You can find the original list here.  I’ll be doing commentary on individual stocks as there is news.  The first of these is on MiX Telematics (MIXT) earnings, first published for my Patreon subscribers on January 28th and copied below.  A note on Scorpio Bulkers (SALT) from February first will be published here tomorrow.

MiX Earnings

MiX Telematics (MIXT) reported earnings this morning [January 28th].  The numbers showed improvement over the previous quarter, but a decline over the previous year due to the covid crisis which was exacerbated by the strengthening dollar.

The results were pretty much what I expected when I added MiX to the 10 Clean Energy Stocks for 2021 list.

In that article, I wrote:  “[C]ovid has led many businesses to take a new look at what parts of their operations can be handled online and remotely.  This should provide a lasting boost to the vehicle telematics industry in general.”

Stefan Joselowitz, Chief Executive Officer of MiX Telematics was quoted in the press release saying, “As we look ahead, we are very encouraged by the strategic conversations we are having with large fleet operators on the greater role telematics will play in their future operations. This gives us confidence MiX is well positioned to return to attractive subscription revenue growth rates once the economy normalizes.”

I take that as confirmation of my thesis.

DISCLOSURE: Long MIXT and all other stocks in the list.

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 January Performance: 10 Clean Energy Stocks for 2021 appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Looking Back

At the end of 2019, I was worried about overvaluation.  

I wrote that my main goal for the 10 Clean Energy Stocks for 2020 list was “to find stocks which will be resilient in the event of a US bear market.”  We certainly had a bear market in 2020, although it was nothing like the kind of bear market I had been anticipating.  The bear market was precipitated by the coronavirus pandemic, rather than overvaluation.

While I can claim to have anticipated the 2020 bear market, if not its nature, I was surprised by two other market events driving stock prices.  One was the sudden reversal of the bear market, which led to gains in most indices for the year.  The second was the rapid growth of the fossil fuel divestment movement, leading to rising interest in clean energy stocks.  

Both of these surprises helped pull the 10 Clean Energy Stocks model portfolio to a 7.8 percent total return for the year, but my defensive posture at the start of the year, my failure to anticipate the nature of the bear market, and my policy of trying to minimize trading meant that the model portfolio did not see as much upside as my clean energy income stock benchmark, the Yieldco ETF (YLCO), or the real money strategy I manage, the Green Global Equity Income Portfolio (GGEIP).  These were up 29.7 percent and 28.1 percent, respectively.

My broad market income stock benchmark did not see any benefit from the new interest in clean energy stocks, so ended the year up only 4.1 percent.

Looking Forward

With valuations even higher than they were at the start of 2020, and the economy in a continued pandemic tailspin, I would not be surprised if another bear market were to start in 2021.  I don’t think the stock market has ever seen back-to-back bear markets like this, but one vocabulary lesson of 2020 was that “unprecedented” and “unlikely” can mean radically different things.

And despite current stratospheric valuations of most clean energy stocks, I would not be surprised if the boom has a lot further to run.  Even if the rest of the stock market collapses, the rush of money out of fossil fuels and into clean energy could continue to send the sector skyward. 

It’s a market truism that, “In the short-run, the market Is a voting machine, but in the long-run, it is a weighing machine.”  Right now, the market is voting for clean energy.  The pandemic has caused many to take stock of how their actions affect the world around them.  

Just as masks help stop the spread of covid-19, people are realizing that clean energy stocks can help stop the spread of climate change.  That has started a clean energy stock boom, and stock market booms often gather a momentum of their own, with past gains leading to expectations of future gains, and new investors rushing in because of the fear of missing out.

This clean energy boom is starting to look like a bubble, but stock market bubbles can expand for years before they pop.

2021

My new 10 Clean Energy Stocks for 2021 list tries to take advantage of the boom in clean energy stocks, while also keeping a defensive posture.  Since the pandemic response has been so much worse in the United States than most of Europe, I included many European names, and tried to focus on clean energy companies that could benefit from increased spending by other clean energy companies.  I looked at stocks that could leverage their high stock prices to increase their future growth rates, while trying to diversify beyond the obvious solar, wind, and electric vehicle sectors.

Will this new list return to its historical outperformance compared to its benchmark? I have no idea.  I have trouble believing just how good my own track record is, given how often it feels like I am wrong about where the stock market is going.  

Although I find myself without any confidence in my stock market predictions for 2021, I console myself with two facts:

1. Overconfidence is a danger for investors, not a boon.
2. Some things are more important than making money in the stock market.  

