By Tom Konrad, Ph.D., CFA

Last week, I published this call to buy Innergex (INGXF, INE.TO) because investors had been overreacting to the losses from the February cold snap in Texas.  The stock is up since then, but still seems a decent value.

Canadian Yieldco Innergex Renewable Energy (INGXF, INE.TO) took a big financial hit from the power disruptions in Texas in March. 

It’s complex, but their financial hedges on power prices for three of its wind farms ended up creating enormous liabilities – more, in fact, than two of their wind farms are worth.  Two of their facilities also had benefits from the high power prices, but not nearly as large as the losses on the financial hedges.

Innergex claimed “Force Majeure” at the affected sites – a contract clause that would allow them out of the financial obligations of the hedges.  The counterparties rejected the claims, and now two of the claims are in court, and one is subject to negotiation between the parties.

The two claims that are in court are there because Innergex now values those wind farms (Flat Top and Shannon) at less than the financial loss on the hedges.  The worst case scenario here is that the court will decide against Innergex and allow the counterparties to foreclose on the two wind farms.  There is no additional liability to Innergex beyond the value of its financial stakes in Shannon and Flat Top.

The hearing in the Shannon and Flat Top cases was held on May 6th, and a ruling is expected at latest by May 20th.  I’ve been buying today (in the mid $15 US range) because I estimate the decline in the stock price has more than priced in the full loss of both wind farms, and the increased certainty of a ruling (even one against Innergex) should send the stock price back up.

I generally feel that investors overreact to this kind of uncertainty, so it’s often a good time to buy- especially when the financial impacts of the downside risk are limited, as they are with Innergex.

DISCLOSURE: Long INGXF

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 Buying Innergex – Texas Was Bad, But Not That Bad 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

2019 has become another blockbuster year for the Ten Clean Energy Stocks model portfolio and, to a lesser extent clean energy stocks and the broad stock market as well.  I’m frankly surprised to see the party continuing.  The continued spiking of the metaphorical punch bowl by the Federal Reserve with interest rate cuts certainly has a lot to do with it. I had expected those cuts to be both fewer and less effective.

Which all goes to show that it’s always a good idea to hedge one’s bets in the stock market.  At least in part because of this hedging, my real money Global Green Equity Income Portfolio GGEIP has somewhat underperformed the 10 Clean Energy Stocks model portfolio, up 38.5% and 44.5% for the year, respectively.  Both remain well ahead of their benchmarks, however, with the clean energy income stock benchmark YLCO up 29.3% and the broad income stock benchmark SDY up a still respectable 21.9%.

Will the party continue with a blowout Santa Claus rally?  Only Santa knows, but I’m going to continue with caution in case he decides to show up with a lump of coal (have you seen coal stocks recently?) instead of nicer gifts.

Individual Stocks

Last month I warned,

Hannon Armstrong HASI, Terraform Power (TERP), and Brookfield Renewable Energy Partners (BEP) are all stocks in which readers should be considering taking some profits, if they have not already.  I continue to think these three stocks are all ripe for price corrections.

Terraform saw that price correction, down 10% on a secondary offering of 14.9 million shares of stock at approximately $16.84 a share.  This is business as usual for Yieldcos, which sell shares when prices are high to finance the purchase of income producing clean energy investments.  As long as such investments can be had at prices which expand per share cash available for distribution, such secondary offerings are good for long term shareholders.  I generally consider the one or two months following a secondary offering as the best time to invest in Yieldco stocks, although Terraform’s valuation even after the recent dip is not making me rush in with any buy orders.  But it’s certainly less overvalued than last month.

Brookfield Renewable Energy Partners announced a stock distribution and the creation of a new corporation, Brookfield Renewable Corporation (BEPC).  This will allow investors who are not able to invest in limited partnerships like BEP to also invest in the stock, which is designed to have identical distributions to BEP and will be exchangeable for BEP units.  The stock price of BEP has been climbing since the announcement in anticipation of the new demand for shares from this new potential class of buyers.  After the split, investors should not be surprised if BEP takes advantage of its new, lofty stock price to raise cash in its own secondary offering, bringing the stock price back down from its temporarily lofty level.

Although I think the formation of BEPC will be good for existing investors, I continue to trim my holdings of BEP in anticipation for such a decline.

