By Tom Konrad, Ph.D., CFA

With the launch of my (green dividend income focused) hedge fund early this year, I had to take a hiatus from publishing my annual list of 10 Clean Energy Stocks that I feel will do well in the coming year.  Since my duty to clients takes precedence over readers, I could not tell people about stocks I liked before buying them for the fund.

As we complete the first half of the year, the fund is now largely invested, although I am still keeping some buying power back in anticipation that the overall market could easily fall further, leading to even better opportunities than we see today.  

Since I’m not actively buying in the fund, I am now free to share my top picks with the public.  Like everything in my hedge fund, these are all companies that, in my judgment, reduce the fossil fuel use, carbon emissions, or other pollution in the overall economy by operating and expanding their businesses.

I probably won’t be able to publish monthly updates to this list as I have in the past.  If I am actively buying any one of these stocks, I will not be writing about it, and I will not want to tip my hand by writing about the others while just omitting one or two.  But I plan to publish intermittent updates on the whole list when I can, and will do a recap in July 2023 to look at how the list did in the past year and why.

Valuation and Timing

The recent declines of the stock market are finally giving us decent valuations, better than anything we’ve seen since the short-lived market bottom in early 2020.  That’s not to say that the market will not fall further, but it’s likely that many individual stocks are currently seeing their lows. 

Whenever I see a stock I like trading at a good valuation, I buy some.  If it falls further because of a continued general market decline (as opposed to bad news at the company itself), I buy more. These ten stocks have all reached the “buy more” stage.  If the market keeps falling, I’ll soon be ready to invest everything I can, and even start using uncovered short puts to take on a bit of leverage.

10 Clean Energy Stocks for 2022-2023: The List

By Tom Konrad, Ph.D., CFA

Ten Green Stocks I expect to do well over the next year (7/1/2022 to 6/30/2023)

Prices are as of the close on 6/30/2022.  1€ = $1.0482, $1 = 7.0972 DKK = C$1.2876 

Clean Transportation Stocks

• MiX Telematics (NASD:MIXT – $8.14) – A provider of vehicle tracking and telematics to large international vehicle fleets.  The company is green because it both reduces accidents and fuel usage for its customers.
• Valeo, SA (FR.PA – €18.42 or US ADR: VLEEY or US foreign stock ticker: VLEEF) – a provider of electrified drive trains, sensors, and comfort systems for the automotive industry.
• NFI Industries (NFI.TO C$13.39 or US foreign stock ticker: NFYEF) – A leading international bus and motorcoach manufacturer selling a large and growing number of electrified vehicles.  N

Green Building Stocks

Rockwool A/S (ROCK-B.CO 1597.50 DKK and ROCK-A.CO or US foreign stock ticker: RKWBF) – a manufacturer of fire and mold resistant building insulation.

Hannon Armstrong Sustainable Infrastructure (NASD:HASI) – A financier of solar, wind, biogas, and energy efficiency installations.

Green Municipal Infrastructure Stock

Veolia (VIE.PA €23.29 or US ADR: VEOEY or US foreign stock ticker: VEOEF) – A large international developer and operator of municipal infrastructure such as water, wastewater, recycling, and environmental remediation.

Biofuel Stock

Enviva, Inc (EVA $57.22) – A vertically integrated wood pellet supplier to European and Japanese markets, where they mostly displace coal in electricity generation.

Recycling Stock

Umicore, SA (UMI.BR €33.32 or US ADR: UMICY or US foreign stock ticker: UMICF) – A vertically integrated recycler of hard-to-recycle and specialty metals used in clean energy industries such as batteries, solar, wind, and catalytic converters.

Green Electricity (Yieldcos)

Avangrid (NYSE: AGR $46.12) – one of the top producers and developers of renewable electricity in the United States.  

Atlantica Sustainable Infrastructure (NASD: AY $32.26) – an international owner and developer of renewable energy, efficient natural gas, electric transmission line and water assets.