We’re going to have a new President in 2021.  As long as I’m not wrong about that, I can handle being wrong about the market.

DISCLOSURE: Long positions all the stocks in the model portfolio.  

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 Year in Review: 10 Clean Energy Stocks for 2020 appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

The stock market took off in November, fueled by very positive covid-19 vaccine news, and possibly also the prospect of a little competence and sanity in the White House.  While both of these are unambiguously positive for the economy, I think investors are seeing the future through rose colored glasses.

What a Biden Victory Means for the Economy

A Biden victory is good news in that we will finally have someone in the White House who will work to reduce the infection rate in the pandemic, rather than vacillating between wishful thinking and actively spurring it on by denigrating mask wearing and organizing mass rallies seemingly designed to spread the disease.  

A Biden victory is also good news because it means we will have someone in the White House who will be actively working to get a pandemic relief bill through Congress.  Chances of that bill being large enough to tackle the problem depend on Democrats winning both of the Senate run-off races in Georgia.  If the Republicans keep either of those seats, McConnell will continue to control the Senate, and McConnell has said he wants a $500Bn relief bill–far too small to deal with the damage being caused by the out-of-control pandemic, and the lockdowns states are being forced to impose in response.  Polls for both races are within the margin of error, with the Republican leading slightly in one and the other being a dead heat.  Even if we assume that voters will focus on control of the Senate and not split their votes, Democratic chances of controlling the Senate are likely below 50%.  Since the Dems need to wind both races, significant vote-splitting will ensure McConnell remains in charge.

What the Vaccine News Means For the Economy

The big news on the vaccine front in November was not that the first vaccines will likely start being administered before the end of December (while the timing was uncertain, getting the first doses in December seemed likely.)  The fact that the early results show that three of the prospective vaccines are remarkably effective at preventing infections is both a surprise and significant reason for optimism.

While the likely high efficacy of these vaccines is excellent news, there is still a long way between vaccine trial results and getting enough of the population vaccinated to stop the spread of the virus.  The main reason I do not invest in technology startup companies is because so many things can go wrong between promising lab results and selling a product to the mass market.  I see the producing and distribution of these vaccines as an  analogous situation.  We will be attempting to vaccinate the majority of the population faster than it has ever been done before.  

We also lack long term studies of the effects of these vaccines.  How long are they effective? We know that there are cases of people who have had the virus getting it again, leading us to believe that natural immunity is not permanent. Vaccine-induced immunity will likely also fade over time.  Even if a vaccine is 95% effective for the first month, how effective will it be six months or a year later?  

Production and distribution snafus, are possible as well, and we still need to persuade a majority of the population that they should get the vaccine.

President Trump claims that we will be able to get most of the population vaccinated by June 2021.  Given the source, we can comfortably assume that this is a wildly optimistic, if not impossible goal to achieve.  So even if everything goes right with the vaccine, the earliest we can expect to be able to relax social distancing measures will be the second half of 2021, and the economic damage will continue to be done at least until that happens.  

2021 Outlook

In short, my 2021 outlook remains grim, and the good vaccine news plus Biden victory which have led to the November rally do not seem to justify a 15%-ish rise in an already overvalued market.  I will continue to approach the market with extreme caution until I see actual economic recovery, or a large market decline leading to much better stock valuations.

Model Portfolio

Despite my caution, the 10 Clean Energy Stocks for 2020 model portfolio did well in November.

The model portfolio has finally broken even for the year, in line with its broad market income stock benchmark, SDY.  However, compared to its clean energy income stock benchmark (YLCO, up 18%) and my real money Green Global Equity Income Portfolio (GGEIP, up 20%), the performance continues to be disappointing.  You can find my thoughts on why it might be lagging in my September update.

Individual Stocks

All stocks seem expensive to me right now, and I generally prefer to move to the sidelines than play the relative valuation game in an overvalued market.  In general, I like the companies in the portfolio, but am not buying and am taking some profits or selling calls on the larger positions.  

I published a few earnings highlights for my supporters on Patreon in late October and early November.  They are a little out of date now, but I’ve changed the permissions so that everyone can read them at these links:

• Mix Telematics (MIXT): https://www.patreon.com/posts/43288860
• Covanta Holding (CVA): https://www.patreon.com/posts/43302522
• Valeo (FR.PA, VLEEF, VLEEY): https://www.patreon.com/posts/43453098
• Green Plains Partners (GPP): https://www.patreon.com/posts/43782924
• NFI Group (NFI.TO, NFYEF): https://www.patreon.com/posts/43791404

Note that I have become significantly less pessimistic about NFI Group since I wrote the note above because the vaccines seem likely to be more effective than I was assuming in early November.