French autoparts maker Valeo SA (FR.PA, VLEEF) reported strong 3rd quarter sales at the end of October, and the stock has been rising since.  Sales were up 8% despite an ongoing contraction in auto sales overall.  The company’s  excellent performance is largely due to the start of production on projects including vehicle electrification, cameras, and lighting.  All-in-all, the company’s plan to leverage its R&D efforts to get its products into more new vehicle models seems to be paying off.  Barring a broad market sell-off, I would expect the stock to continue to advance.  Given the large increases in most of the stocks in this year’s list, I am going to be searching for a large number of new stocks to add to the 2020 list as I drop the ones that have climbed the most since they are no longer offer compelling valuations.  Unless it advances significantly more in December, Valeo seems likely to stay.

Another big winner was Atlantica Yield (AY).  Investors generally liked the 3rd quarter earnings report and 1 cent increase in its quarterly dividend to $0.41 at the start of November.  Revenue and Cash Available For Distribution (CAFD) continue to advance at a 6-7% rate through the company’s investment in new projects, such as the ATN Expansion 2 transmission project which it closed on during the quarter.

One thing I like about Atlantica compared to other Yieldcos is its diversification into electricity transmission and water.  Owning both of these asset classes is rare in the industry, but transmission in particular is essential to the clean energy transition, and having expertise in different asset classes means that Atlantica can look at different types of investment opportunities when traditional Yieldco assets like solar and wind are relatively expensive.  Because of its Spanish roots, Atlantica also has a more diverse geographic profile than other Yieldcos.

Conclusion

The year isn’t over, but I can confidently say that, at least as far as my stock picks go, it far exceeded my expectations.  With all the price rises, I’m going to have trouble finding ten clean energy stocks that I think are good investments at the end of December.  I’m seriously considering including one or two short positions in the portfolio, something I have done only once before, in 2008 when I include a short of First Solar (FSLR).  It was a timely choice, since First Solar fell 50% that year, helped along by the financial crisis.  Alternatively, given the new accessibility of option strategies for the small investor, perhaps I should include option hedging or positions in the portfolio.

What do readers think? Would a short, option hedging, or just sticking to long-only (with the continued caveat that readers should have a large allocation to cash or a hedging strategy) be the most useful to you in the Ten Clean Energy Stocks for 2020 model portfolio?  Let me know in the comments.

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

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: Still Party Time appeared first on Alternative Energy Stocks.

by Tom Konrad Ph.D., CFA

Although valuations and political uncertainty have me spooked, October was another strong month for the stock market in general and clean energy income stocks in particular.

While my broad income stock benchmark SDY added 1.6% for a year to date total gain of 19.6%.  My clean energy income stock benchmark YLCO did even better, 2.7% for October and 29.7% year to date.  The 10 Clean Energy Stocks model portfolio fell somewhere in between for the month (up 1.8%) but remains unchallenged for the year to date (40.7%).   My real-money managed strategy, GGEIP, lagged as I reduce market exposure in what I consider an increasingly risky market (as discussed last month).  GGEIP was up 1.0% for the month, and 35.0% year to date.

Individual Stocks

Analyst Downgrades, Sudden Stock Moves

The most notable stock move of the month was Covanta Holding Corp’s (NYSE:CVA) 16% decline.  This started on October 22nd, when Raymond James warned that the company’s earnings would be impacted by the weak commodity market.  The analysts like the company’s long term prospects, but reduced their rating from “Strong Buy” to “Market Perform” based on expected near term weakness.  Sure enough, the company reported weakness in commodity prices in its third quarter earnings.  After earnings, BMO cut its price target from $19 to $18, and UBS cut its from $17 to $15.50.

With the stock trading below $15, I see this as one of the few buying opportunities in the stock market today, and added to my exposure by selling cash covered puts with strike prices of $12.50 and $15.  I think the large sell-off is symptomatic of increasing investor nervousness.  We also saw a similar sell-off in Yieldco Clearway (CWEN, CWEN-A) based on analyst downgrades.

It feels to me that investors are looking for an excuse to sell, causing the market to overreact to analyst downgrades.  Regular followers of this blog, in contrast, will likely have already trimmed their holdings as the stocks rose, and so should remain unphazed by these sudden swings in sentiment.  If you have not been trimming your holdings in your biggest winners, you probably should be. Hannon Armstrong HASI, Terraform Power (TERP), and Brookfield Renewable Energy Partners (BEP) are all stocks in which readers should be considering taking some profits, if they have not already.  I continue to think these three stocks are all ripe for price corrections.

