and other green income stocks, using the beleaguered PBW as a benchmark for my list is increasingly unfair.  Fortunately, a Yieldco ETF (YLCO), launched in May 2015.  In 2016, I used YLCO as a benchmark for the seven income stocks in the list, and PBW as the benchmark for the remaining three.  The benchmark for the whole model portfolio was a 70/30 weighted average of the returns of the two.

As you can see in the chart above, the change in benchmark did not prevent my model portfolio from producing a total return that was a full 24% ahead of its benchmark, but at least the comparison was fair.

The Green Global Equity Income Portfolio

Also shown in the chart is the Green Global Equity Income Portfolio, a private strategy I have been managing in separate accounts since the end of 2013.  I’ve been exploring options for bringing this strategy to the public for the last year.  Despite an excellent track record (annualized returns of 10.6% since inception) I have not yet found a mutual fund company willing to take it public. There is also a hedge fund style version of the strategy which can use shorting, uncovered put selling, and leverage.  This version of the strategy has produced a 13.4% annualized return over three years.

While GGEIP is not yet available as a mutual fund, I created a long-only version on the Motif platform, the Green Equity Income Motif 2016 last year.  Since GGEIP is an active strategy, I plan to launch a new version to reflect portfolio changes at least once a year. 
If you’re interested in trying Motif , you can get 3 months of free trading at this link.

Investment Advisor Jan Schalkwijk, CFA at JPS Global Investments now offers a more frequently re-balanced version of GGEIP to his clients.  The Folio version now has a year’s track record, and it is performing in line with the other versions of GGEIP. 

So far, this is just a model without client money, so the track record does not include trading costs or fees, both of which are likely to reduce real-world performance.  When trading real money, the actual trade prices can be materially different from those of a model portfolio… just as people’s results following my model portfolio will be significantly different from the numbers you find here.  And, of course, past performance is no guarantee of anything, let alone future results.

If you’re interested in investing in the 10 Clean Energy Stocks for 2017 model portfolio (whatever the fture results may be), I just made it available on the Motif platform as well (or you can buy the stocks individually through your broker.)

How The Stocks Fared

The following chart (click for full-size version) shows how the individual stocks fared.  The green (yellow) bars show
the High (Low) Target I gave for each at the start of the year.  A few green bars are missing where the high target is off the scale of the chart.  I predicted that most of the stocks would end the year between the high and low targets.  Only Enviva ended outside the range, finishing about 1% above the high target.

In the discussion below, I’ll look at how each stock performed for the year, and why.  For those stocks not included in 10 Clean Energy Stocks for 2017, I’ll talk discuss my outlook and why they were dropped.  My outlook for stocks included in the 2017 list can be found here.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  12/31/15 Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
12/31/16 Price:  $18.99.  2016 Dividend (Yield): $1.58 (7.55%). Current Yield: 8.6%. 2016 Total Return: -2.0%

Wind Yieldco Pattern Energy was hurt early in the year due to low wind production because of El Nino weather conditions, and late in the year because management realized that internal accounting controls had become inadequate as the company grew.  Management does not believe that any of its numbers were actually misstated and is working to correct the problem.  I’m wildly enthusiastic about the stock at the current price, and it is my top pick in the 2017 list.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  12/31/15 Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
12/31/16 Price:  $26.80.  2016 Dividend (Yield): $2.025 (11.2%). Current Yield: 7.9%. 2016 Total Return: 60.7%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners was the biggest winner for the year.  Although a 7.9% current yield is still decent, I expect higher yields from MLPs than other stocks because of the higher and more complicated taxes on distributions. 

I also worry that if Donald Trump chooses to ignore the United States’ obligations under the Paris agreement (as it looks very likely that he will), Europeans may also slow down their efforts to reduce greenhouse gas emissions from electricity generation.  This would affect Enviva’s potential long term growth because its biggest customers are European coal plants which have been converted to burn wood pellets instead.  I also expected that states plans to comply with Obama’s Clean Power plan would have led to some US coal plants also being converted to burn wood pellets.  That prospect is also less likely with Trump as President.

No matter what happens in Europe, existing contracts are long term and unlikely to be at risk.  In fact, the European Commission recently approved a subsidy to help Enviva’s customer, Drax, pay for wood pellets produced by Enviva and burned in a converted coal power station in North Yorkshire, in the UK.

The combination of less attractive valuation and diminished growth prospects led me to drop Enviva from the 2017 list and sell my position.  I will continue to watch the stock and buy again if it falls to more attractive levels.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  12/31/15 Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
12/31/16 Price:  $19.80.  2016 Dividend (Yield): $1.638 (10.1%). Current Yield: 8.5%.  2016 Total Return: 35.1%

Ethanol production MLP and Yieldco Green Plains Partners also faces risks from a Trump administration.  The oil industry hates the EPA’s Renewable Fuel Standard (RFS), which requires a minimum volume of ethanol to be blended with gasoline, and Trump has strong ties and large investments in the industry.  His likely cabinet is also filled with oil men.

This uncertainty, along with a less attractive valuation due to gains in 2016 have led me to drop GPP from the 2017 list and sell my stake.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  12/31/15 Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
12/31/16 Price:  $15.36.  2016 Dividend (Yield): $0.95 (6.8%). Current Yield: 6.5%. 2016 Total Return: 17.8%

Yieldco NRG Yield’s (NYLD and NYLD/A) seems likely to remain largely unaffected by a Trump administration.  Since its valuation remains attractive, it is in the 2017 list.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  12/31/15 Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
12/31/16 Price:  $3.95.  2016 Dividend (Yield): $0.275 (4.9%). Current Yield: N/A.   2016 Total Return: -21.2%

Yieldco Terraform Global struggled with its former sponsor Sun Edison’s (SUNEQ) bankruptcy.  This impacted its ability to file timely financial reports, and led to significant uncertainly about the company’s true value.

The company has begun to release financial data and regain compliance with NASDAQ listing requirements.  I expect the company to be bought by a large company in 2017, possibly in the next few months.  I expect the sale price will be between $4 and $6 per share, most likely between $4 and $5.  Given the relatively modest expected gain, and the fact that I might need to find a replacement early in the year, I have dropped GLBL from the 2017 list.  I maintain my personal position in the stock and in GGEIP.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  12/31/15 Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
12/31/16 Price:  $18.99.  2016 Dividend (Yield):
$0.93 (6.5%).  Current Yield: 6.3%  2016 Total Return: 6.5%

Clean energy financier and REIT Hannon Armstrong has fallen over the last two months due to rising interest rates and concern that it might lose its status as a REIT.  I feel the risk of a potential loss of REIT status has been overblown. 

Hannon Armstrong remains in the 2017 list.  I have been adding to my position, which I had reduced for re-balancing when the stock was in the $22 to $25 range.

I almost dropped Hannon Armstrong from the list last year given the plethora of highly attractive Yieldcos at great valuations at the time.  This year, keeping it was a very easy decision.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  12/31/15 Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
12/31/16 Price:  C$14.34.  2016 Dividend (Yield): C$0.88 (8.5%). Current Yield: 6.0% 2016 Total Return (US$): 52.6%

Canadian listed Yieldco TransAlta Renewables’ prospects are unaffected by political developments in the United States, but its large gains in 2016 have given it a less attractive valuation.  It also owns significant natural gas assets, making it less green than most of the Yieldcos.

Although the RNW is not in the 2017 list, I maintain a reduced position, and might increase my stake if the price falls.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
12/31/16 Price:  $9.70.    2016 Total Return: 4.4%

Advanced biofuel producer Renewable Energy Group, like ethanol producers (see the Green Plains Partners discussion above), is potentially more vulnerable to action by an administration skeptical of renewable energy than are Yieldcos.  

If the EPA’s incentives for biodiesel and renewable diesel remain unchanged, the company’s profits and stock price have the potential for explosive gains.  That prospect is far from certain, however, so I have dropped the company from the 2017 list and greatly reduced my personal holdings.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. 12/31/15 Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
12/31/16 Price:  $6.19 / R3.20.  2016 Dividend (Yield): R0.08/$0.138 (3.3%) Current Yield: 2.4%  2016 Total Return: 51.1%

Software as a service fleet management provider MiX Telematics is a significant potential beneficiary of a Trump administration.  Many of MiX’s largest clients are part of the global oil and gas industry.  The drilling revival that Trump hopes to bring about should lead these customers to buy more vehicles, and they pay MiX for fleet management on a per-vehicle basis.

Despite MiX’s significant gains in 2015, a low priced stock buyback and the improving economic backdrop return the company keep MiX Telematics in the 10 Clean Energy Stocks list and my portfolio for the third year in a row.  I liked MiX at $6.50 at the start of 2015, liked it more at $4.22 a year ago, and still like back at $6.50 today.  The share price does not reflect the advances the company has made over the last two years, nor does it reflect MiX’s underlying value.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
12/31/16 Price:  $5.50.  2016 Total Return: -9.2%

Energy service contractor Ameresco looked to be recovering from a long slump before the November election.  This recovery was at least in part driven by the Obama administration’s efforts to improve the energy efficiency of government operations.  Although the Republicans and Trump are not openly hostile towards energy efficiency in the way they are towards renewables, it seems unlikely that it will be a priority for them. 

At worst, President Trump could remove many of Obama’s energy efficiency targets for government operations with the stroke of a pen, cutting into Ameresco’s future business.  With these risks in mind, I dropped Ameresco from the 2017 list and sold all my personal holdings.

Final Thoughts

The incoming President and Congress are skeptical of climate change and have yet to recognize that clean energy is far more effective at creating good paying domestic jobs than traditional fossil fuels.  Trump himself is highly unpredictable and many of his election promises, if implemented, are more likely to harm than help the US and world economy.  In particular, promises of increased spending and tax cuts could send the deficit and interest rates soaring.  Promises to talk tough and renegotiate trade deals might even lead to a global trade war, with crippling effects on the world economy.

Against this uncertain and potentially volatile backdrop, the valuations of many defensive clean energy stocks remain attractive.  A significant allocation to cash seems prudent, but investments in defensive, attractively valued companies such as my 10 Clean Energy Stocks for 2017 could still pay significant rewards.