I also published a note about Brookfield Renewable (BEP, BEPC): https://www.patreon.com/posts/43707068, which is not currently in the portfolio, but has often been in the past.  

Conclusion

I’m still waiting for a downturn before I’m ready to start buying.  Yes, the election and vaccine news are good for the economy, but the stock market never seemed to reflect just how bad the economy is likely to get before the recent news, and it still does not.  

I continue slowly taking more profits as my stocks rise by selling covered calls or portions of my positions.

DISCLOSURE: Long positions all the stocks in the model portfolio with the exception of NFYEF is now a very small position.  

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 2020: Rose Colored Covid appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

After a couple down market days, all the limit orders I listed on Monday have executed.

Here is the current portfolio:

Coming Up:

Third quarter earnings season is starting… I plan to write short notes on earnings as they come out for my Patreon supporters, which will be compiled into longer articles on AltEnergyStocks.com a few days later.

Also, I’m doing a talk on how to divest from fossil fuels with the founder of divestor.org this coming Monday at 8:30 pm ET for the Climate and Health subgroup of Citizens Climate Lobby  It’s open to the public, so follow the link if you are interested.

Disclosure: Long positions all the stocks in the model portfolio with the exception of NFYEF.  

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 2020: Updated Model Portfolio appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Two of the cash covered puts in the 10 Clean Energy Stocks for 2020 model portfolio have now expired, and I am left with a difficult decision as to what to replace them with.

As I discussed last month, I feel the market is overvalued given the economic impact of the pandemic and little prospect of fiscal stimulus before January.  Yes, the market is not the whole economy, and large tech firms and high income workers and the wealthy are doing great while people on the bottom half of the income ladder are being crushed.  With the pandemic worsening just as we head into the colder months, it’s going to be a hard winter.  

This is no time to be buying stocks.  Rather, we should be squirreling away our cash and waiting for a significant market decline, possibly even a crash before we invest.

Making matters even more difficult, the model portfolio has significantly underperformed this year, a good 16% below both its clean energy income benchmark, YLCO, and my real money managed portfolio, GGEIP, both of which are now up slightly for the year.

The model portfolio (at -13%) looks less bad in comparison to its broad market benchmark, SDY, but as of the end of September, it was still below that even in the relative performance game.

Behavioral psychology tells us that most people hate to lose even more than they like to win, and I am no different.  When I find myself in a situation like this where I am “behind”, I have a strong temptation to make a risky move as long as it has a chance to pay off big and let me “catch up.”

Fortunately, I know behavioral psychology, and while I am tempted to take undue risks, I don’t have to give in to temptation.  One such bet I considered was purchasing put options on a market index.  After all, I believe the market is overvalued, and options can easily return many times the initial investment when they pay off.  Unfortunately, the market’s overvaluation does not guarantee a near-term market correction.  

A common market aphorism (sometimes attributed to Keynes and other times to Shilling) is that the market can stay irrational longer than you can stay solvent.  No matter what the origin, it’s good to keep in mind whenever we are tempted to bet on market rationality.  It is also why I do not ever totally get out of the market and into cash, even at times like these when I am very concerned about valuations and potential market shocks.

So, the goal of these selections is to maintain a defensive posture while avoiding the temptation of making any big bets to try to make up for previous losses by year end.  When considered against the portfolio’s longer term track record, it’s worth noting that 2020 is likely to be the first year the model portfolio falls behind its benchmark since 2013.

Picks

Between accumulated dividends, and the cash freed up by the expiration of the puts on Hannon Armstrong (HASI) and Covanta (CVA), the portfolio had $3,533 in available cash.  On valuation, I continue to like Covanta, Green Plains Partners, and MiX Telematics (MIXT).  In general, I would prefer to sell out-of-the-money cash puts because of the protection they give against a small decline in the stock market compared to buying the stock outright.

Only Covanta has exchange traded options available, and I will attempt to sell two March 2021 $7.50 puts using a good-til-canceled limit order of $0.70.  If executed, the puts will sell for $140 and $1500 cash will be needed to cover the potential assignment of 200 shares of CVA at $7.50.  