Buyout

One stock with significant gains where I am not currently taking profits is Pattern Energy Group (PEGI) because a cash buyout announced on November 4th for $26.75 removes most of the market risk from this stock.  Two  months ago, I dismissed the rumors that Terraform Power would be the buyer, but the rumors that the company was in talks for a buyout were well-founded.  The buyers ended up being the Canada Pension Plan Investment Board (CPPIB), which is also negotiating to purchase Pattern Development.

The price of the buyout was below the stock market price at the time of the announcement, but approximately 15% above the price PEGI had been trading at prior to the buyout rumors, which began to circulate in early August.  Because the buyout price was below the market price at the time of announcement, a number of shareholder class action lawsuits were immediately filed.  Investors should not be alarmed at the number of suits; class action lawyers are simply jockeying to be first, because typically most such class actions will be consolidated into one and the lawyers who were first to file generally get to take the lead and collect the lion’s share of the fees.

PEGI and CPPIB need to convince both the judge and shareholders that the buyout price was justified.  They need shareholders in order to win shareholder approval for the merger.  In order to make this case, it is not out of the question CPPIB may increase the buyout price slightly in order to bolster their argument.  But I don’t think that readers should expect this.  As I wrote in August, “At $27, I’d call PEGI fairly valued, so investors should be cautious about banking on a merger going forward.”

Even without a price increase, the merger dramatically lowers the market risk of PEGI stock.  With two expected dividends of $0.4222 before the expected close of the deal, shareholders can expect to receive a total of $27.59 over the next six to eight months.  As I write, the share price is $27.33, which would amount to a 1% gain over that time.  This is not a great interest rate, but it is better than cash, and holders do get the chance of an upward revision to the buyout price.

Conclusion

I continue to remain cautious.  Readers should take some gains in their biggest winners and be prepared for more of their stocks to fall suddenly and dramatically in response to even mild analyst downgrades and short term bad news.  A sharp market correction or bear market could start at any time… or the bull may continue to limp along.  I continue to believe the downside risks outweigh the possible gains of betting that the bull still has much life left in him.

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

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: Pattern Buyout, Analyst Downgrades appeared first on Alternative Energy Stocks.

I missed my regular monthly update in early June because of vacation.

In hindsight, early June looks like it was a good buying opportunity. The broad market of dividend stocks (represented by my benchmark SDY) falling six percent in May, only to rebound a similar amount in June. At the time, I would have continued to advise caution: “Sell the peaks” rather than “Buy the dips.”

Particularly volatile stocks like European autoparts supplier Valeo (FR.PA) from this list would have generated even greater short term gains. But it would take more than a six percent market decline to transform this bear into a bull. As I have been writing for the last few months, I feel the risks in this market are high, and if or when they manifest, the decline will be a lot more serious than we saw in May.

Readers should take May as a warning, or a preview of what is possibly to come, and use the June bounce back to take some gains and increase their cash positions. This is precisely what I have been doing in my real-money managed strategy, GGEIP, and is (at least in part) why GGEIP fell less in May than the 10 Clean Energy Stocks model portfolio.

For May, GGEIP fell 2.2% compared to 4.5% for the model portfolio. It also gained less in June: 5.5% compared to 7.2% for the model portfolio. Although their clean energy income benchmark YLCO had a larger net gain over the two months, both the real and model portfolios remain well ahead of their benchmarks for the first half of the year.

More importantly, you can see that GGEIP is less volatile than either the Ten Clean Energy Stocks model portfolio or the benchmarks. Low volatility will be at a premium in any potential stock market decline.

Regarding individual stocks, May started with first quarter earnings from most of the stocks in the list, but these earnings did not contain many surprises. For the most part, the companies continue to invest and progress as planned.

Given my concerns about the stock market in general, I am not actively buying anything right now. Instead I am increasing portfolio allocations to cash and bonds. In terms of valuation, I feel Green Plains Partners (GPP) is the most attractive security in the list because rising oil prices caused by our stand-off with Iran and falling grain prices caused by President Trump’s trade war with China. These should help the ethanol market recover from the damage done to it by the administrations systematic undermining of the Renewable Fuel Standard. The current depressed price of GPP stock also provides some protection from a general market decline.