Disclosure: Long HASI, MIXT, RNW/TRSWF, PEGI, NYLD/A, REGI, GLBL.  I get $1 when someone buys any of my created Motifs.

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.

The post Ten Clean Energy Stocks For 2016: Year In Review appeared first on Alternative Energy Stocks.

Tom Konrad, Ph.D., CFA

So far, the broad stock market seems to like the idea of a tax and regulation-cutting and infrastructure spending Trump administration and Republican controlled Congress.  The bond market is less pleased at the rapidly growing deficits such a “borrow and spend” policy will inevitably entail.  While the S&P 500 advanced 3.4% in November, bond funds fell in the face of rising interest rates.  The iShares 20+ Year Treasury Bond (TLT) fell 8.4%.

Clean energy stocks were also hurt by the incoming President’s climate change skepticism and his promises to undo environmental regulations put in place by the Obama administration.  While the PowerShares WilderHill Clean Energy ETF (PBW) fell only 0.1%, clean energy income stocks such as Yieldcos were hit by the double-whammy of rising interest rates and anti-environmental rhetoric. The Global X YieldCo ETF (YLCO) fell 5.6%.

Against this backdrop, my income-heavy Ten Clean Energy Stocks for 2016 model portfolio fared relatively well. While the seven income stocks matched YLCO’s 5.6% losses, the three growth stocks shot up 9.6% (one for little apparent reason.)  This kept the overall portfolios’ losses to a modest 1.0% for the month.

For the year, the model portfolio, its income and growth sub-portfolios, and the Green Global Equity Income Portfolio (GGEIP) which I manage all widened their large leads against their benchmarks. (The benchmarks are PBW for the growth stocks, YLCO for the income stocks and GGEIP, and a 30/70 blend of the two for the Ten Clean Energy Stocks model portfolio, as specified in the original 2016 article.)

Detailed performance is shown in the chart below.

How Trump Will Affect Yieldcos

While rising interest rates are bad for all income stocks, a roll-back of environmental regulations such as Obama’s Clean Power Plan and a withdrawal from the Paris Climate Agreement should have little if any financial impact on Yieldcos.  This is because Yieldcos own existing renewable energy generation assets which have already received their subsidies.  Even if the last year’s solar and wind tax credit extensions were to be rolled back (which most observers think is unlikely), existing solar and wind farms would almost certainly be unaffected.

In fact, a decrease in incentives to future wind farms could even help the owners of existing farms, since it would reduce competition from new, less subsidized, solar and wind when existing Power Purchase Agreements (PPAs) expire (in 10-20 years) and Yieldcos need to find new buyers for their power production.

Despite this reality, investors who are increasingly worried about coming regulatory changes and increasing interest rates are likely to use any minor hiccup at Yieldcos and other clean energy companies as an excuse to sell.

The chart below and the following discussion gives detailed performance for the individual stocks, and the reasons for it.  Click for a larger version.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  12/31/15 Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
11/30/16 Price:  $19.63.  YTD Dividend: $1.17.  Expected 2016 Dividend:$1.58 (8.0%) YTD Total Return: -0.8%

Wind Yieldco Pattern Energy released its third quarter earnings on November 7th.  Power production was good, and the company increased its dividend to $0.408 per share, but the investor reaction was hijacked by the statement that the company had found a material weakness in its internal controls. 

“Management believes that the Company’s internal control over financial reporting was not effective as of September 30, 2016 , due to the aggregation of internal control deficiencies related to the implementation, design, maintenance and operating effectiveness of various transaction, process level, and monitoring controls. These deficiencies largely have arisen during fiscal 2016 because of growth of the Company, increases in employee headcount to support growth, and frequent changes in organizational structure were not adequately supported by elements of its internal control over financial reporting. However, management has concluded that the consolidated financial statements present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. generally accepted accounting principles (GAAP).  Management has developed a plan to remediate the material weaknesses. Management expects the remediation plan to extend over multiple financial reporting periods; therefore, the Company will receive an adverse opinion on its internal control over financial reporting as of December 31, 2016 .”

In other words, while something could go wrong with financial reporting, they are confident that nothing has so far, and they have a plan to fix the problem over several months.  They’re telling us now because this is not the type of thing you should try to cover up, and the company’s auditors will also be saying something in the annual report, anyway.

While I never like to see any questions about accounting, it seems like Pattern caught this one early before any harm was done, and they are working to fix it.  I consider the current sell-off a buying opportunity, and have added to my position.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  12/31/15 Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
11/30/16 Price:  $28.20.  YTD Dividend: $2.025  Expected 2016 Dividend: $2.025 (7.2%) YTD Total Return: 69.1%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners has been my biggest winner for the year, and it is potentially more vulnerable to the fallout of a Trump Presidency than most of the other companies in this list.  Like most Yieldcos, its revenue comes from long term contracts with investment grade utilities, so those operations should be safe. 

Most of Enviva’s potential growth prospects are with existing coal plants which want to convert to much less carbon intensive wood pellets, which Enviva supplies.  Coal plants convert to wood because it is one of the most cost effective ways to comply with greenhouse gas and other emissions rules.  In the US, Trump promises to roll back these Obama era regulations, and his promise to abandon the Paris Climate agreement may lead to Europe (the home of the majority of Enviva’s current customers) taking a les
s aggressive stance on greenhouse gasses.

I would not see any of this as a problem if Enviva were yielding more than the current 7.5%.  I expect a higher yield from MLPs than other companies, because their special tax structure makes it difficult for many investors to own them.  I sold my entire holdings of Enviva the morning after the election.  I will continue watching the stock for opportunities to buy back in at a lower level.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  12/31/15 Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
11/30/16 Price:  $18.25.  YTD Dividend: $1.638.  Expected 2016 Dividend: $1.638 (9.0%) YTD Total Return: 24.5%

Ethanol production MLP and Yieldco Green Plains Partners may or may not benefit from a Trump administration.  The oil industry hates the EPA’s Renewable Fuel Standard (RFS), which requires a minimum volume of ethanol to be blended with gasoline, and Trump has strong ties and large investments in the industry. 

On the other hand, ethanol is a domestic fuel source which reduces imports and (gallon for gallon) creates more jobs, especially in the Midwest.  In 2013, the ethanol industry created 387 thousand jobs and sold 13.3 billion gallons, or one job for every 34 million gallons.  According to industry numbers, an increase of 1.2 million barrels per day would be associated with an increase of 394 thousand US jobs.  1.2 million barrels/day equates to 15.3 billion gallons per year, or one job for every 39 million gallons per year.  If Trump’s main goal is to increase domestic jobs, he will favor ethanol over his friends in the oil industry.

The EPA recently released its RFS targets for 2017-18, and for the first time in a long time, the ethanol industry felt that the EPA had released a standard in accordance with the law.  Trumps pick to head the EPA, Myron Ebell is not only a climate change denier, but also a critic of ethanol.  His libertarian Competitive Enterprise Institute often released reports critical of the ethanol mandate, so I think we can be fairly confident that future EPA ethanol mandates will be more to the satisfaction of oil refiners, even if the 2017-18 targets are not watered down.

GPP is also less protected from policy changes and market forces than other Yieldcos, because it only has long term contracts with its parent, ethanol producer Green Plains (GPRE).  Green Plains’ ability to honor these obligations depends on its ability to remain solvent, which in turn depends on the ethanol market.

With this in mind, I have sold most of my shares of GPP.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  12/31/15 Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
11/30/16 Price:  $14.59.  YTD Dividend: $0.695.  Expected 2016 Dividend: $0.945 (6.5%) YTD Total Return: 10.1%

The only likely impact on Yieldco NRG Yield’s (NYLD and NYLD/A) prospects due to a Trump administration is a rise in interest rates.  Given the recent decline of the stock, I’ve been increasing my holdings of the company’s A shares.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  12/31/15 Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
11/30/16 Price:  $3.78.  YTD Dividend: $0.275.  Current Expected 2016 Dividend: $0.275 (7.3%). YTD Total Return: -24.7%

Yieldco Terraform Global released an investor update on November 29th.  The company expects to be back in compliance with NASDAQ reporting requirements in advance of its extended March 2017 deadline, but they are still negotiating with bondholders about failure to meet covenants, including timely reporting requirements.  It expects to be fully operationally independent by January.

Underlying the company’s long term viability are the fact that its portfolio of solar and wind projects continue to perform well, and a hefty cash pile.  Some of this cash was used to pay down corporate level revolving debt.  Unrestricted cash at the company level was $583 million at the end of the third quarter, or approximately $3.38 per share (including both A and B shares.)  This should allow the company operational flexibility while negotiating with bondholders.

The company released a number of preliminary financial estimates for 2016, but did not include CAFD, which measures the company’s ability to pay dividends to shareholders.

If we compare these to the first quarter estimates on which I based my July 20th valuations of the stock, we can see how the numbers have changed:

As we can see, owned operational solar and wind farms have increased by 57 MW (part of which I knew about when writing the July article), power production has increased by 15% to 22% from the numbers I used for that article, capacity factor, revenue, and revenue per MWh have all also improved.  In July, I put the company’s net debt at the holdco level at $461 million.  In the third quarter, net debt increased by $52 million, or by $0.91 for every new owned MW. 

Plugging these numbers into the same spreadsheet as I used for the July valuation, I revise the more conservative asset based valuation down to a range of $4.12 to $5.19 per share.  Given the lack of CAFD estimate, I can’t revise the CAFD based estimate of $4.00 to $8.50, except to say that CAFD should probably have fallen slightly along with the Adjusted EBITDA estimate, which fell from an annualized $168-$192 million to the current $150-180 million.

In short, resolving Terraform Global’s problems is taking longer and costing more than I had hoped, but I’m still comfortable that the company is worth well over $4, which is in turn above the current $3.78 stock price.   I continue to hold my shares but do not regret having sold a number of covered calls with a $5 strike price.

Hannon Armstrong Sustainable Infrastructure (NYSE:HAS
I).