DISCLOSURE: Long all stocks in the 10 Clean Energy Stocks for 2022/23 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 10 Clean Energy Stocks for 2022-2023: The List appeared first on Alternative Energy Stocks.

By Tom Konrad, Ph.D., CFA

Monthly Performance

Returns for the Ten Clean Energy Stocks for 2021 model portfolio are shown below.  It was a good month for clean energy stocks as well as the broader stock market, with the portfolio up 4% for a 20% total return through the end of October.  Its clean energy benchmark (RNRG) was up more (8%) but is still down 6% for the year.  Its broad market benchmark (SDY) rose 5% and has caught up with the model portfolio at a 20% return year to date.

Earnings

Third quarter earnings season has started.  Below are some notes I’ve shared with my Patreon supporters over the past couple weeks:

MiX Telematics Earnings

MiX Telematics (MIXT) was down on earnings today.  I’d call it a case of decent earnings… the company continues to grow revenue and subscriptions quarter over quarter and year over year, but they are still a long way from 2019 levels.

Oil and gas customers still account for most of the shortfall, with most of the customer wins highlighted in the earnings call being transit, mostly bus fleets.  They did say that one big oil and gas customer is starting to bring some of its vehicles back into service.

Overall, the quarterly performance was decent, but investors were probably hoping for more of a bounce given the subscribers lost in 2020.  If anything, the long term outlook is improving, so the recent declines make MiX one of the few stocks in which I see value in the current market.

Green Plains Partners Earnings

The big news in Green Plains Partners’ (GPP) third quarter earnings wasn’t news at all.  The distribution increase for $0.435 quarterly which had been announced in mid-October, and the company had told us to expect the increase in August when I wrote: “I expect the board of directors to raise the dividend to between $0.40 and $0.45 next quarter.”

The stock jumped anyway, and now trades around $15.  Given its current 11.2% yield, I think a modest ($1 to $2) further increase over the coming months is likely. 

Enviva Earnings

Note: Enviva is not in the current 10 Clean Energy Stocks list, but made an appearance in 2019 and I thought the news was notable enough to make it worth writing about.

I had two major take-aways from wood pellet MLP  Enviva’s (EVA) 3rd quarter earnings.  

First, the previously announced simplification transaction where the partnership has bought out and absorbed its general partner and is converting to a corporate structure should be great for the stock price.

The company is guiding for $3.62 of total dividend payments in 2022.  After the shift to a corporate structure, EVA should start trading with a yield more in line with its Yieldco peers, around 3 to 5 percent.  So we can expect a share price a year from now to be in the $72 to $120 range.  With the current share price at $68, I’m fairly bullish.

The other take-away is that the company is moving into new markets with the announcement of a long term wood pellet supply contract to a European producer of aviation biofuel.  This is important because its largest current market, which is selling to power producers who burn the pellets in converted coal power plants has long term limitations.   

First, using wood pellets to generate electricity is not the highest use for a a renewable fuel source which is easy to transport and store.  These are two advantages notably lacking in the leading renewable energy sources, electricity from solar and wind.  Given the size and weight of batteries needed, it is very difficult to electrify long distance aviation.  As we transition the world away from fossil fuels, we need to find renewable energy sources for every application.  Sustainable aviation fuel is one where solar and wind will find it difficult to compete, so this is a good long term market for Enviva’s biomass.

Other applications which will be difficult to serve with electricity from solar and wind are industrial processes such as steel and cement production, and the 10 to 20 percent of electricity which needs to be served by long term seasonal storage to meet demand that cannot be easily served with wind and solar.  Enviva is also exploring contracts with industrial customers looking to decarbonize.  

This new contract demonstrates that Enviva has scalable prospects for participating the sustainable energy economy for the long term, even when its current role as a bridge fuel to make use of the existing infrastructure in converted coal plants comes to an end.

DISCLOSURE: Long all stocks in the 10 Clean Energy Stocks for 2021 portfolio and EVA.

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 2021: November. Notes on MIXT, GPP, EVA appeared first on Alternative Energy Stocks.