This will leave $2173 to invest, which I will split between a good-til-canceled limit order to buy 120 shares of MIXT at $8.60 or better and 131 shares of GPP at $7.83 or better.  

These prices are all a little below the market, so I will only count the trades towards the model portfolio if the stocks or option actually trade at or better than these prices starting on Monday 10/19.

Final Thoughts

I was tempted to leave the portfolio holding most of the cash, but I generally try to keep it mostly invested.  If you use the 10 Clean Energy Stocks model portfolio as a guide for your own trades, keeping a decent allocation to cash is probably a good idea right now.

Disclosure: Long positions all the stocks in the model portfolio with the exception of NFYEF is now a very small position.  My supporters on Patreon got an early look at this article on October 18th.

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 2020: Spooked in October, but Trading Anyway appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Despite high valuations, a rampaging pandemic, and the end of the $600 weekly supplemental unemployment payments from the CARES Act, the stock market continued upward in August.

Like most ordinary people in this economy, my Ten Clean Energy Stocks model portfolio is still not feeling the recovery the way the big tech companies and the ultra wealthy are, although my real-money Green Global Equity Income Portfolio (GGEIP)  is now hitting new highs for the year.  

The difference between the model portfolio’s performance and GGEIP is mostly a result of trading: It had a large cash position at the start of the year, did a lot of buying in March, and is now moving back towards cash.  I try to keep trading in the model portfolio to a minimum, and that and the general lack of tech names has kept it from fully participating in the market’s stunning rally.

I generally try not to trade in the model portfolio for two reasons.  First, I want the strategy to be replicable by people who have only a casual interest in the stock market and tend not to adjust their portfolios more than a couple times a year.  When I do trade, it is only at the start of the month, in line with these updates.

The second reason is that market timing is very difficult to do.  To buy near the bottom, you have to take risks despite the fear that a falling market causes.  To not buy at the top, you also have to conquer fear: the fear of missing out.

The Waiting

The waiting is the hardest part

Every day you see one more card

You take it on faith, you take it to the heart

The waiting is the hardest part

— Tom Petty and The Heartbreakers.  The Waiting, Chorus.

When Tom Petty sang “The waiting is the hardest part” he was not talking about the stock market, but he could have been.  For me at least, the hardest part of stock market investing is battling that fear of missing out.  This is probably because stock market bottoms tend to be short, and the right thing to do at a bottom is to act… to buy.  I use my fear itself as a signal that it probably is a good time to buy.  I know this because if I’m feeling fear, other investors are, too, and they are acting on that fear, driving the market lower.

When the market is overvalued but still going up, the right thing for a value investor to do is to lower your exposure to the market, and wait for the market to fall and better valuations to appear.  This, as Petty said, is the hardest part.  Nothing happens in your portfolio for month after month, while the market keeps rising, and what you need to do is wait, and maybe sell a little more to lower your exposure further.

There’s also not much research worth doing.  When I look at the stocks in my universe, I generally like the companies, but valuations are high, and when I know the overall valuation of a company is high, there is no reason to familiarize myself with the details of its strategy.  Researching a company in detail just makes it harder to avoid becoming attached.  You can get caught up in the story, but the only thing you learn is whether the stock is trading at twice its value, or at 2.2 times.  Either way, the right thing to do is wait, and time spent drinking the Kool-Aid just makes this harder.

Individual Stocks

Since I’m trying not to spend too much time caught up in the stories of individual stocks, I also don’t have much to say about most of them.  

Last month, I wrote about selling most of my NFI Group (NFYEF, NFI.TO) position.  The timing of that sell could have been better, since the stock has climbed since then, but it does not change my opinion: I’m still worried about the long term prospects of its main customers: municipal transit operators and (especially) intercity coach services.  The stock rise since last month just gives readers a better opportunity to sell.

I also wrote briefly about  Veolia Environnement SA’s (VEOEF, VEOEY, VIE.PA) offer to buy  Suez SA (SEV.PA) for my Patreon supporters on August 31st.

The deal is a revival of a failed bid from eight years ago.  The former deal floundered on French antitrust concerns and worries about job losses, but seems to have a chance this time because French investment fund Meridiam has agreed to buy Suez’s French water business.

The deal would involve Veolia first buying Engie’s (ENGI.PA) 29.9% stake for 15.50 euro per share, followed by an offer to buy the publicly held stock at the same price.  This is an approximate 25% premium on the price before the deal was announced, but still below Suez’s February high of approximately 16 euro.