12/31/15 Price: $18.92.  12/31/15 Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
11/30/16 Price:  $19.88.  YTD Dividend: $0.90.  Expected 2016 Dividend: $1.24  (6.2%). YTD Total Return: 9.6%

Clean energy financier and REIT Hannon Armstrong has fallen due to rising interest rates and concern that it might lose its status as a REIT.
I feel the risk of a potential loss of REIT status has been overblown.  REIT expert Brad Thomas provides a good summary: The short version is, don’t panic! 

I added slightly to my Hannon Armstrong position after it dipped below $20.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  12/31/15 Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
11/30/16 Price:  C$13.73.  YTD Dividend: C$0.8063  Expected 2016 Dividend: C$0.88 (6.4%) YTD Total Return (US$): 45.4%

Canadian listed Yieldco TransAlta Renewables’ fell sharply after the US election, as did many Canadian income stocks, which in general fell more than their US brethren.  I’m not sure why this is other than the fact that Canadian stocks had been trading at higher valuations than US stocks in the run-up to the election.  The stock has begun to recover from its sharp fall since November 14th.

Given TransAlta’s relatively rich valuation compared to my other Yieldco holdings, I sold most of my position on November 9th, and only bought a little of that back after the stock fell 10% over the next couple days.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
11/30/16 Price:  $9.75.    YTD Total Return: 5.0%

Advanced biofuel producer Renewable Energy Group, like ethanol producers (see the Green Plains Partners discussion above), is potentially more vulnerable to action by an administration skeptical of renewable energy than are Yieldcos.   That said, the company remains very attractively valued, and I don’t know if I made the right move in selling most of my holdings in response to the election.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. 12/31/15 Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
11/30/16 Price:  $5.83 / R3.28.  YTD Dividend: R0.08/$0.138  Expected 2016 Dividend: R0.08 (2.4%)  YTD Total Return: 42.3%

Software as a service fleet management provider MiX Telematics is a significant potential beneficiary of a Trump administration.  First, many of MiX’s largest clients are part of the global oil and gas industry.  The drilling revival that Trump hopes to bring about should lead these customers to buy more vehicles, and they pay MiX for fleet management on a per-vehicle basis.

Even if the oil market continues to revive, this South Africa based company’s stock price is vulnerable to a flight to safety triggered by the greater global uncertainty which an unprecedented and relatively unpredictable Trump administration may bring.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
11/30/16 Price:  $5.95.  YTD Total Return: -1.7%

Energy service contractor Ameresco is the company in this list which I deem most vulnerable to action by a Trump administration.  This is because the company’s bread and butter is energy service contracts with federal government agencies.  In recent years, these contracts have been driven by increasingly ambitious targets for energy saving in Federal buildings set by the Obama administration.  These targets are among the executive actions which Trump could easily reverse with the stroke of a pen.

Such energy saving initiatives save money and create jobs, so it would be irrational for Trump to reverse these particular executive actions.  That said, I do not have a lot of confidence he will do (or refrain from doing) anything just because it makes sense.  The market seems to think otherwise, as Ameresco rallied 24% in November.  Perhaps investors are simply buying stocks of companies that do a lot of business with the Federal government because of the expected surge in infrastructure spending?  I’m open to your ideas.

Sneak Peek: 10 Clean Energy Stocks for 2017

I and the owners of AltEnergyStocks.com are considering launching a premium service for paying subscribers.  This would include early or exclusive looks at my most actionable investment ideas, like the one I recently wrote about Seaspan Worldwide.  It will also likely include more timely comments on news events as they affect the stocks I follow.  The details will depend on what you tell us you want and are willing to pay for.  The people I’ll pay the most attention to are those who have demonstrated a willingness to pay for my writing in the past.

To that end, I’m offering an opportunity to see next year’s list of 10 Clean Energy Stocks one trading day before it’s published, but only to people who think my writing is worth paying something for. If you are one of those people, please send $5 to me at , and I will email you a draft version of the article a full trading day before it is published on AltEnergyStocks.com. If you don’t use PayPal, send me a note and I will respond with the address for a check.

I don’t usually decide on the stocks in my annual list until after Christmas, since last minute changes in valuation sometimes make a difference as to how well I think a stock will do in the following year. With that caveat, this year’s list looks likely to include at least one thinly traded energy efficiency stock that, like MiX Telematics, should benefit from an revival of the oil and gas industry but which is too small to be on most investors’ radar.

If you think an early look at next year’s list is not worth $5, but think some of my future writing might be worth paying for, just PayPal me (your) two cents, and I’ll add you to the list of people who get to have input into what might be included in future AltEnergyStocks premium content, and how much it should cost.

Final Thoughts

Last month, I was optimistic for the chances of a Clinton victory, and saw the market’s sell-off in the months running up to the election as an opportunity to buy relatively cheap names like Hannon Armstrong and Pattern which have good prospects not matter who is in the White Ho
use.  I still like these names, but I am deeply puzzled that one stock I thought could really benefit from a Clinton victory, Ameresco, has advanced the most.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, GPP, NYLD/A, REGI, GLBL, TERP, GPRE

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.

The post Ten Clean Energy Stocks Under Trump (November 2016) appeared first on Alternative Energy Stocks.

Tom Konrad, Ph.D., CFA

My Ten Clean Energy Stocks for 2016 model portfolio continued to coast upward in August after five months of blistering performance since February, while clean energy sector benchmarks and real managed portfolio, the Green Global Equity Income Portfolio (GGEIP), pulled back slightly.  The following chart shows the performance of the model portfolio and its sub-portfolios against their benchmarks.

The portfolio, its growth and income subportfolios, and GGEIP all remain far ahead of their benchmarks.  Second quarter earnings announced this month were neutral or positive for the income stocks, but somewhat disappointing for the growth companies, causing the income group to pull farther ahead of its benchmark, and the growth group to lose a little ground. 

See the May update for a description of the benchmarks.

Opportunity to invest in GGEIP strategy

Last month, I mentioned that I was in advanced talks with a mutual fund company to bring the Green Global Equity Income strategy to the public as a mutual fund. I met with them for the fourth time last month, but they decided to pass, in large part because my emphasis on small and relatively illiquid stocks may put a limit on how large (and hence profitable) such a mutual fund can become.

Fortunately, I’ve been working on alternatives, two of which are now available for small investors.  My friend and colleague Jan Schalkwijk, CFA at investment advisor JPS Global Investments is now offering a version of the GGEIP strategy to his clients (new or existing) clients.  If you are interested, you can contact him here.  There is a also stripped-down but free version of GGEIP I launched on the Motif platform in June.

Or you can just continue to follow the income stocks in this annual model portfolio.  Although this group of seven is outperforming most other versions of the strategy this year, I think that difference is mostly luck.  The strategy had an excellent year in 2015 as well:  The six income stocks were up 24% and GGEIP was up 12% even though their income benchmark fell 30% because of the bursting of the Yieldco bubble.


The chart above gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
8/31/16 Price:  $23.80.  YTD Dividend: $1.161.  Expected 2016 Dividend:$1.58 (6.6%) YTD Total Return: 20.2%

Wind Yieldco Pattern Energy’s revenues were at the low end of the company’s projections due to generally low wind speeds, but earnings and cash available for distribution (CAFD) were strong due to good cost management and performance of the company’s wind farms.

The company also announced the sale of 10 million shares of stock at $23.90, with an additional 1.5 million share underwriter’s option.  It intends to use the cash to fund the purchase of the 180 MW Armow Wind power facility in Ontario from its sponsor.  I expect the acquisition to increase CAFD and dividends per share even after the dilutive effects of the share issue.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
8/31/16 Price:  $25.47.  YTD Dividend: $1.495  Expected 2016 Dividend: $2.10 (8.2%) YTD Total Return: 49.9%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners increased its distribution to $0.525, and increased its full  distributable cash flow guidance from $67-$71 million to $70-$72 million.  The company reaffirmed full year distribution guidance of at least $2.10 per unit.  The new guidance increases the likelihood that Enviva will distribute more than that.

The market seems to have gotten the message that this wood pellet manufacturer has fuel to burn: The stock was up 19% for the month.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
8/31/16 Price:  $18.42.  YTD Dividend: $1.218.  Expected 2016 Dividend: $1.64 (8.9%) YTD Total Return: 21.4%

Ethanol production Yieldco Green Plains Partners increased its quarterly distribution to $0.41 per unit, and reported $0.43 in per unit income for the quarter.  It’s parent company, Green Plains (GPRE) produced a record volume of ethanol in the second quarter.  In the first quarter, the partnership relied on minimum volume guarantees from its parent to support revenues.  The recovery in ethanol volumes means that GPRE no longer needs to rely on these guarantees.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
8/31/16 Price:  $16.09.  YTD Dividend: $0.695.  Expected 2016 Dividend: $0.96 (6.0%) YTD Total Return: 27.8%

Yieldco NRG Yield (NYLD and NYLD/A) increased its quarterly dividend to $0.24 and reaffirmed its guidance that the dividend would continue to grow by 15% annually through 2018.

The Yieldco entered an agreement to
acquire the 51% of the California Valley Solar Ranch Holdco it does not already own from its parent.  The transaction was financed with $200 million of senior secured debt financed with a 4.68% interest rate.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
8/31/16 Price:  $3.62.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (17.2%). YTD Total Return: -27.8%

Yieldco Terraform Global’s delayed financial filings due to the bankruptcy of its former sponsor, SunEdison (SUNEQ), put it into technical default with some of its bondholders.  The company successfully negotiated a waiver extending the deadline for filing the delayed reports until December 6th. 

It was also reported that Indian company Greenko would pay $100 million for SunEdison’s Indian assets along with the assumption of outstanding debt, including some nonoperational assets which SunEdison had agreed to transfer to Terraform Global upon completion in exchange for an advance payment prior to its bankruptcy.  It is not clear how the continuing dispute between the Yieldco and SunEdison over the use of the advance payment will affect this deal.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
8/31/16 Price:  $23.98.  YTD Dividend: $0.60.  Expected 2016 Dividend: $1.25  (5.2%). YTD Total Return: 30.4%

Clean energy financier and REIT Hannon Armstrong reported increased second quarter core earnings to $0.32 per share, easily enough to continue to support the current dividend of $0.30 per share and an expected increase to at least $0.34  per share in December.