Disclosure: Long PEGI, 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 Ten Clean Energy Stocks For 2019: Sell The Peaks appeared first on Alternative Energy Stocks.

In April, my 10 clean energy stocks model portfolio continued to power ahead, despite the concerns about market valuation I expressed last month.  As I said at the time “me being nervous about the market is not much of an indicator that stocks are going to fall” at least in the short term.  So I continue to trim winning positions and increase my allocation to cash as stocks advance.

Both the model portfolio and the Green Global Equity Income Portfolio (GGEIP) were up 4.5% and 3.6% respectively in April.  This was solidly ahead of their clean energy income benchmark YLCO and broad market income benchmark SDY, which were up 0.3% and 2.1% respectively.  For the year to date, both real and model portfolios remain well ahead of their benchmarks as well.

The one stock I said I was not trimming last month was Atlantica Yield, PLC (NASD:AY), which turned in a healthy 5% gain in April.  I continue to hold.  The big winner was Valeo SA (FR.PA, VLEEF), which shot up 25%. I also mentioned Valeo as one which still had an attractive valuation, but I was more cautious because Valeo is also much more volatile than the other stocks in the list.  While this parts supplier for efficient, electric and autonomous vehicles can accelerate like an EV when market is good, it can also fall off a cliff if the market turns too rapidly.

Covanta Holding (CVA) was the first stock in the model portfolio to announce first quarter earnings, covered that in more detail here.

Disclosure: Long PEGI, 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 Ten Clean Energy Stocks For 2019: April Ascent appeared first on Alternative Energy Stocks.

The first quarter of 2019 saw the market’s largest quarterly gain in a decade, and my 10 clean energy stocks model portfolio outperformed both the broad market and the clean energy income ETF I use as a benchmark (see chart above.)

Performance that strong makes me nervous, especially since the last time we saw gains like these it was the stock market rebound from the financial crisis.  In this case, while the market was down in the last quarter of 2018, it had only been enough of a decline to blow a little of the foam off the top of a market that was looking very bubbly.  The first quarter’s gains have shaken up the market’s champagne bottle all over again.

While this particular investor is happy to pop the cork in celebration, you can bet I’m taking pains to make sure the spray is not going to drench me or my portfolio.  I’ve been selling some positions for cash, selling covered calls on others, and letting cash covered short puts expire without selling new ones.  In short, I’ve been taking steps to lower my portfolio’s sensitivity to market movements in preparation for a possibly severe market decline.  I’ve returned to my more customary bearish stance after my relatively aggressive (for me) buying towards the end of 2018.

Yes, I was also bearish at the end of February, and, in fact, I’m bearish most of the time, so me being nervous about the market is not much of an indicator that stocks are going to fall.  That said, the few times I’ve been bullish (the start of 2019, early 2009, and late 2015 (for Yieldcos after the 2015 Yieldco bust), for example, have all seen strong gains.  So maybe we’re not going to see the crash I’m worrying about this year, but I’m pretty confident the risks going forward outweigh the upside of a few more percentage points gain that might come from staying fully invested.

Of the ten stocks in the model portfolio, the one large position I’m holding all of is Atlantica Yield, PLC (NASD:AY). It has failed to join its Yieldco brethren in the recent rally, and so its relatively attractive valuation provides some downside protection.  While Valeo SA (FR.PA, VLEEF) has also been flat for the year to date, that auto parts supplier is much more sensitive to economic conditions than the other stocks in the portfolio, most of which are quite defensive in nature.  I’m holding Valeo, too, but that is not a particularly large position.

Disclosure: Long PEGI, 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 Too Good To Last? Ten Clean Energy Stocks For 2019 appeared first on Alternative Energy Stocks.

It’s hard to find anything to complain about in the first two month’s performance of my 10 Clean Energy Stocks for 2019 model portfolio.  Unfortunately, I’m about to go on vacation and don’t have time to do an update on all the earnings reports that have come out over the last two weeks.  I will try to get to them individually as I have time.

Strategically, I’d like to say I’m getting very nervous about this market rally, and think that readers should be taking profits opportunistically and increasing your cash positions.

