Tom Konrad CFA
This article is intended as a companion piece to Ten
Clean Energy Stocks for 2012.
In the past, I've generally avoided illiquid stocks like Lime
Energy (NASD:LIME)
and PFB Corporation (TSX:PFB, OTC:PFBOF)
which are included in this year's list. The reason is
simple: it's hard for all but the smallest investors to buy such
stocks without significantly moving the price. This year,
I've instead chosen to publish a short list of alternative picks
which readers can substitute for stocks they consider too illiquid
or otherwise risky for their portfolio.
Another advantage of this approach for smaller investors is that
they can use these stocks to substitute for foreign companies that
do not have a US listing, for which brokers often charge a much
larger commission than they do to trade US stocks or foreign stock
with an OTC ticker. Accell Group (Amsterdam:ACCEL)
is one foreign stock included in this year's list that is probably
only practical to buy for larger investors.
You can, of course, use this list any way you like.
Investors looking for a more diversified portfolio might consider
buying all sixteen.
My six alternative are:
| Company (Ticker) | Price 12/31/12 | Good substitute for |
| New Flyer Industries (TSX:NFI, OTC:NFYEF) | $8.69 | Accell, Kandi |
| LSB Industries (NYSE:LXU) | $35.42 | PFB Corp, Zoltek, Waterfurnace |
| Ameresco (NYSE:AMRC) | $9.81 | Lime Energy, Zoltek, Maxwell |
| Power REIT (NYSE:PW) | $9.90 | Waste Management |
| US Geothermal (HTM) | $0.362 | Finavera, Alterra |
| Ram Power (TSX:RPG / OTC:RAMPF) | $0.257 | Finavera, Alterra |
About the Picks
New Flyer Industries (TSX:NFI, OTC:NFYEF)New Flyer has been in my list of annual picks more often than not
because of its high yield and leading position in a very sustainable
business: manufacture of heavy duty buses. It was the star
performer of the 2012 list, producing a 67% total return for the
year. While the stock was extremely depressed last year, I
left it off the list because of the reduced potential for price
appreciation. However, with a yield of 6.75% and a recovering
industry, it remains in my portfolio and could easily produce a
respectable return in 2012.
LSB Industries (NYSE:LXU)
LSB is a manufacturer of chemicals for agriculture and mining, as
well as geothermal heat pumps under its Climatemaster brand.
The chemicals business accounts for about two-thirds of revenue, and
the climate control segment accounts for about one third.
LSB's chemical business suffered an explosion and a pipe rupture at
different plants last year, but the company's insurance is expected
to cover the majority of the costs, including business
interruption. The work stoppages put a big dent in earnings in
2012, but the insurance proceeds will mostly be paid in 2013, giving
a big boost to earnings. I don't think the company's stock
price fully reflects the expected insurance payments, making LSB an
excellent buying opportunity at $34.60.
Despite my optimism about LSB's prospects for the year, there are
two reasons I chose not to include it in my annual list of clean
energy stocks. First, only 1/3 or revenue comes from clean
energy, and, second, because of the acquisition of a
working shale gas interest in October. Natural gas is a
significant part of LSB's cost structure, and the intent of this
acquisition is to create a natural hedge against rising natural gas
prices. However, LSB already has something of a natural hedge
against rising gas prices in their climate control business:
geothermal heat pump sales tend to be stronger when natural gas
prices are high, because high natural gas prices make geothermal
heating look relatively attractive.
Ameresco (NYSE:AMRC)
Ameresco is a leader in Performance Contracting: making energy
efficiency and renewable energy improvements for institutions which
are financed and then paid for out of the subsequent cost
savings. Ameresco's price is currently low because its
earnings have been hurt among government entities which have been
delaying decisions in the climate of uncertainty surrounding the
fiscal cliff. While Congress remains deadlocked as I write,
Ameresco's services often help budget-constrained government
entities pay for necessary improvements they otherwise would be
unable to afford. I expect the coming era of fiscal austerity
will likely be improve Ameresco's long term prospects, rather than
hurt them.
I chose to leave Ameresco out of this year's picks only because the
price had spiked from $9.43 to $10.03 in the thin holiday market on
December 28th, the day I compiled my list, and I anticipate that
that spike will be reversed over the next day or two, which would be
a 6% drag on the company's annual performance. If the price
had stayed near $9.50, where it had been trading over the previous
few days, I would have included it in the list.
Power REIT (NYSE:PW)
Power REIT is a railroad infrastructure REIT with plans to expand
into renewable energy real estate. It's currently involved in
a civil
case with Norfolk Southern (NYSE:NSC) and Wheeling and Lake Erie
Railroad which I discussed in detail here. The short
version is that Power REIT could collect payments worth several
times its market capitalization if they win, and even if they lose
on all counts, it will result in a tax write off which will allow
the company to designate its current $0.40 annual dividend a return
of capital (and hence tax-free to investors) for the foreseeable
future.
The prospect of a tax-free dividend is enough to fully justify Power
REIT's current price of slightly over $10, but it does nothing to
account for the very real chance of even a partial victory in the
civil case, or for the potential dividend increases which would come
from its expansion plans. I only chose to leave Power REIT out
of this year's list because it is very illiquid and the timing of
the resolution of the NSC case are unknown.
Ram Power (TSX:RPG / OTC:RAMPF)
and US Geothermal (HTM)
Ram and US Geothermal are geothermal power developers which, after
two years of declines are currently trading at very attractive
valuations. As Ram and Nevada Geothermal Power (TSX-V:NGP,
OTC:NGPLF)
have shown over the last two years, such companies can lose a great
deal of their value from unexpected development risk. I try to
compensate for development risk by holding relatively small stakes
in several renewable energy developers at once. With only ten
slots to fill in my list, I could not include these two in addition
to Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
and Alterra Power (TSX:AXY, OTC:MGMXF),
which are in the list this year.
Of the four, I currently consider Finavera and Alterra to be the
least risky, but I think including a little Ram and US Geothermal
along with Alterra and Finavera would reduce overall portfolio risk
through the added diversification.
Conclusion
The abundance of great values among clean energy stocks this yearbodes well for the performance of my annual model portfolio in
2013. For the first time, it also left me with an abundance of
clean energy stocks to choose from. I hope you, my readers,
will be able to use these six extra picks to build portfolios more
suited to your particular needs than you might otherwise have been
able to do.
DISCLOSURE: Long NFYEF, RAMPF,
LXU, AMRC, PW, HTM, FNVRF, MGMXF, ACCEL, LIME, PFBOF
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.
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