Hannon Armstrong has a target of paying out 100% of core earnings in dividends and a policy of increasing the dividend once per year in the fourth quarter.  Since Core Earnings have historically always increased or held constant from quarter to quarter, they typically lag the dividend in the first two quarters, but exceed them in the second half of the year. 

I expect this year to be different.  Results in the first half of the year were boosted by a larger securitizations (selling assets to third parties rather than keeping them on the books.)  While producing strong earnings in the quarter when they happen, securitizations produce no ongoing income.  After raising $91 million in equity in June, the company will again return to placing more transactions on the balance sheet, a change which I expect to reduce core earnings in the third quarter before returning to growth in the fourth quarter. 

I expect my anticipated decline in third quarter earnings in early November to catch some investors by surprise.  Investors looking to buy the stock should wait until then.  Investors considering taking some gains may want to sell before the November announcement.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
8/31/16 Price:  C$14.08.  YTD Dividend: C$0.586  Expected 2016 Dividend: C$0.88 (6.3%) YTD Total Return (US$): 50.4%

Canadian listed Yieldco TransAlta Renewables reported results “tracking toward the upper end of the guidance we provided for 2016.”  The company’s major South Hedland project continues on budget and on schedule for completion in mid-2017.  The company anticipates a further dividend increase when it is delivered.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
8/31/16 Price:  $8.97.    YTD Total Return: -3.4%

Advanced biofuel producer Renewable Energy Group reported strong market demand for biomass based diesel and increased sales, which were limited only by production capacity.  But per share earnings of $0.16 fell short of analyst’s expectations, causing the stock to pull back.

Federal and state support remains strong, and analysts have been raising current year earnings estimates.  I believe the current pullback provides an excellent opportunity for short term gains before the end of the year.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
8/31/16 Price:  $4.99 / R2.90.  YTD Dividend: R0.06/$0.101  Expected 2016 Dividend: R0.08 (2.8%)  YTD Total Return: 21.0%

Software as a service fleet management provider MiX Telematics rose in its native currency, the South African Rand, but these gains were erased by the strong dollar.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
8/31/16 Price:  $4.78.  YTD Total Return: -19.2%

Energy service contractor Ameresco continued to report strong growth in revenue, earnings, and cash flow.   While the past few years have been disappointing, I believe that the company has returned to sustainable growth and expect the stock to continue to recover.

Final Thoughts

The broad stock market been very strong this year despite continued and increasing global uncertainty.  This is likely because US economy has appeared to be a lone bright spot.  Indications of future growth have been mixed however, and I believe a defensive stance is warranted.  While none of these stocks is the screaming bargain they were in the first quarter, the income stocks remain inexpensive and good defensive plays going forward.

While more sensitive to a weakening economy, the three growth stocks remain extremely cheap, especially REGI and MIXT.  These
low valuations limit their downside should the broad market fall, while allowing for large gains if they catch investors’ attention.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, TERP, GPRE

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.

The post Ten Clean Energy Stocks For 2016: August Earnings appeared first on Alternative Energy Stocks.

Tom Konrad, Ph.D., CFA

My Ten Clean Energy Stocks for 2016 model portfolio had yet another strong month, as did my real managed portfolio, the Green Global Equity Income Portfolio (GGEIP.) 

The shorter-format of last month’s update turned out to be popular, so I’m doing it again.

See the previous update for a description of the benchmarks.

The strong performance of the portfolio continues to be driven by the flight to quality and lower interest rate expectations caused by the Brexit vote, as well as positive news for a couple holdings.

I’ve made some progress finding a socially responsible asset management company to help me turn GGEIP into a mutual fund.  GGEIP’s outstanding performance last year and so far this year likely have a lot to do with that.  There are actually two versions of GGEIP, one which can use leverage and the other which can’t. While I had never used leverage in GGEIP before the end of last year, long time readers will know that I became extremely bullish about the Yieldco space in late 2015 through February this year.  Because of my bullishness, I added leverage by selling uncovered puts on many Yieldcos, and the move has paid off.  For the year through the end of July, the leveraged version of GGEIP is up 32%, compared to 20% for the unleveraged version.

The chart above (larger version here) gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
7/31/16 Price:  $24.37.  YTD Dividend: $0.671.  Expected 2016 Dividend:$1.56 (6.4%) YTD Total Return: 23.1%

Wind Yieldco Pattern Energy paid its first $0.39 quarterly dividend.  On June 30, it agreed to buy another 324 MW wind farm from its sponsor, an accretive deal which can be financed using available cash and borrowing.  That said, the recent stock price strength makes me believe that at least part of this deal will be financed by selling some stock as well.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
7/31/16 Price:  $21.82.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.6%) YTD Total Return: 25.8%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners was the only stock in the model portfolio to fall in July.  It dropped 4% because of a rating downgrade to “Outperform” from “Strong Buy” from Raymond James. 

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
7/31/16 Price:  $18.49.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (8.8%) YTD Total Return: 20.7%

Ethanol production Yieldco Green Plains Partners will pay a regular $0.41 dividend to holders of record on August 5th.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
7/31/16 Price:  $17.18.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (5.5%) YTD Total Return: 27.7%

Yieldco NRG Yield (NYLD and NYLD/A) did not report significant news, but continued its upward climb along with other Yieldcos.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
7/31/16 Price:  $3.48.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (17.2%). YTD Total Return: -30.6%

Yieldco Terraform Global released some preliminary financial data for fiscal 2015 and the first two quarters of 2016.  I used the data to perform two valuations of the company, one based on assets and the other on cash flow.  You can find the full valuation here; overall, I think it is worth $4 and $8.50 a share.  The company also announced that they are in active discussions with the Yieldco’s bankrupt parent SunEdison (SUNEQ) about a “jointly-supported” sales process for SunEdison’s stake in GLBL.

Sister Yieldco TerraForm Power (NASD:TERP) released similar financial information, which I also used for the valuation here.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.&nbsp
; High Target: $27. 
7/31/16 Price:  $22.49.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (5.6%). YTD Total Return: 22.3%

Clean energy financier and REIT Hannon Armstrong paid its regular $0.30 quarterly dividend in July.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
7/31/16 Price:  C$14.09.  YTD Dividend: C$0.636  Expected 2016 Dividend: C$0.88 (6.3%) YTD Total Return (US$): 50.8%

Canadian listed Yieldco TransAlta Renewables did not release any significant news, but continued to hit new highs.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
7/31/16 Price:  $9.75.    YTD Total Return: 5.0%

Advanced biofuel producer Renewable Energy Group finally seems to be getting some stock market traction from the recovering biodiesel market, possibly because of of an article that highlighted it as a possible beneficiary from a Clinton victory in November.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
7/31/16 Price:  $5.13 / R2.85.  YTD Dividend: R0.04/$0.076  Expected 2016 Dividend: R0.08 (2.8%)  YTD Total Return: 23.5%

Software as a service fleet management provider MiX Telematics will announce fiscal first quarter earnings on August 4th.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
7/31/16 Price:  $4.95.  YTD Total Return: -15.7%

Energy service contractor Ameresco did not disclose significant news.

Final Thoughts

2016 continues to be a great year for my stock picks, especially considering that most clean energy stocks have fallen this year.  The gains have made valuations less attractive than I felt they were in February and March.  Then, I wrote, “I can’t say this enough: If readers have any cash still on the sidelines in this market, now is the time to buy.  Buy and keep reinvesting the extremely high dividends on offer until prices rise.”

Today, I still feel that many of these stocks remain below fair value, but the screaming deals are gone.  I also don’t trust the broad market rally we have seen in July, and if it reverses, even stocks with good valuations will likely give up some of their gains.  Hence, I’ve started taking some of my gains so that I will have cash to take advantage of future declines, but will still be able to profit if my picks continue to advance.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, TERP

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.

The post Ten Clean Energy Stocks For 2016: Quick July Update appeared first on Alternative Energy Stocks.

Tom Konrad, Ph.D., CFA

 June was another good month (and capped a strong first half of the year) for my Ten Clean Energy Stocks for 2016 model portfolio.

This update’s going to be a short one, but here are the basic stats:

See the previous update for a description of the benchmarks.

The strong performance of the portfolio was driven mostly by the flight to quality and lower interest rate expectations caused by the Brexit vote and weaker than expected growth indicators in the US.  Lower growth expectations and the more uncertain global economy mean that the Federal Reserve will be raising US interest rates later than previously expected, or even begin to reduce rates again if another recession is on the horizon. 

Lower bond interest rates make my high yield clean energy stock much more attractive, hence the great performance for the income stocks, while the growth stocks, which are sensitive to a slowing economy fared relatively badly.

The chart above (larger version here) gives detailed performance for the individual stocks.  Selected news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
6/30/16 Price:  $22.97.  YTD Dividend: $0.671.  Expected 2016 Dividend:$1.56 (6.8%) YTD Total Return: 16.0%

Wind Yieldco Pattern Energy paid its first $0.39 quarterly dividend.  On June 30, it agreed to buy another 324 MW wind farm from its sponsor, an accretive deal which can be financed using available cash and borrowing.  That said, the recent stock price strength makes me believe that at least part of this deal will be financed by selling some stock as well.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
6/30/16 Price:  $22.76.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.2%) YTD Total Return: 31.2%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners sold off sharply but then recovered on the Brexit vote.  Traders were probably worried because most of Enviva’s pellet sales are to European and British utilities.  The stock then recovered when they realized that that most of these sales are under long term contracts and wood pellet demand is growing rapidly.  Both of these facts should significantly insulate Enviva from any European turmoil.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
6/30/16 Price:  $15.55.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (10.4%) YTD Total Return: 5.0%

Ethanol production Yieldco Green Plains Partners entered a joint venture to build an import/export terminal on the Gulf coast.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
6/30/16 Price:  $15.22.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (6.2%) YTD Total Return: 13.2%

Yieldco NRG Yield (NYLD and NYLD/A) did not report significant news.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
6/30/16 Price:  $3.26.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.60 (18.4%). YTD Total Return: -34.9%

Yieldco Terraform Global got a boost when it was reported that Brookfield Asset Management (NYSE: BAM) had taken a 12% stake in its sister Yieldco, Terraform Power (NASD:TERP) and had been in talks with bankrupt parent SunEdison (SUNEQ) about possibly buying its controlling class B shares.