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

Since my 10 Clean Energy Stocks for 2021 list contains 5 foreign stocks this year, a reader asked about the relative merits of buying a foreign stock compared to a US ADR.  Here is a summary of the relative merits (for US investors) of buying a foreign stock directly compared to buying the American Depository Receipt (ADR).

First, let’s look at the tickers for the five foreign stocks in the list.  There are four types of ticker in the list this year:

1. The stock on its home exchange in the local currency.  These have the form TICKER.EX, where TICKER is the stock ticker on the foreign exchange, and EX is an abbreviation for the name of the exchange.  European stocks usually trade on several European exchanges. I try to use the ticker on the exchange with the most liquidity, which is usually also in the company’s home country.
2. The US ticker for the foreign stock – a five letter ticker ending in F.
3. An unlisted ADR – a five letter ticker ending in Y which trades over the counter.
4. A listed ADR – this is an ADR that trades on a US stock exchange such as the NASDAQ or NYSE.

For the companies in the list this year, MiX Telematics is the only one with a listed ADR, MIXT.  I don’t usually mention its listing on the Johannesburg stock exchange, MIX.JO because it does not have a corresponding US ticker, but include it here for completeness.

The others all have unlisted ADRs:

ADR fees are often withheld from dividend payments to ADR holders, but can also be charged directly to the account holding the ADR.  Both holders of the foreign stock and holders of the ADR will also have foreign taxes withheld from the dividend payment.

I have not found any way to determine how much an ADR fee will be.  Sponsoring banks can change ADR fees over time, and sometimes they are charged as a fixed number of cents, other times they are a percentage of the dividend.  I called and asked my broker to look up the total ADR fees charged on each of the ADRs above in 2020.  The results are in the last column. 

Foreign Stock or ADR?

To determine if you are better off buying the foreign stock (F ticker) or the ADR (Y ticker), you should first determine the commission your broker will likely charge you for either trade.  I usually just enter the trade into my broker’s online platform to see the estimated commission but hit “Cancel” instead of confirming the trade.  If the commissions for the foreign stock and the ADR are the same, then buy the foreign stock.

If the commission to buy the foreign stock is higher, then you have to consider how long you plan to hold the stock and how much you intend to buy.  

Small investors and investors not expecting to hold the stock for long will find the ADR is usually more cost effective. Larger investors and long term holders should generally buy the foreign stock.

Rule of Thumb

I find that I typically pay an extra $50 per trade for a foreign stock compared to an ADR.  I generally hold stocks for one to five years. Since there is also a similar fee to sell the stock, I will generally pay an extra $100 to buy and sell a foreign stock.  Annual ADR fees seem to usually be around 1% of the share price, so if I can make a trade large enough to keep the extra commission paid less than 1% and hold the stock longer than a year, it makes sense to buy the foreign stock rather than the ADR.

As a formula, I buy the foreign stock if 

D x Y > 100 x C 

Where D is the size of the trade in dollars (500 shares at $10 is $5,000), Y is the number of years I expect to hold the stock or ADR, and C is the extra commission I have to pay to buy the foreign stock.  Since my expected holding time is typically stocks is 2 years or more and I usually pay an extra $50 to trade foreign stocks, the foreign stock purchase will usually make sense for trades of $3,000 or more.  

In general, I dislike ADR fees, so I try to buy foreign stocks using large trades. 

DISCLOSURE: Long MIXT, REDIF, VLEEF, VEOEF, UMICF..

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 Foreign Stocks: To ADR or Not To ADR appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Rounding out the discussion of the stocks in my 10 Clean Energy Stocks for 2021 list are the two that don’t fit either of the themes I highlighted for 2021: Picks and Shovels or a Possible Yieldco Boom.  Both help with diversification, both in terms of their industry and geography.

MiX Telematics (MIXT) was retained from the Ten Clean Energy Stocks for 2020 list because I expect its prospects to improve rapidly as the world comes out of covid lockdowns.  The global vehicle telematics provider has a large number of its customers among mass transit, logistics, and multinational oil and gas vehicle fleets.  All these industries were disproportionately impacted by covid, and idled many vehicles.  When the owners bring the vehicles back into service, they will once again start paying on the subscriptions for those vehicles.I also believe that covid 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.