The deal is far from a sure thing, but should be good for Veolia if it goes though… size is a big advantage in its businesses of water and waste management, and Veolia seems not to be paying too much of a premium.

I’m not in a rush to buy more Veolia, but if the deal goes through, the company will be one of the more attractive prospects to buy in a real stock market downturn.

Is This The Bottom?

The stock market declines in the first week of September may have readers wondering if the possible pullback of the market I’ve been worrying about is already here.  

It may be starting, but if it is the pullback I’m worried about, it’s far from done.  I look for two things when calling market bottoms: good valuations, and investor capitulation.  I described this in detail when I discussed the Yieldco bubble and bust in 2015.

As of the second week of September, we’re not even close.   On valuations, the stock market has simply retraced a couple weeks of gains, bringing the indexes back to their levels of mid-August, when they were still overvalued.  And as for capitulation, I have not even begun to see signs of widespread fear among investors.  Greed (and the fear of missing out) remain the dominant emotions.  

The waiting won’t be over until more investors are asking themselves, “How much farther is the market going to fall?” rather than “Is this my opportunity to buy?” 

Until then, keep Tom Petty and the Heartbreakers Stockbrokers in your playlist.

Disclosure: Long positions all the stocks in the model portfolio, although NFYEF is now a very small position.

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 2020: The Waiting appeared first on Alternative Energy Stocks.

A secular shift in the transportation paradigm?

by Tom Konrad, Ph.D., CFA

I’m continually surprised at the strength and length of the stock market recovery in the face of a worsening pandemic in the US.

The stock market may not be the economy, but it’s not totally divorced from the economy either.  Perhaps the Senate’s unwillingness to even talk about another aid package and the subsequent failure to pass one until after the benefits in the initial CARES act expire will trigger the market reversal I’ve been expecting at least since late April.  Or it won’t.  I have a long track record of being too early on my calls for market corrections, but this is getting ridiculous.

In any case, the long rally has given me ample opportunity to take gains in winners and losses in companies likely to take permanent damage from the pandemic.  I’ve also been selling covered calls and otherwise positioning the Green Global Equity Income Portfolio, which I manage, for a renewed market downturn.

For the 10 Clean Energy Stocks model portfolio, no change.  This is simply because I try to minimize trading in the model portfolio; I want it to be a strategy that a small investor who only looks at her portfolio a couple times a year can emulate.  In the past, that has sometimes helped and sometimes hurt.  This year, it has hurt.  2020 has been a great year to be a trader, with the wild market gyrations.  I expect those gyrations to continue, and the model portfolio will stand pat.

If we do see a sharp market decline in the next couple of months, I will probably change that.  In that case, I will cash out the gains on the cash covered put positions, and use the money freed up to invest in whatever bargains a renewed market decline creates.

Earnings Season Begins

Over the last couple weeks, I have been sharing my thoughts on various company’s second quarter earnings with my Patreon supporters.  If you’d like to support my writing and see those thoughts in a more timely manner, consider becoming a patron. becoming a patron.

For everyone else, I’m reprinting those thoughts below.

Conclusion

Taken together, these three stock updates flesh out a theme I see emerging from the coronavirus pandemic: I expect social distancing to be with us, at least in part, permanently.

Few people are talking about the long term effects of the pandemic… the usual conversation I hear is along the lines of “when this is over and things go back to normal.”  That is a nice thought, and we all hope for it, but hope is not generally a wise investment strategy.

Even if/when we have a vaccine, it could easily be like the flu vaccine: able to slow the spread, but not completely effective.  Successful investors anticipate the likely future, not the future they want to see.

If some level of social distancing becomes a permanent feature of our society, this will permanently harm collective transportation, like New Flyer’s buses and airlines.  It will help companies which allow us to do our jobs remotely (like MiX’s telematics software) or through sensors and automation (Valeo.)

Disclosure: Long positions all the stocks in the model portfolio, although NFYEF is now a very small position.

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 2020: July Update on Valeo MiX, and NFI appeared first on Alternative Energy Stocks.

by Tom Konrad Ph.D., CFA

Four weeks ago, I predicted that the 12% market correction we had seen would turn into a true bear market.  Bear markets are often defined as a decline of more than 20% for the major market indexes, but I find it more useful to focus on long term changes in investor sentiment.

What I did not predict was just how severe the effect of the coronovirus shutdown would be on the economy.  I thought we would need the combined of the effect of the shutdown and investors re-assessing their risk tolerance to bring us into full bear market territory.  Now, a month later, it seems clear to me that the economic effects alone are enough to justify a 20% decline.