This vote of confidence boosted Global because it implies that Brookfield sees value in their assets, despite all the uncertainty around the Terraforms.  If BAM were to buy TERP, many of the assets would likely be sold to Brookfield Renewable Partners (NYSE:BEP.)

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
6/30/16 Price:  $21.60.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (5.8%). YTD Total Return: 15.9%

Clean energy financier and REIT Hannon Armstrong returned to the equity markets with a well-received secondary equity offering of 4.6 million shares priced at $21 a share.  Investors were clearly eager for this offering: The initial press release mentioned only 3.85 million shares on June 15th, with an additional underwriters purchase option of 577 thousand shares, for potentially only 4.427 million shares.  Later that same day, the number of shares was revised up to 4.6 million, including the underwriter’s option.  When the sale closed a week later, the underwriters had already exercised their 30 day option.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
6/30/16 Price:  C$13.36.  YTD Dividend: C$0.545  Expected 2016 Dividend: C$0.88 (6.6%) YTD Total Return (US$): 43.0%

Canadian listed Yieldco TransAlta Renewables hit a new 52-week high, and the stock was also helped by the strengthening Canadian dollar.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
6/30/16 Price:  $8.83.    YTD Total Return: -5.0%

Advanced biofuel producer Renewable Energy Group fell a little amid the global uncertainty, but the lower price only served to make me more enthusiastic about this leading firm is the strongest biofuel markets.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
6/30/16 Price:  $4.68 / R2.68.  YTD Dividend: R0.04/$0.076  Expected 2016 Dividend: R0.08 (3.0%)  YTD Total Return: 12.7%

Software as a service fleet management provider MiX Telematics received a well deserved upgrade to Overweight from First Analysis, but the global uncertainty dragged the stock down anyway. 

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
6/30/16 Price:  $4.37.  YTD Total Return: -25.2%

Energy service contractor Ameresco did not disclose significant news, but the stock was also dragged down by market trends.  Given that the company operates mostly in North America on contracts with government entities and other large domestic institutions, the decline has little if anything to do with the company’s prospects.

Final Thoughts

The first half of 2016 has been a great start to a strong year, despite the generally unsettled nature of the stock market.  While broad clean energy ETFs like PBW have fallen sharply, I hope the performance of my opportunistic income investing approach shows that investing in clean energy does not have to be risky.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, BEP, TERP

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.

The post Ten Clean Energy Stocks For 2016: Quick June Update appeared first on Alternative Energy Stocks.

Tom Konrad CFA

May was a tough month for most clean energy stocks, even though the broad market was up slightly, but my Ten Clean Energy Stocks for 2016 model portfolio continued to out-perform, mostly because of strong earnings for several stocks.  The model portfolio was up 3.1% for the month and 3.8% for the year to date, even though its clean energy benchmark fell 2.0%, for a decline of 2.8% for the year through May 31st.  The broad market of small cap stocks also rose, and was up 2.2% for a total gain of 2.4% for the year to date.

Income and Growth Stocks

Clean energy income stocks continue to outperform growth stocks. with my income benchmark, YLCO down only 0.7% for the month compared to a 5.1% decline for my growth benchmark, PBW.  The seven income stocks in the model portfolio posted modest gains of 1.2%, comfortably ahead of their benchmarks decline, but were put to shame by the stellar performance of the three growth stocks, which advanced 7.6%.  The Green Global Equity Income Portfolio (GGEIP), an income-oriented clean energy strategy which I manage, continued to out-perform as well.  It rose 0.8% for the month, and is up 8.8% for the year to date.



The chart above (larger version here) gives detailed performance for the individual stocks.  Significant news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
5/31/16 Price:  $21.78.  YTD Dividend: $0.671.  Expected 2016 Dividend:$1.56 (7.2%) YTD Total Return: 8.1%

At its first quarter conference call, wind Yieldco Pattern Energy increased its dividend from $0.371 to $0.39.  The 2.4% increase was the ninth consecutive quarterly increase since its IPO.  Wind speeds were lower than average at its farms in the first quarter because of El Nino, but they have a good chance of being higher than average towards the end of 2016.

The company has $100 to $150 million in liquidity to acquire additional projects, and has also put in an “At The Market” (ATM) facility to raise small amounts of additional equity if the stock price continues to recover (which it has since the announcement.)  This is part a growing trend of Yieldcos returning to the capital markets which I believe signals a return to normalcy.  I took an in-depth look at this trend here.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
5/31/16 Price:  $22.88.  YTD Dividend: $0.97  Expected 2016 Dividend: $2.10 (9.2%) YTD Total Return: 31.9%

Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners raised its quarterly dividend from $0.46 to $0.51 per share, keeping it on track to meet its 2016 distribution guidance of $2.10 per unit for 2016.  That guidance would require $1.13 in distributions in the second half of the year, which could be accomplished with smaller increases of only 4 cents in each quarter.  I think it’s likely that they will continue with larger increases of 5 or 6 cents and exceed the guidance.  The guidance does not include the effects of further acquisitions, which are looking increasingly likely as the stock price recovers.

The demand for wood pellets remains strong and growing.  Enviva’s position as the industry leader allows it to continue to sign take-or-pay contracts with quality utility customers for its entire capacity.  One such potential contract was discussed on the quarterly conference call with the final deal announced on June 2nd.  Enviva will supply 800,000 metric tons of wood pellets per year until 2027 to a power plant in the UK.  The plant formerly generated power from coal, but is being converted to run on wood pellets in order to reduce net carbon emissions.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Dec 31st Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
5/31/16 Price:  $14.40.  YTD Dividend: $0.8075.  Expected 2016 Dividend: $1.62 (11.3%) YTD Total Return: -6.0%

Ethanol production Yieldco Green Plains Partners continues to recover along with gas prices, but the partnerships earnings are not as closely linked to gas prices as is the price of ethanol.  It’s contracts with its parent, Green Plains (GPRE) insulate it from the ethanol market, so a continued recovery does not depend on continued increases in oil. 

While its parent operated at a loss in the first quarter, the partnership was able to increase its quarterly distribution to $0.405 per unit while maintaining a coverage ratio of 102%.

Its parent, Green Plains, rallied strongly in May as projections for ethanol demand and margins have improved.  The improved market conditions are helping GPP’s units as well, but I believe the units remain very attractively valued.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
5/31/16 Price:  $14.50.  YTD Dividend: $0.455.  Expected 2016 Dividend: $0.94 (6.3%) YTD Total Return: -7.8%

Yieldco NRG Yield (NYLD and NYLD/A) also reiterated its dividend growth target of 15% year over year, which I expect will mean total dividends for 2016 of 94 or 95 cents.  Its May dividend of $0.23 was precisely 15% above the dividend of a year earlier.

The company is also making progress developing internal management, and appointed Chris Sotos as CEO.  Sotos was formerly Head of Strategy and Mergers and Acquisitions at NYLD’s parent, NRG Energy (NRG), but will now be employed solely by NRG Yield.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
5/31/16 Price:  $2.78.  YTD Dividend: $0.275.  Expected 2016 Dividend: $0.50 (21%). YTD Total Return: -44.5%

Information on Yieldco Terraform Global remains scarce as the company attempts to file its 2015 annual report and first quarter 2016 reports and its former sponsor, SunEdison (SUNE), stumbles through bankruptcy.

The delay of the reports is due to the fact that Terraform Global relied on its parent for accounting and bookkeeping, and the parent’s financial controls were inadequate.  Now the Yieldco needs to rebuild everything from scratch.  The company has delayed its second quarter dividend, which I do not expect to be paid until after its financial reports are filed and it can claim to understand its own financial position.  At that point, I expect the regular dividend to be cut dramatically, with the second quarter dividend paid in arrears. 

Goldman Sachs thinks the dividend will be cut from $1.10 to $0.64 annually, but I’m a little more conservative, and think it will fall somewhere between $0.40 and $0.75.  Other Yieldcos currently trade with yields in the 6% to 10% range, so if we’re very conservative and expect a $0.40 annual dividend and a 10% yield, the stock is worth at least $4, or 44% above the current price.  If we use Goldman’s dividend estimate of $0.64 and a 10% yield, the stock price would more than double.

For me, the bottom line on Terraform Global is that there is much we don’t know, but if we focus on the big picture and the little we do know, we have a stock trading far below its fair value because of all the uncertainty.  Eventually we’ll have a better picture of GLBL’s financials, and the stock market seems to be valuing it below the worst case scenario.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
5/31/16 Price:  $20.33.  YTD Dividend: $0.30.  Expected 2016 Dividend: $1.25  (6.1%). YTD Total Return: 9.1%

Clean energy financier and REIT Hannon Armstrong had a very strong first quarter, with core earnings of $0.32 per share, a 19% increase on the previous year, and already in excess of the $0.30 quarterly dividend.  My previous estimate for the next dividend increase in December was 4 cents, to $0.34, but after this strong quarter, I expect the new dividend will be $0.35 or $0.36.

Like Pattern discussed above, Hannon Armstrong has put an ATM facility in place, and has said that it may raise something less than $200 million in new equity this way.  The difference between core earnings and the dividend will also flow back into new investments, all of which should contribute to per share earnings growth.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
5/31/16 Price:  C$12.86.  YTD Dividend: C$0.293  Expected 2016 Dividend: C$0.88 (7.1%) YTD Total Return (US$): 33.9%

Canadian listed Yieldco TransAlta Renewables also had a strong first quarter, and continues on-schedule and on budget with its South Hedland Project in Australia.  The company has signaled that it will further increase its dividend when the project is complete in mid-2017.

The company also secured financing on its 68.7MW New Richmond wind facility which it will use to finance other projects, most likely including South Hedland.

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
5/31/16 Price:  $9.21.    YTD Total Return: -0.9%

Advanced biofuel producer Renewable Energy Group also reported a strong quarter.  The company sold 64% more gallons of biomass based diesel than during the same period a year ago, although spreads were thin due to high commodity prices. They have also been making significant progress expanding their business through both internal growth ans acquisitions.  I expect these investments to show large benefits as the advanced biofuel and biodiesel markets recover due to the new climate of regulatory certainty.