The post 10 Clean Energy Stocks For 2019 – First Two Months Results appeared first on Alternative Energy Stocks.

by Tom Konrad Ph.D., CFA

Looking forward to 2019, I’m more optimistic than I have been since the start of 2016, in the wake of the popping of the YieldCo Bubble in late 2015.

The bear market that started in late 2018 seems like it’s far from over, but I expect in early 2019 will see it enter a less chaotic phase.  After the wild declines and swings of late 2018, I expect investors will begin the new year with an eye to safety more than growth.  This means that the clean energy income stocks which are my focus should outperform riskier growth stocks.  The end of interest rate increases by the Federal Reserve should also help these stocks as fewer investors are drawn away by the increasing yields of bonds and other income instruments.

As I write on December 28th, my Ten Clean Energy Stocks for 2018 model portfolio looks like it will end the year with a small loss, but ahead of its benchmarks.  You can see its returns through December 28th in the chart below, and stay tuned for a recap sometime in the next week.

Out with the old

With stock prices down and yields up, I plan to keep seven stocks from the 2018 list for 2019.  The exceptions are (somewhat coincidentally), the two winners: InfraREIT (HIFR), Seaspan Worldwide (SSW), and Clearway Energy, Inc (NYSE: CWEN and CWEN/A).  I’m dropping InfraREIT because the company is being bought out by Oncor in a transaction expected to close sometime in the second quarter.  Seaspan is losing its slot for lack of greenery.  I always considered the owner of relatively efficient container ships to be marginally green (due to the relative efficiency of its ships compared to those of its peers), and a recent purchase of an interest in liquefied natural gas transportation makes it no longer meet my standard for a green stock.

I’m dropping Clearway mostly based on relative valuation.  The company is still attractive, but a little less so than some of the other Yieldcos which made this year’s list.  Not only does Clearway have some fossil fuel assets, it also has a large number of power purchase agreements with PG&E (PCG).  PG&E, in turn, has significant potential liability from the possible involvement of its equipment in starting some of California’s recent wildfires.  Both California’s utility regulators and legislators are working to protect PG&E from bankruptcy, but what that protection might look like has yet to be seen.   Given the large number of Yieldcos at very attractive valuations, I see no need to keep Clearway in my top ten picks.

In with the new

Valeo SA (FR.PA, VLEEF)
12/31/18 Price: €25.21/$28.20.  Annual Dividend: €1.25. Expected 2019 dividend: €1.25.  Low Target: €20.  High Target: €50.

My friend and colleague Jan Schalkwijk of JPS Global Investments brought French auto parts supplier Valeo SA. Like many auto stocks, Valeo struggled in 2018 with industry oversupply and the ongoing trade war.  This led the stock to fall by more than half, giving it what I consider a very attractive valuation.

Valeo follows the European model of paying a single annual dividend based on the previous year’s profits.  Its 2018 dividend was €1.25, which would amount to slightly more than a 5% yield based on the current stock price of €24.55.  Analysts estimate the company will earn around €3 per share in 2018, easily enough to maintain that dividend in 2019, and they still expect growth in 2019.

A 7.5 forward P/E ratio and over 5 percent dividend yield would be enough to get me to take any stock seriously, but valuation is not the only factor attracting me to the stock. The company is a leading supplier for two accelerating trends in the automotive industry: electrification and autonomous driving.

The company is a leader in 48V mild hybrid technology, which can deliver most of the fuel savings from of a full hybrid vehicle at a fraction of the cost by allowing the gas engine to turn off instead of idling while the vehicle is stopped.  Beyond the technologies of today, Valeo has developed a full 48V electric powertrain system which is 20% less expensive than the high voltage systems used in most electric vehicles today.  Although I expect a low voltage electric drivetrain will have lower performance than the typical high voltage system, and so be less attractive to car buyers, it could be extremely well suited to transportation services such as car sharing services and autonomous taxis, such as the Autonom Cab, the world’s first robo-taxi, which was presented by its French designer Navya. This all-electric, driverless vehicle relies on Valeo laser scanners, and LiDAR (light detection and ranging.)

While I find it particularly difficult to predict which carmaker is likely to pull ahead in the race to make profitable electric and autonomous vehicles, I feel more confident investing in a part supplier that works with most of them.