I still believe that the current period of uncertainty will have a long term effect on investor risk tolerance.  That means that even when we have the economy functioning back at 2019 levels (which I don’t expect until 2022) the stock market will probably be trading at a lower valuation than it was in January 2020.

Readers, mark your calendars with a note to check if the S&P 500 is trading above its peak of 3,393 in January 2020.  If it goes above that, do me the favor of calling me on it… I’ll write a mea culpa, and hopefully will be able to draw some lessons that will let all of us learn from my mistakes.

First Quarter Performance

Despite a successful hedging strategy, my Ten Clean Energy Stocks for 2020 model portfolio has now lost almost 25% of its value since the start of the year.  This is better than its broad market benchmark (SDY), which is down a little over 25%, but it is well below the rather resilient performance of its clean energy income stock benchmark, the Yieldco ETF YLCO.

My real money managed portfolio, the Green Global Equity Income Portfolio (GGEIP) has done almost as well as YLCO, and is down 18% for the year to date.

Keeping Perspective

The losses all around are large, and when you are looking at a portfolio that’s down 20% to 30% year to date, it’s easy to get overwhelmed.  This interferes with good decision making.  In order to maintain my perspective, I also like to look a longer time periods.  Fortunately, 2019 was a blockbuster year for my portfolios, so zooming out a longer time period can be comforting.  Here are the returns for the portfolios and benchmarks over the last 12 months and since January 2019:

It’s a little easier to think about the next move when you think of your account as up 10% to 15% since the start of 2019 (like both clean energy income strategies and their clean energy benchmark) as opposed to thinking of it as down by one sixth to one quarter since the start of the year.

What’s Next?

Now that we have reassured ourselves that, despite the ongoing bear market, we’ve still made money by investing in clean energy income stocks since the start of 2019, it’s a little easier take the long term view going forward, rather than focusing on “making up” for recent losses.

The sharp rally we have seen in the stock market since the recent low on March 23rd is most likely driven by people who are worried about missing out on the recovery and focused on “recovering” recent losses.  I think many are rushing in too quickly.

If the stock market were only reacting to the Covid-19 shut down, the 25% decline in SDY so far this year is probably enough to compensate for the lost earnings.  But if I am correct that this downturn will cause investors to re-evaluate their overall risk tolerance, the bear market bottom is still somewhere in our future.

How the Bear Might Play Out

I expect that as investors grapple with the new reality, the market will remain volatile for months to come.  We will see multiple sharp rallies (like the one since March 23rd) and declines.  The March 23rd lows will be broken for many stocks, and likely for stock market indexes as well.  I expect the final market lows to be ten to twenty percent below most stock indexes’ current level.  When the true bull market finally begins, the  continuing high volatility will likely mask the increase.  There will be continued sharp declines, but successive bottoms will not quite reach the previous lows, and the long term rise will only be clear in retrospect.

All of the above are simply my best guesses.  With any prediction so complex, I will almost certainly be wrong about parts of it.  While that is what I expect, I also expect to be surprised.

Trades

Although I do not think we have reached the bottom, the incredible decline in fossil fuel stocks leads me to believe that the risks and rewards of owning the January 2022 $20 Put on XOP have changed.  For the purpose of the model portfolio, I am selling it at $12.50, netting $1,250 cash for the portfolio to reinvest.  This is the midpoint of the bid and the ask price at the close on March 31st.   As I write on April 1st, XOP is down $1.46 from last night, so readers may be able to get a little more for it.

I will also note that the buyout of Pattern Energy Group was completed in March, meaning that we did not collect the expected $0.422 dividend which would have been awarded on March 31st, but the portfolio did collect $26.75 per share in cash.  Combined with dividends from other holdings so far this year, the portfolio has $5,193 available to invest.

Given that volatility remains high, and I expect further sharp declines followed by sharp rallies, selling cash covered puts is likely to be a profitable strategy in the coming months.  So rather than selling at current market prices, I will sell using good-til-canceled limit orders.  If the market does not hit my limit prices, the portfolio will still have the cash.  If it does, we will have one or two new positions.

Here are the orders I will be using for the model portfolio:

Sell to Open 1 HASI Oct 16 2020 $20 Put, at a limit price of $4 or better.  (This will reqiure $1,600 in cash to secure the put – $2,000 minus the $400 premium.)