At the end of the month, REGI sold $125 million of convertible notes due in 2036, with the proceeds to be used to redeem similar notes which would have matured in 2019, as well as for stock buybacks.  This caused the market to irrationally sell off for about a week or so, but it should have a positive effect on the share price in the long term.  I took the opportunity of the selloff to add to my position.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
5/31/16 Price:  $5.03 / R3.10.  YTD Dividend: R0.02/$0.12  Expected 2016 Dividend: R0.08 (3.6%)  YTD Total Return: 20.3%

Software as a service fleet management provider MiX Telematics shot up on the news that the company would be buying back about 25% of its shares at R2.36 per share using cash on hand.  This should result directly in increased earning per share (EPS) of approximately 30%.  After the sale is finalized and the effect starts boosting EPS, I expect the stock to continue its upward trajectory.

Operationally, the first quarter was also solid and exceeded market expectations, with year over year subscription growth of 11% despite many of the company’s customers in the oil and gas industry reducing the size of their fleets.  I remain extremely bullish about the company’s long term prospects.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
5/31/16 Price:  $4.68.  YTD Total Return: -21.7%

Energy service contractor Ameresco reported a strong first quarter, with revenue up 16% and rising margins.  The improvement was driven mostly by Federal government projects, while sales of integrated PV solar systems continued to lag.  The latter was due to the weakness in oil and gas, since many of these customers are in that sector.

Last month, I wrote that I was beginning to question my faith in company management.  This quarter has helped, but I’d like to see a few more quarters of strong
execution before I put my doubts completely to rest.

Final Thoughts

The first quarter was almost uniformly good for my stock picks.  I continue to think Green Plains Partners and Terraform Global are two of the best values, but recent news has me adding Renewable Energy Group and MiX Telematics to the mix. 

Although MIXT stock was up 23% for the month, it remains greatly undervalued, especially in light of the expected 30% per share EPS increase due to the stock buyback.  As for REGI, I’ve been growing more confident that this stock is set for explosive earnings growth this year and next.

Disclosure: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL

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.

The post Ten Clean Energy Stocks For 2016: Earnings Season appeared first on Alternative Energy Stocks.

by Aurelien Windenberger

I’ve been a fan of Tom Konrad’s annual renewable model portfolio for years, so I’m happy to be able to assist Tom with some of his monthly updates.

After two chilly months to start off 2016, the outlook turned considerably warmer in March, both for the market and for clean energy stocks. The Russell 2000 (IWM) jumped 8% for the month, as market participants took to the “risk-on trade” following Fed Chairwoman Yellin’s dovish commentary. Clean energy stocks did even better, buoyed by a reversal in the broader energy sector.

Tom’s  Ten Clean Energy Stocks for 2016 model portfolio pared its losses from Jan/Feb, and is now down only 3.9% for the year, almost exactly the same as its benchmark (see below), which is down 3.8%. The seven income stocks were down 2.3% on average, slightly below the income benchmark, the Global X YieldCo ETF (NASDAQ:YLCO.)  The three growth stocks are now down 7.6%, and performed substantially better than their benchmark, the Powershares/WilderHill Clean Energy ETF (NYSEARCA:PBW),  in March. The overall benchmark mentioned above is a 70/30 blend of the income and growth benchmarks.

The Green Global Equity Income Portfolio, a seed account investing in green income stocks which is managed by Tom, was only up 6.7% during March. However, it has still outperformed all of the other model portfolios, climbing a total of 1.7% year to date.

The chart above gives detailed performance for the individual stocks.  Significant news driving individual stocks is discussed below.

Income Stocks

Pattern Energy Group (NASD:PEGI)

12/31/15 Price: $20.91.  Dec 31st Forward Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 
3/31/16 Price: $19.07. YTD Dividend: $0.381 Forward Annual Dividend:$1.524 (8.0%) YTD Total Return: -7.0%

After two surprisingly poor months to start 2016, Pattern Energy’s was up 15% in March. The company’s strong fourth quarter results and dividend ex-date in late March were certainly catalysts for the ascent. As mentioned by Tom last month, Pattern Energy’s CAFD (Cash Available for Distribution) is expected to increase to about $2.06/share over the next couple years.

Assuming a 7% yield puts the price up near $30, which might be a conservative target once MLP (Master Limited Partnership) investors learn about Pattern’s MLP-like yields and better risk profile. Anyone interested in learning more about Pattern Energy should read Kevin Neumaier’s recent articles on the company and dig into Tom’s article archive.


Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Dec 31st Forward Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 
3/31/16 Price: $21.72. YTD Dividend: $0.46 Forward Annual Dividend: $1.84 (8.5%) YTD Total Return: 22.5%

Wood pellet focused MLP and Yieldco Enviva Partners continued its excellent performance in 2016, jumping another 12% during March. Enviva is in an enviable position at the moment, given that it is producing a fuel source that hasn’t been as effected by the general decline in energy prices. As noted last month, the company provided new guidance for total distributions in 2016 of at least $2.10, 19% over its annual distribution rate at the end of 2015.

However, there are some concerns that the EU could take a less positive stance towards wood pellets in the future. For more information, I suggest readers review the comments on this recent article.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Dec 31st Forward Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 
3/31/16 Price: $13.45. YTD Dividend: $0.4025. Forward Annual Dividend: $1.61 (12.0%) YTD Total Return: -14.6%

Like Enviva, Green Plains is a new MLP and Yieldco.  The company’s contracts with its parent, Green Plains (GPRE), also insulate it from the general level of economic activity and commodity markets.  However, this insulation is only as good as its parent’s solvency.  While GPRE has a strong balance sheet, its ethanol operations are exposed to commodity markets, especially the oil price. 

As expected, GPP recovered along with the broader energy sector during March, although the move up was weak given the lack of any positive company specific news.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Dec 31st Forward Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 
3/31/16 Price: $13.57. YTD Dividend: $0.225. Forward Annual Dividend: $0.90 (6.6%) YTD Total Return: -0.7%

There was no significant news at Yieldco NRG Yield (NYLD and NYLD/A) during March, although the company did announce that their new 20MW solar power facility was completed in Southern California. The stock was up a solid 9% for the month and expects to increase their annual dividend to $1.00 per share by the end of 2016.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Dec 31st Forward Annual Dividend: $1.10 (19.7%). Beta: 1.22.  Low Target: $4.  High Target: $15. 
3/31/16 Price: $2.38. YTD Dividend: $.275. Forward Annual Dividend: $1.10 (46.2%). YTD Total Return: -52.5%

Terraform Global’s stock had an extremely volatile month due to bankruptcy concerns at its sponsor and controlling shareholder, SunEdison (NYSE:SUNE). While the company did pay their 4th quarter dividend as expected in mid-March, they were not able to release their financials due to accounting issues at SunEdison.

Global also released an 8-K on March 29th confirming that SunEdison is likely to file f
or bankruptcy protection, a move which would have material negative impacts on Global. SunEdison currently owes Global about 90MW of power plants from their formation agreements, as well as 425MW of Indian solar aseets for which Global pre-paid $231mil in December 2015. The delivery of some or even all of these assets is now uncertain.

Global also has change of control  covenants in certain of their bonds and project level debt which could force the company to pre-pay the debts. On the plus side, the company still has an estimated $750mil in unrestricted cash, along with 814MW of operating plants.

Both Tom and I believe that the company is largely undervalued at current prices. Tom notes that, “even the current bag of assets should produce the cash flow to support a $0.40 dividend, way more than is needed to justify a $2.50 stock price.” It was also good to see that former CEO Brian Wuebbels resigned this week, and that the board of the directors expressly noted that they take their fiduciary responsibilities to shareholders very seriously and remain committed to acting in their best interests.

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Dec 31st Forward Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 
3/31/16 Price: $19.22. YTD Dividend: $.30. Forward Annual Dividend: $1.24 (6.3%). YTD Total Return: 3.2%

Clean energy financier and REIT Hannon Armstrong delivered a solid month, performing in-line with the benchmark for the month. As highlighted by Tom many times over the past couple years, the company has an excellent business model that focuses on consistent growth with less risk than most of the Yieldco’s in the space.

HASI generally raises its dividend in the fourth quarter. The above guidance implies that the 4th quarter dividend will be between $0.34 and $0.36, and the dividend will be raised another 4 to 7 cents in 2017.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Dec 31st Forward Annual Dividend: C$0.84 (8.1%).   Low Target: C$10.  High Target: C$15. 
3/31/16 Price: C$12.65. YTD Dividend: C$0.22 Forward Annual Dividend: C$0.88 (7.0%) YTD Total Return (US$): 32.7%

TransAlta Renewables continued its excellent performance in 2016, climbing another 18% in March. The stock was boosted in part by continued gains in the Canadian dollar, which was up 4.2% in March. As noted last month, the company recently completed a drop-down of a cogeneration plant, a wind farm, and a hydro facility in Canada from its parent, TransAlta Corp. (NYSE:TAC).

Growth Stocks

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 
3/31/16 Price: $9.44. YTD Total Return: 1.6%

Advanced biofuel producer Renewable Energy Group saw its stock soar 29% during March, as the company reported better than expected annual results on March 8th. Thanks to the retroactive reinstatement of the bio-diesel tax credit for 2015, the company reported revenues and earnings which were substantially higher than expected by the market. REGI also announced a stock and/or convertible bond repurchase program of up to $50mil, which has likely provided additional support for the stock.

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Forward Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.
3/31/16 Price: $3.94/R2.36. YTD Dividend: R0.02/$0.12 Forward Annual Dividend: R0.08 (3.2%) YTD Total Return: -5.8%

Software as a service fleet management provider MiX Telematics finally saw its stock climb again in March, as it was up 13.5%. The stock was also helped by a 7.5% improvement in the South African Rand. The company also announced two new offerings in North America targeting the oil & gas industry. The 2nd in particular highlighted the expected monthly savings to companies using MiX’s fleet solutions, a key consideration given the cost cutting required in the industry today. In addition, MiX has $1.85 worth of cash per share, and a P/E ratio of just over 8.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 
3/31/16 Price: $4.77. YTD Total Return: -18.6%

Energy service contractor Ameresco was the only pick aside from Terraform Global to trade down during March. The company reported so-so results in early March, with no news since, so the stock hasn’t seen any interest. On the plus side, insiders continued to purchase more company stock.