Welcome back, Hannon Armstrong

Hannon Armstrong (NYSE:HASI )
12/31/18 Price: $19.05.  Annual Dividend: $1.32. Expected 2019 dividend: $1.32.  Low Target: $18.  High Target: $27.
 
Last year, I dropped a long time favorite stock, Hannon Armstrong (NYSE:HASI) from the list because I felt the stock was temporarily overvalued.  The stock ended 2017 at $24.06, and, as I write on December 28th, is currently trading at $19.54.  After the company’s $1.32 annual dividend, this amounts to a 13% loss for the year, well below the average total return of the stocks that made the list.

In the current uncertain environment, I am happy to welcome this unique clean energy financier back into the list.  The company arranges financing for a broad range of sustainable infrastructure projects, from renewable energy projects like solar and wind farms, to energy efficient upgrades of buildings for performance contractors and commercial property assessed clean energy loans (c-PACE). Hannon Armstrong’s broad range of clients allows it to focus on the most profitable sectors as certain clean energy technologies go in and out of favor with other financiers, and it also has the expertise to either sell the securities it creates to long term investors like pension funds and insurers when demand is high, or to keep them on its own balance sheet when that is most profitable.

The rising interest rate environment of 2018 meant that Hannon Armstrong did more securitization than in previous years. This strategy delivers short term profits, but does little to increase long term cash flows that can support increases in the dividend.  The recent well-timed secondary offering of 5 million shares at $22.40 per share and the refinancing and extension of its secured credit facilities this month hint that the company plans to keep more of the investments it creates in 2019 on its own balance sheet.  These investments should easily allow it to achieve Hannon Armstrong to achieve its target 2 percent to 6 percent growth in core earnings per share.

The expected 2 to 6 percent core earnings growth should allow the company to raise its dividend per share by at least one cent in 2019, but I am unsure if management will choose to do so, and instead retain the capital to boost future growth.  The company previously had a policy of distributing 100% of core earnings over the course of the year, but said on its first quarter earnings call, “As we grow earnings in 2019 and 2020, we will consider growing the dividend perhaps at a lower growth rate than the growth in core earnings.”  Hence I expect a quarterly earnings increase of no more than 1 cent in each of 2019 and 2020.  A one cent increase would amount to 3% dividend per share growth per year, towards the lower end of the company’s core earnings growth guidance range.  I don’t consider a half cent or no dividend increase at all in 2019 to be out of the question, but I am confident that dividend growth will resume by 2020.

The Marriage of Two Old Friends

Innergex Renewable Energy (Toronto:INE, OTC: INGXF)
12/31/18 Price: C$12.54/$9.27.  Annual Dividend: C$0.68. Expected 2019 dividend: C$0.70.  Low Target: C$11.  High Target: C$16.

Innergex has never been in the model portfolio before, but it has often been a close runner-up.  It also acquired 10 Clean Energy Stocks veteran Alterra Power in early 2018.  Alterra was featured here in 2012, 2013, and 2014.  Like US Yieldcos, Innergex owns wind and solar farms, but also much less common run of river hydropower and geothermal assets.

Innergex also develops its own assets in house as well as acquiring them after they are operational, which is the model for most Yieldcos. While many US Yieldcos are struggling to bring down their payout ratios in order to retain some cash flow for investing, Innergex has kept its payout ratio in the 80 to 90 percent range for the last five years, making it less reliant on the whims of the capital markets to fund future growth.

Updates on Stocks Retained from 2018

Covanta Holding Corp. (NYSE:CVA)
12/31/18 Price: $13.42.  Annual Dividend: $1.00. Expected 2019 dividend: $1.00.  Low Target: $13.  High Target: $25. 

Leading waste-to-energy operator Covanta’s stock cratered in December, but only in sympathy with broader market declines.  News from Covanta was limited to the expected: breaking ground on a new waste-to-energy combined heat and power in Scotland.

I’m very enthusiastic about the value of Covanta’s stock at the start of 2019.  The company shored up its balance sheet and found a source of future funding for growth capital in its partnership with Green Investment Group, but the market has not rewarded the stock.  The 7.5 percent current yield is more reflective of a company in financial distress than a company on an (albeit slow) growth trajectory.  

Atlantica Yield, PLC (NASD:AY)
12/31/18 Price: $19.60.  Annual Dividend: $1.44(%). Expected 2018 dividend: $1.52 (%).  Low Target: $18.  High Target: $30. 