Sell to Open 1 EBAY Jan 15 2021 $28 Put, at a limit price of $3.60 or better.  (This will require $2,440 to secure the put.)

Sell to Open 1 CVA Sep 18 2020 $7.50 Put, at a limit price of $1 or better.  ($650 required to secure the put.)

If the limit prices above are reached, I will add the puts to the portfolio in the next monthly update.

Stock notes

I will discuss why I like Hannon Armstrong (HASI), Ebay (EBAY) and Covanta (CVA) for selling cash-covered puts at the current prices in another update over the next few days.  For now, I want to get you these trades as quickly as possible.  Stay Tuned!

Disclosure: Long CVA, GPP, GPRE, VLEEF, NFYEF, MIXT, CIG, RDEIF, VEOEF, HASI, EBAY.

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 2020: Trades appeared first on Alternative Energy Stocks.

by Tom Konrad Ph.D., CFA

Sometimes it’s good to be wrong.

When I published the Ten Clean Energy Stocks For 2019 model portfolio on New Year’s Day 2019, I thought we were likely in the beginning of a bear market.  With 20/20 hindsight, that was obviously wrong.

I made the following predictions and observations:

1. “[T]he clean energy income stocks which are my focus should outperform riskier growth stocks.”  [True]
2. “[D]eep value investors will put a floor under the stock prices of these ten stocks.” [Irrelevant, and a little amusing.]
3. “I could also be wrong about the future course of this market.”  [So true!]
4. “I have a history of underestimating the optimism of investors.” [True, and even more true today]
5. “[If] the Dow [is] hitting new highs by the end of 2019 …  I expect that this model portfolio will produce gains as well, although it will likely lag the gains seen by the broad market of less conservative picks.” [Wrong again]
6. “As long as you are in the market, every now and then the stars will align, and you will make some great gains.” [True, but I did not think that alignment would come again in 2019 so soon after 2016 and 2017.]

In the end, my conservative model portfolio ended the year with a total return of 46%.  The real-money green income strategy I manage, GGEIP returned 41% despite a large cash allocation in the second half of the year.  Both compare favorably to my clean energy income benchmark, YLCO, which was up 37%, and the broad market income benchmark SDY, which gained 24%.

In short, the stars aligned in 2019.

Because almost every stock in the model portfolio went up far more than its actual business improved, I dropped most of them from the 2020 clean energy stocks model portfolio.  I still like all the companies, just not their prices.

I did not sell any of them completely in GGEIP, but I have been taking profits in and lowering my allocation to the ones with the greatest gains.

The new list is heavily international, and partly hedged.  Despite being wrong in 2019, in 2020, I’m doubling down on the thesis that there is a good chance of a bear market in the United States this year.

When it comes to predicting bear markets, I sometimes feel like I’m a broken clock.

Eventually this broken clock will be right.  Until then, I’ll console myself with the unexpected fruits of being wrong.

Disclosure: Long PEGI, CWEN/A, CVA, AY, TERP, BEP, EVA, GPP. INGXF, HASI, VLEEF.

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 2020 Hindsight: Ten Clean Energy Stocks For 2019 appeared first on Alternative Energy Stocks.

by Tom Konrad Ph.D., CFA

So far, my worries about stock market valuation and political turmoil have not turned into the stock market downturn I’ve been warning readers to prepare for. In fact, September has been a particularly sunny month for both clean energy stocks and the stock market in general.My broad income stock benchmark SDY was up 3.9% and the energy income stock benchmark YLCO rose 2.7% for the month, more than reversing August’s declines. My 10 Clean Energy Stocks model portfolio accelerated upward by 5.3%, as did my real-money managed strategy, the Green Global Equity Income Portfolio(GGEIP), which added 3.8% to August gains.

I’ve been cautioning readers to take a more defensive stance towards the market all year. As I said last month, and as this month proves, that does not mean that the stock market’s rise is over. It means that I believe the risks of a stock market decline outweigh the potential gains of staying fully invested.

To show readers what that looks like, consider the following graph comparing the monthly returns of my real-money strategy, GGEIP, with the returns of the full-invested 10 Clean Energy Stocks Model Portfolio.

As you can see, GGEIP has lagged the 10 for 2019 model portfolio every month so far this year except one: May- the only down month. In the up months, GGEIP was gaining about nine-tenths as much as the model portfolio early in they year, while it has been gaining about three-quarters as much as the model portfolio in recent months. This is because I have been following my own advice, and lowering GGEIP’s overall market exposure as the year progresses. The benefit can be seen in May: GGEIP lost only half as much as the model portfolio.