Final Thoughts

Last month, Tom highlighted the fact that he was seeing great values across the renewable energy space, and urged investors with cash to buy. So far, it appears that the call was well timed. Even so, most of the stocks remain strong values, particularly the dividend payers. Given their relatively depressed share prices and projections for increasing dividends, total returns of 20-30% annually over the next couple years are not out of the question.

Disclosures:

• Aurelien: Long: HASI, MIXT, GLBL.
  
• Tom: Long HASI, AMRC, MIXT,,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL. 

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.

The post Marching Ahead: Ten Clean Energy Stocks For 2016 appeared first on Alternative Energy Stocks.

Tom Konrad CFA

The History and Future of the “10 Clean Energy Stocks” Model Portfolios

2016 will be the eighth and possibly final year I publish a list of ten clean energy stocks I expect to do well in the coming year.  This series has evolved from a simple, off-the-cuff list in 2008, to a full blown model portfolio, with predetermined benchmarks and monthly updates on performance and significant news for the 10 stocks. 

While there is much overlap between the model portfolio and my own holdings (both personal and in managed accounts), the model portfolio is designed to be easily reproduced by a small investor who only spends a few hours a year on his or her investments. Trading is kept to a minimum by retaining many names from each annual list, and only trading in the middle of the year in extreme cases.  There has been only one intra-year trade so far, in 2013 in the event of a bankruptcy.

Despite (or perhaps because of) the lack of trading, the model portfolios have performed well, at least relative to clean energy stocks in general.  The model portfolio has outperformed its benchmark every year since 2008 except 2013.  That year it returned 25% compared to the benchmark’s 60% return.

In the early years, the model portfolio mirrored the Clean Energy sector’s notorious volatility.  More recently, I have attempted to focus the portfolio on less risky stocks, and this has allowed the portfolio to consistently outperform its benchmarks.

The move to less risky stocks has also been a function of my growing personal focus on high yield Clean Energy stocks.  The only current Clean Energy mutual fund or ETF is the Global X YieldCo ETF (YLCO), which was launched in May.  Its low liquidity and worse performance will probably prevent it from gathering enough assets for long term viability.

I’ve been talking to investment advisory groups and mutual fund companies about possibly launching a mutual fund or other pooled fund based on a Global Green Equity Income Portfolio (GGEIP) which I’ve been managing in a seed account since the end of 2013.  The seed account has had excellent returns (up 6.6% in 2014 and 12.6% in 2015) while YLCO and fossil fuel based income alternatives have mostly fallen.

If I am successful in making GGEIP available to retail investors, SEC rules will likely prevent me from continuing to update the list regularly.  That is why this may be the last such model portfolio.  Or it may continue in a slightly different form: Aurelien Windenberger has offered to continue the updates if I am unable to.

The Making of 10 for 2016

Not only are income stocks my personal focus, but I believe that late 2015 will prove to be to be the best buying opportunity for clean energy Yieldcos.  Yieldcos are public companies that own long term contracted clean energy assets such as solar and wind farms, and use the cash flows to pay a high dividend to shareholders.  Many Yieldcos are listed subsidiaries of larger renewable energy developers.  These stocks became market darlings in 2014 and early 2015, when investors flocked to them because they had seemingly created a magic formula to combine high current dividends with a high dividend growth rate.  In fact, as I pointed out shortly before the bubble burst, the current dividends were unimpressive, and the cheap capital provided by seemingly endless investor enthusiasm was essential for the high dividend growth rates.

The Yieldco bubble popped over the summer, and I believe we have already seen the lowest point to which the sector as a whole will fall.  That said, many Yieldcos remain amazingly cheap on an absolute basis, and so the best valued Yieldcos will form the core of this list.  I recently wrote an article looking at Yieldco valuations using the dividend discount valuation model.  An updated version of the most important graph from that article follows; the Yieldcos in this list will be selected because of their attractive valuations on this chart.  

Read the article linked above for a full explanation of how to interpret the chart.

What Is A “Clean Energy” Stock?

Many followers of this series have noted that I tend to stay away from well-known green stocks, like Tesla (NASD:TSLA) and the solar manufacturers and installers most people think of first when they think of clean energy.  This is not just because I prefer less volatile stocks. It’s also because I believe that avoiding well-followed stocks gives me a better chance of finding great values that other investors have overlooked.  While some of these stocks may indeed be good values, they clearly have not been overlooked. 

For any investor with limited time to do research (i.e. all investors), deciding where that limited time can (and can’t) be spent most productively may be the most important part of the research process.  Investors who skip this step will inevitably squander valuable time researching stocks that are already well priced by the market.  I try to avoid such stocks with some quick tools that help me quickly eliminate most stocks as potential candidates for further research, which I wrote about here.  One of those tools is simply eliminating any company that might make good cocktail party conversation.  Whenever I tell people I what I do, those who are interested in investing always bring up Tesla and/or solar stocks.  Which is precisely why I seldom have much to say about such stocks, and you won’t see any of them in this list. 

While I don’t try to be a boring conversation partner, I do try to keep my portfolio as boring as possible.  Two other tools I use are looking for buying by company insiders, and low beta.  Among less followed stocks with limited public information, I believe that the actions of insiders is a very important indicator of a company’s prospects.  Low correlation with the overall market, or “Beta,”  not only indicates less risky stocks, but much recent research has found that (contrary to traditional market theory) that low volatility and low Beta stocks tend to outperform the market as a whole over time. 

For similar reasons, there are a couple stocks in this list that are not obviously “Clean Energy” stocks.  For my purposes, if a company’s products or services reduce the use of dirty energy (i.e. fossil fuels), then it is a clean energy company.  Renewable energy manufacturers, installers, and owners (such as Yieldcos) obviously qualify, but so do companies that sell insulation or help others manage vehicles more efficiently, even if those companies’ primary customers are fossil fuel companies themselves. 

The following table shows this year’s list in rough order of riskiness (by my own subjective assessment) along with market Beta and a summary of recent insider trading activity. 

*EVA and GPP have not been public long enough to calculate Beta accurately.

Benchmarks

This year’s list consists of eight income stocks and two value/growth stocks.  As in 2015, the benchmark for the income stocks will be YLCO, and the benchmark for the value/growth stocks will be the Powershares/Wilderhill Clean Energy ETF (PBW).  I will benchmark the 10 stock model portfolio as a whole against an 80%/20% blend of the two, and also compare it to the Russell 2000 index ETF (IWM) to show how its performance compares to the broader universe of small cap stocks.

Income Stocks Added for 2016

Pattern Energy (NASD:PEGI)

12/31/15 Price: $20.91.  Annual Dividend: $1.488 (7.1%).  Beta: 1.22.  Low Target: $18.  High Target: $35. 

Pattern is a Yieldco owning mostly wind projects in North America.  While Pattern is smaller than most other Yieldcos, and has a more limited development pipeline from its sponsor, it has historically been able to acquire new projects at higher cash flow yields than its bigger rivals with higher profile sponsors. 

The higher cash flow yields of Pattern’s projects are in part due to its emphasis on wind projects, and stronger independence at the Yieldco. Wind farms tend to have higher returns than solar because wind production varies more from year to year than solar, and the higher cash flow yields are compensation for higher risk.  That said, the risk of variable production from wind farms is easily diversifiable.  Since average wind speeds in one location have little correlation with wind speed in locations on other parts of the globe, let alone with solar production or the stock market in general, wind production risk production risk will have little effect on a highly diversified stock portfolio, and so the higher returns from owning wind farms come without significant added risk for the stock market investor.

The stronger independence of Pattern Energy from Pattern Development is by design. When Pattern Development offers Pattern Energy a wind farm for potential purchase, a committee of independent board members uses outside consultants to value that farm before price is ever discussed.  The purchase only takes place if the eventual price falls within the range of that initial valuation.

Enviva Partners, LP (NYSE:EVA)

12/31/15 Price: $18.15.  Annual Dividend: $1.76 (9.7%).  Low Target: $13.  High Target: $26. 

Enviva Partners is a Master Limited Partnership (MLP) which owns wood pellet manufacturing and transportation infrastructure.  Unlike wind and solar, the IRS considers wood products to be natural resources, allowing Enviva to use the tax advantaged MLP structure.  The advantage of this structure is that returns to investors can be higher because MLPs avoid taxation at the corporate level. The disadvantage is that MLPs are partnerships, and limited partners (shareholders) receive K-1 tax forms which usually include Unrelated Business Taxable Income (UBTI) which, if the MLP is owned within an IRA or other taxable account, means that the account will have to file a separate tax return with the IRS.  The added paperwork means that most investors will prefer to own MLPs in taxable brokerage accounts.

Most of Enviva’s customers are European power companies, which buy the partnership’s wood pellets under long term contracts.  This market is expected to continue to grow quickly because converting coal plants to burn sustainably sourced wood pellets is easily one of the most cost effective ways for an electricity utility to reduce its carbon footprint.  Enviva has most of its plants in the US Southeast, where the warm climate and plentiful rainfall results in fast growing forests which lend themselves to sustainable forestry. 

Some newspaper articles have questioned Enviva’s sustainability practices with allegations of wood from clear-cutting old growth hardwood forests.  While I believe it is possible that some wood from such clear cutting may have found its way into Enviva’s plants, I am confident that sale of wood to Enviva was not the motive for such clearcutting, and the company’s presence as a long term source of demand is more likely to encourage sustainable forestry than the opposite.  First of all, Enviva’s plants cannot accommodate large logs, just the small trees and branches which might otherwise be burned in place or left to decay (and release its stored carbon) on the forest floor.  Second, the vast majority of Enviva’s plants have FSC certification, which I consider to be the gold standard of sustainable certification for wood products.  They would not be able to achieve this certification if they made a practice of accepting wood from unsustainable forestry operations.