Atlantica was the former Yieldco of Spanish developer Abengoa before its bankruptcy.  Its new parent, Algonquin Power and Utilities (AQN), has gotten it back on track to growth fater a couple tough years as Atlantica dealt with the fallout from its former sponsor’s bankruptcy.  During those two years, Atlantica kept its dividend low and reduced debt to strengthen its balance sheet.  It has now reached its long term target of an 85% payout ratio, and is growing its portfolio with the recent acquisition of a wind farm in Uruguay.

The location of the recent acquisition in Uruguay is not an aberration.  .Atlantica has one of the most geographically diverse portfolios of all Yieldcos, a legacy of its former Spanish sponsor.  It has assets not only in the US and Spain, but also in several other countries in South and Central America and Africa.   It also adds diversification with significant electrical transmission and water infrastructure.

Pattern Energy Group (NASD:PEGI)

12/31/18 Price: $18.62.  Annual Dividend: $1.688(%). Expected 2018 dividend: $1.688(%).  Low Target: $18.  High Target: $30. 

Wind energy Yieldco Pattern’s stock price continues to trade as if investors expect a dividend cut.  I am not one of those investors, and I am happy to collect the current over 9 percent yield while management continues the slow improvement of cash flow that began in 2018 to bring its payout ratio down to its target payout ratio of 80%.  I expect the payout ratio to decline only slowly, and likely end 2019 near 90 percent.

A dividend increase this year is extremely unlikely, but the yield plus any capital gains as investors gain confidence in the stability of the current dividend will be more than adequate reward for holding the stock.

Terraform Power (NASD: TERP)
12/31/18 Price: $11.22.  Annual Dividend: $0.56 Expected 2018 dividend: $0.60 (%)  Low Target: $10.  High Target: $16. 

Compared to other Yieldcos, Terraform’s stock was fairly resilient in 2018, meaning that it is less of a bargain than several others in this list. Solely on the basis of valuation, I was torn between Terraform and Clearway.  While Clearway is trading at a higher yield and both stocks are on similar dividend growth trajectories, Clearway has more underlying risks that compensate for its higher yield (see above.)  I chose to retain Terraform in the list out of environmental preference..  I have never been completely comfortable with Clearway’s fossil fuel assets.

Brookfield Renewable Partners, LP (NYSE:BEP)
12/31/18 Price: $25.90.  Annual Dividend: $1.96 (%). Expected 2018 dividend: $2.08(%).  Low Target: $27.  High Target: $40. 

The end of 2018 brings the chance to buy what I consider the highest quality Yieldco at a greatly reduced price. Brookfield stands out from other Yieldcos because of its larger size ($8 billion market cap, compared to $3 billion for the next largest, Clearway) which allows it access to low cost debt financing.  Its sponsor, Brookfield Asset Management (BAM), which is also Terrafom’s sponsor, also gives it access to flexible financing which has historically allowed it to purchase distressed renewable energy assets at very attractive prices. BAM’s position as a manager of a broad range of leading infrastructure funds like BEP and TERP means that it takes the long view, and its Yieldcos pursue acquisitions when valuations are good rather than getting into bidding wars with other acquirers in the pursuit of growth at any cost.

Brookfield’s managers seem to agree that the partnership became significantly undervaued at the end of 2018.  Over the last year, BEP repurchased 1.8 million units on the open market at an average price of $27.72 per share.  In contrast, the partnership did not purchase any of its units over the course of 2017, when the share price traded consistently above $30.  In fact, it sold 8.3 million units at C$42.15 (US$32.45) each in a secondary offering that year.

One rule of thumb I follow with Yieldcos is that you are likely getting a good value if you can buy the shares at a price below the most recent secondary offering.

Green Plains Partners, LP (NASD: GPP)
12/31/18 Price: $.  Annual Dividend: $1.90(%). Expected 2018 dividend: $1.90(%).  Low Target: $13.  High Target: $27. 

Ethanol MLP and Yieldco Green Plains Partners remains the riskiest stock in the model portfolio.  The ethanol market is suffering from the Trump EPA’s continued undermining of the Renewable Fuel Standard with “hardship” waivers to large, highly profitable refiners.  The price of ethanol’s main competitor, gasoline is low.  Retaliatory tariffs on ethanol exports further undermine the market.