In short, GGEIP has roughly half the exposure to a market decline as the fully-invested model portfolio, but has still participated in 87% (33.7% vs 38.6%) of the total gains this year. I have achieved this asymmetric risk/reward exposure through a combination techniques:

• By selling more of my biggest winners, which have the less potential upside left and re-allocating to cash and stocks that have risen less.
• Increasing my overall cash allocation.
• Selling covered calls.
• Reducing my sales of cash-covered puts as I allow older positions to expire.

While many readers may be uncomfortable with option strategies, reducing exposure to stocks that have risen sharply and allocating the proceeds to cash and better-valued stocks is a strategy that is accessible to any investor. Each outsized monthly gain (like the 3-4% market return we saw in September) increases valuations and makes the potential decline in a bear market that much greater.

Stock market overvaluation is a lot like the continued crimes in the Trump White House. It can go on longer than any rational observer could possibly expect, but when the reckoning comes, it will likely be both swift and severe. Investors would be wise not to use taxpayer funds to pressure foreign governments into doing any political favors or otherwise using the powers of government for personal gain. Metaphorically speaking, of course.

1. Individual Stocks

The biggest mover in September was French auto parts supplier Valeo (FR.PA). The increase was likely mostly due to a general rebound in automotive stocks and the fact that Valeo is generally very sensitive to overall market movements. Although I think Valeo is one of the few relative bargains I’m aware of in the stock market today, I’ve been keeping a relatively low allocation to it in GGEIP because of its strong sensitivity to stock market moves.

Other notable movers were Terraform Power (TERP) and Brookfield Renewable Energy Partners (BEP). Both of these Brookfield Asset Management (BAM) sponsored Yieldcos are starting to look expensive to me, especially Terraform. Terraform management seems to agree, and took the opportunity to raise $251 million in a secondary offering of common stock at $16.84 a share on October 4^th. The fact that Terraform can once again raise stock market capital at an attractive price is good news for its future growth in earnings per share, but the new stock will depress its price, at least temporarily.

There has been no news regarding the rumors discussed last month that Pattern Energy Group (PEGI) might be bought by BAM an merged with Terraform, but if Terraform were preparing for such a merger, the company would have probably delayed its secondary offering in order to keep its stock price up and consummate the merger at a more attractive valuation. For this reason, I think it is unlikely that the rumors are going to amount to anything.

More details have been emerging about the deal Donald Trump has been promising corn and ethanol interests to fix the damage that his EPA has caused with the “hardship” exemptions it has been passing out to oil refiners like rolls of paper towels thrown to hurricane survivors. I was skeptical of his promises last month, and while the announced goal of selling 15 billion gallons of corn ethanol and soy biodiesel is a step in the right direction, this goal would only stop doing more damage to the ethanol market, and not do anything about the damage already done. It’s also not specific about when the 15 million gallon target is likely to be achieved, and will only happen after an initial public comment period.

In short, the EPA’s actions are continuing to favor oil refiners over ethanol producers and farmers today, while Trump making promises it will stop doing harm at some unspecified future date. That date is looking increasingly likely to be after Trump is either impeached or voted out of office.

Mike Carr, Executive Director of New Energy America summed it up by saying “We’re in this situation because the President broke his promise to heartland voters, and we’ve seen the EPA break his promise each of the 31 times they’ve given away waivers to the oil industry. This Administration has proved again and again that their reflexive support for Big Oil donors and opposition to anything that would move us closer to a clean energy economy wins out over even his strongest supporters in rural America.”

The response of ethanol stocks like MLP Green Plains Partners (GPP) has been positive, but only mildly so. I continue to see Green Plains Partners as the best value (after accounting for risk) in the list of ten, but I expect the potential gains in that stock will come from the prospect of the end of the Trump presidency rather than a more favorable stance towards the biofuel industry at the expense of oil refiner’s from Trump’s EPA.

1. Conclusion

September was another great month for the model portfolio, but now is not a time to be chasing returns. Valuations are high, and political risks abound. When this market turns around, I expect it to do so surprisingly quickly and dramatically.

Disclosure: Long PEGI, CVA, AY, TERP, BEP, EVA, GPP. INGXF, HASI, FR/PA/VLEEF. 

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 2019: What Caution Looks Like appeared first on Alternative Energy Stocks.