Hence Enviva easily meets my green criterion that the company’s operations have the net effect of reducing greenhouse gas emissions.

Green Plains Partners, LP (NYSE:GPP)

12/31/15 Price: $16.25.  Annual Dividend: $1.60 (9.8%).  Low Target: $12.  High Target: $22. 

Like Enviva, Green Plains is a new MLP.  The company owns ethanol production and transportation infrastructure.  All of its facilities have long term contracts which protect the partnership from direct exposure to the commodity cycle.

Like wood pellets, corn ethanol has also been the subject of questions regarding its sustainability.   Ethanol’s detractors often cite studies from the 1990s and early 2000s which showed that it required more energy inputs (in the form of fertilizer, fuel for harvest and transport, and heat for fermentation) than it produced when used to power vehicles.  While there may have been truth to such arguments a decade ago, ethanol production has become much more efficient since then. Ethanol production is a commodity business, and as the industry has grown, ethanol and other biofuel producers have become the main source of marginal demand for commodity crops such as corn. With the price of ethanol effectively set by the price of oil, and the price of ethanol effectively setting the price of corn, only the most efficient ethanol producers can survive and make a profit.  This market process has increased the industry’s overall efficiency, leading to n
et energy and greenhouse gas benefits from ethanol production.

I’m not going to argue that corn ethanol is as green as solar, wind, or even biodiesel.  Nevertheless, it reduces greenhouse gas emissions and the use of oil in transportation in the existing vehicle fleet.  Solar and wind cannot compare to ethanol in transportation until we have much higher penetration of electric vehicles, while biodiesel’s contribution is more constrained by the supply of suitable feedstock.

NRG Yield, A shares (NYSE:NYLD/A)

12/31/15 Price: $13.91.  Annual Dividend: $0.86 (6.2%). Beta: 1.02.  Low Target: $11.  High Target: $25. 

The term “Yieldco” was first applied to NRG Yield (NYLD and NYLD/A), and the company rode the Yieldco bubble in 2014 and early 2015.  During this period, I was often short the stock, as a hedge against the other, significantly better valued, Yieldcos.  Three of these (Hannon Armstrong, TransAlta Renewables, and Capstone Infrastructure (TSX:CSE, OTC:MCQPF) were in the 2015 list.  While NYLD fell more than 50% in 2015, Hannon Armstrong, TransAlta Renewables, and Capstone produced total US dollar returns of 40.5%, -18.4%, and 2.9%, respectively.  Now NRG Yield, and especially its A shares, have fallen so far that it has one of the best valuations in my DDM model.

Offsetting its very attractive valuation is the turmoil at its parent, NRG Energy (NRG), where the CEO recently stepped down because of investor skepticism about his aggressive green initiatives.  NRG Yield’s low share price and likely lack of management support at NRG may reduce its future ability to grow, but not so much as to significantly undermine its valuation.

The reason I include the less liquid A shares rather than the more liquid and widely held C shares (NYSE:NYLD) is because this list is mostly targeted towards small investors for whom A shares should be sufficiently liquid for unconstrained trading.  Other than liquidity, all the advantages lie with NYLD/A.  Both classes of stock pay the same absolute dividend, but A shares are less expensive and produce a higher yield.  A shares also have more votes, which will make them more valuable in any potential restructuring of the Yieldco.

Investors who do face liquidity constraints should consider splitting their purchase between the two share classes.

Terraform Global (NASD: GLBL)

12/31/15 Price: $5.59.  Annual Dividend: $1.10. Beta: 1.22.  Low Target: $4.  High Target: $15. 

Terraform Global had its IPO in late July, just as the Yieldco bubble was beginning to pop.  It is easily the riskiest of all Yieldcos.  It invests in relatively risky clean energy projects in developing markets like Brazil, China, India, and Brazil.  Another significant contributor to its risk is its sponsor, SunEdison (SUNE).  In order to avoid bankruptcy, SunEdison took complete control of both Terraform Global and its sister Yieldco, Terraform Power (TERP) in November.  GLBL’s new management promptly announced that it would focus on acquisitions from SunEdison.  The independent directors on the Terrafroms’ conflicts committees promptly resigned, stating that they could no longer ensure that all transactions between they Yieldcos and their parents would be to the advantage of the Yieldcos’ shareholders. 

With the departure of the independent directors, TERP and GLBL shareholders must now rely on shareholder activism and class action lawsuits to make sure that SunEdison does not abuse its power at the Yieldcos.  TERP’s shareholders found their champion in activist investor David Tepper, who seems to have been the impetus behind the renegotiation of SunEdison and TERP’s agreement to acquire Vivint (VSLR.)  The revised agreement was to both SunEdison’s and Terraform Power’s advantage, but, in my opinion, the Yieldco got the best of the deal.

While Terraform Global is undoubtedly risky, it is also a great value.  At the end of the third quarter, it held $9.50 in cash per share, well above the current share price of $5.59.  The declared dividend is $1.10 annually, or 20%, so even though there is a risk that SunEdison will use GLBL’s cash to bail itself out of its financial difficulties, the threat of future lawsuits should ensure that that cash is exchanged for clean energy projects at something close to market prices.  As long as those projects are sufficient to support the current $1.10 dividend, there should be significant upside for shareholders who buy at the current price.

Growth Stock Added for 2016

Renewable Energy Group (NASD:REGI)

12/31/15 Price: $9.29.  Annual Dividend: $0. Beta: 1.01.  Low Target: $7.  High Target: $25. 

Renewable Energy Group, or REG, is the leading producer of biobased diesel with a US listing.  It replaces smaller biodiesel producer FutureFuel (FF) from the 2015 list.  FutureFuel combined a biodiesel business with a large chemicals business which helped shield the company from the continued decline of the biodiesel industry and allowed it to produce a modest 5.5% total return while REG fell 4.5%.  This year, all the factors are in place for a strong industry recovery, and so I’m switching my emphasis to the pure-play.

The factors driving the decline of the biodiesel industry were 1) regulatory uncertainty, 2) declining diesel (and hence biodiesel) prices, and 3) declines in the price of biodiesel feedstocks which lagged the declines in biodiesel.  Regulatory uncertainty was greatly reduced when the EPA set target renewable fuel standard (RFS) volumes for 2014, 2015, and 2016 and reinstated the $1-per-gallon tax credit for biodiesel.  While ethanol producers were generally unhappy with the new targets, biodiesel producers fared better. 

Low crude oil prices are beginning to cut into production, especially shale oil production in the US, a trend which will mitigate future declines and set the stage for a potential rebound.  Slower oil price declines will allow declines in the price of biodiesel feedstocks to “catch up,” which will improve biodiesel industry profitability.  REG has used the industry downturn to consolidate its position as an industry leader, leaving it extremely well positioned to capitalize on any improvement in the market.

Returning Income Stocks

Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).

12/31/15 Price: $18.92.  Annual Dividend: $1.20 (6.3%).  Beta: 1.22.  Low Target: $17.  High Target: $27. 

Hannon Armstrong is a Real Estate Investment Trust and investment bank specializing in financing sustainable infrastructure.&
nbsp; It’s a leader in the disclosure of the net effect on greenhouse gas emissions caused by its activities.  Hannon Armstrong was my top pick for 2015 as well as one of the three top performing stocks.  I nearly dropped it from the list this year because so many other Yieldcos are more significantly undervalued, but in the end chose to keep it because of the company’s unique niche in financing clean energy which I believe gives it a significant competitive advantage over all other Yieldcos.

TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37.  Annual Dividend: C$0.77 (6.7%).   Low Target: C$10.  High Target: C$15. 

TransAlta Renewables produced disappointing returns in 2015, although its performance was much better than practically all other Yieldcos.  It remains solidly in the list because it remains attractively valued.  Its stock trades at an approximate 30% discount to my dividend discount valuation.

Returning Growth Stocks

MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80.  Annual Dividend: R0.08 (2.9%).  Beta:  -0.13.  Low Target: $4.  High Target: $15.

MiX provides vehicle and fleet management solutions customers in 112 countries. The company’s customers benefit from increased safety, efficiency and security.   Like Ameresco, MIXT stock has fallen despite progress in the business, which has been regularly posting annual subscriber growth around 15%. 

I attribute the stock decline to a combination of the oil price decline, the fall of  the South African rand, and flat earnings caused by falling hardware sales as MiX shifts from a sales model to a bundled subscription model.

The oil price decline hurts MiX because a large proportion of its customers are in the Oil & Gas sector, and the falling rand hurts because South Africa is the company’s home market.  Both oil and the rand could go up as easily as down in 2016, having a positive effect on the stock.  Also, as more and more of MiX’s revenues come from subscriptions, earnings are becoming less sensitive to hardware sales.

MiX also reinstated its dividend in 2015, a move which did not seem to please the market, but makes it even more attractive to me.

Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25.  Annual Dividend: $0.  Beta: 1.1.  Low Target: $5.  High Target: $15. 

Energy service contractor Ameresco had been suffering for two years because its clients, mostly government entities, had been slow to finalize contracts. That has been turning around in 2015, and Obama’s recent initiatives to further improve energy efficiency in government buildings should help as well.  Further, Ameresco has diversified its business into commercial solar installation, and that business will benefit over the next few years from the long term extension of the Solar Investment Tax Credit.

Despite all this, the stock fell again in 2015.  Company insiders, especially CEO and controlling shareholder George Sakellaris, maintain their faith in the company by continuing to buy the stock in quantity.  If other investors fail to recognize Ameresco’s potential in 2016, the stock has fallen low enough that he may decide to take it private.

Final Thoughts

Many income investors are particularly cautious now that the Federal Reserve has begun to slowly increase interest rates.  But any interest rate rise promises to be very gradual, and the recent decline of Yieldco prices and the long term extensions of the Solar, Wind, and biodiesel tax credits should all help clean energy stocks in 2016.  I expect this year to be a strong one for clean energy stocks in general, especially recovering Yieldcos.

Disclosure: Long HASI, CSE/MCQPF,  AMRC, MIXT, FF,  RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL. 

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.

The post 10 Clean Energy Stocks For 2016 appeared first on Alternative Energy Stocks.