GPP’s stock price reflects this distress.  GPP’s parent, Green Plains Inc. (GPRE) has  fallen as well, and racked up significant losses this year. Nevertheless, analysts expect GPRE’s red ink to stop in 2019.  That means that investors can be confident the minimum revenue guarantees that GPRE has given GPP remain safe.  Those guarantees should allow GPP to limp along, maintaining its current dividend through the weak ethanol market.

When the ethanol market recovers, the pressure on GPP’s stock price should ease, leading to capital gains for investors who buy at the current price.  The ethanol market is in such dire straits that a recovery could be triggered by a number of factors: rising gasoline prices, falling corn prices (perhaps as a result of the continued trade war), a change EPA policy (something advocated by powerful Republicans in the Senate), or the closure of excess ethanol facilities (a process which has already begun.)

While Green Plains Partners is undeniably a risky stock, the current 14 percent dividend is extremely attractive and any recovery in the ethanol market, if it happens, should lead to a dramatic gain in the stock price.

Enviva Partners, LP. (NYSE:EVA)
12/31/18 Price: $27.75.  Annual Dividend: $2.54. Expected 2018 dividend: $2.58.  Low Target: $24.  High Target: $40. 

Wood pellet Yieldco and Master Limited Partnership Enviva continued its growth through regular drop-down acquisition from its sponsor through 2018, increasing its distribution by a regular 0.5 cents per quarter.  With a payout  ratio in the high 80 percentile range and a new, lower interest rate credit facility in place, I expect this growth to continue unabated in 2018.

At a 9 percent yield with continued growth of at least three percent per year, the partnership seems likely to produce a solid return while providing good technology diversification.

Final Thoughts

During bear markets, most investors reassess their willingness to take risk.  Some sell all their stocks, while others reallocate their investments to less risky stocks.  These ten stocks are chosen to benefit from the latter trend.  For the most part, they produce steady income streams that are largely independent of economic conditions.

The first stage of the bear market, which we experienced in late 2018, has been mostly composed of indiscriminate selling by investors once again reawakening to the fact that stocks do not always go up.  I expect the next stages to be characterized by more discriminate selling, and investors begin to differentiate between stocks that may not do as well in a slowing economy crippled by political uncertainty and trade wars, while holding on to those investments that are less dependent on economic conditions.

The final stage of a bear market is capitulation.  In this stage, the optimistic investors who had been holding on to their losers in the hope that the bear market was just a temporary dip give up.  The only buyers at that point are deep value investors, who buy based solely on the future cash flows of a company, regardless of any hope of future appreciation.  Those deep value investors will put a floor under the stock prices of these ten stocks.

I could also be wrong about the future course of this market.  Although it seems unlikely to me, I have a history of underestimating the optimism of investors.  Perhaps the current bear market will be short-lived, and the Dow will be hitting new highs by the end of 2019.  If that happens, 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.

If this model portfolio makes modest gains in a mild bear market, makes less than spectacular gains in a recovery, or takes modest losses in a continued severe bear market, it will have accomplished my long term goal.  That goal is not taking the big loss, while staying open to the opportunity for gains.  As long as you are in the market, every now and then the stars will align, and you will make some great gains, as this model portfolio did in 2016 and 2017.  The trick is not to have all those gains disappear in the bad years.

2018 was a bad year, but it’s pretty easy to live with the model portfolio’s 1.3% loss.  A severe bear market could lead to another modest loss in 2019.  On the other hand, a recovery in the later part of the year could bring significant gains.  I’m looking forward to seeing how that wager plays out in 2019.

Disclosure: Long PEGI, CWEN/A, CVA, AY, SSW, TERP, BEP, EVA, HIFR, GPP. INGXF, HASI, VLEEF, AQN.  Tom Konrad earns consulting fees from JPS Global Investments for consulting on its Green Economy Strategy.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Ten Clean Energy Stocks For 2019 appeared first on Alternative Energy Stocks.

Alternative energy power production stocks are companies whose main business is the production and sale of electricity from alternative energy installations, such as solar farms, wind farms, hydroelectric generators, geothermal plants, cogeneration facilities, and nuclear plants.

This list was last updated on 9/11/2020.

If you know of any alternative energy power producer that is not listed here or any stock that should be removed, please let us know by leaving a comment.

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