Another holdover from the 2020 list is Spanish transmission utility Red Eléctrica (REE.MC, RDEIF, RDEIY).  European countries understand how a robust transmission grid is essential to transition the economy to renewable energy, and they support significant investment in their transmission networks because of this.  Red Eléctrica is an attractively valued European utility transmission utility without any natural gas networks or fossil generation.  Plus it has a nice dividend.

Both these picks get the majority of their revenues in currencies other than the dollar, which should provide an added boost to the stocks as I expect the dollar to continue to fall in 2021 because of America’s mishandling of the pandemic and the effects it will continue to have on our economy relative to most other countries.

Conclusion

While I am hopeful that the US economy will begin to recover in 2021, I worry that the buoyant stock market has already priced in this recovery and then some.  These high valuations and the damage the pandemic continues to do the US economy have me keeping plenty of cash on the sidelines and looking more to Europe than the US for investment opportunities.

Here are links to the other articles on the Ten Clean Energy Stocks for 2021:

• The list
• The Yieldcos: Covanta Holding (CVA), Green Plains Partners (GPP), Avangrid (AGR), and Brookfield Renewable Energy Partners (BEP)
• Picks and Shovels: Valeo, SA (FR.PA, VLEEF, VLEEY), Veolia (VIE.PA, VEOEF, VEOEY), Umicore, SA (UMI.BR, UMICF, UMICY), and Scorpio Bulkers, Inc. (SALT),

DISCLOSURE: Long MIXT, REDIF, CVA, GPP, AGR, BEP, VLEEF, VEOEF, UMICF, SALT.

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 2021: Diversification appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

An annual tradition, here is my Ten Clean Energy Stocks for 2021, which is also the new model portfolio for the year, with equal dollar values of each stock using closing prices on 12/29/2020.   

Returning Stocks

• Mix Telematics (MIXT)
• Green Plains Partners (GPP)
• Covanta Holding (CVA)
• Red Electrica (REE.MC, RDEIF, RDEIY)
• Valeo, SA (FR.PA, VLEEF, VLEEY)
• Veolia (VIE.PA, VEOEF, VEOEY)

New Stocks

• Scorpio Bulkers, Inc. (SALT) – Dry bulk shipper converting to offshore wind construction.  Thanks to Thad Curtz for bringing my attention to this one.
• Brookfield Renewable Energy Partners (BEP) – A leading clean energy Yieldco with significant hydropower assets.
• Umicore, SA (UMI.BR, UMICF, UMICY) – Leading recycler of batteries and specialty metals.
• Avangrid (AGR) – Owner of renewable generation and utilities.

As I track this model portfolio over the year, I will continue using the Global X YieldCo & Renewable Energy Income ETF (YLCO) as a clean energy benchmark and the SPDR S&P Dividend ETF (SDY) as a broad market benchmark, while throwing in the performance of my real money managed portfolio, the Green Global Equity Income Portfolio (GGEIP) for good measure.  The chart below shows preliminary numbers for 2020.

As I discussed last week, this was another difficult year to find clean energy stocks that I think are good values.  It’s a great thing for the planet that the fossil fuel divestment movement seems to be driving up the prices of clean energy stocks, but it makes life harder for value investors like me.

Given the high valuations, I think it’s important to keep some cash on the sidelines, but my track record on calling market tops is abysmal, so I never get totally out of the market.  

I’ll be following up this list with a series of articles looking at the individual holdings in depth over the next week.  My Patreon supporters can read drafts of the first two here and here.

Update

You can now read all the articles looking at these stocks in more depth through the links below:

• Valeo, Veolia, Umicore, and Scorpio
• Covanta, Green Plains Partners, Avangrid, and Brookfield Renewable Energy Partners
• MiX Telematics and Red Eléctrica

DISCLOSURE: Long all 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 Ten Clean Energy Stocks for 2021: The List 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.

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.