Ten Clean Energy Stocks For 2015: A Fine February

After a rough start to the year,  My Ten Clean Energy Stocks for 2015 posted a strong recovery in February.  

For the month, the model portfolio rose 7.9% in local currency terms and, 8.3% in dollar terms.  For comparison the broad universe of US small cap stocks rose 5.9% (as measured by IWM, the Russell 2000 index ETF), and the most widely held clean energy ETF, PBW, shot up 11.6%.

This year I split the model portfolio into two sub-portfolios of six income stocks (NYSE:HASI, NYSE:BGC, TSX: RNW, TSX: CSE, TSX:NFI, and XAMS:ACCEL) four value and growth stocks (NYSE:FF, NYSE:PW, NASD: AMRC, and NASD:MIXT).  

PBW (+11.6%) is a good benchmark for the value and growth stocks, which underperformed with a small gain of 1.6% in both local currency terms and dollar terms.  The six income stocks, on the other hand, gave a strong performance with a 12.0% gain in local currency terms and a 12.8% gain in dollar terms.  This is particularly surprising because global utility stocks (as measured by JXI) fell 3.5% for the month on worries about rising interest rates.  The fossil free Green Alpha Global Enhanced Equity Income Portfolio (GAGEEIP), which I co-manage, also bucked the global utility trend and turned in a 5.5% gain for the month.

For the year to date, the portfolio is up 3.1% in local currency terms, and down 0.2% in dollar terms.  This contrasts to a 4.2% gain for PBW and 2.5% for IWM.  The four growth and value stocks are down 6.1% in local currency terms and down 6.3% in dollar terms.  The income stocks are up 9.1% in local currency terms and up 3.9% in dollar terms.  GAGEEIP has gained 4.6% in January and February.

The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of February news for each stock.

 

10 for 15 Jan.png

 
The low and high targets given below are my estimates of the range within which I expect each stock to finish the year.

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI)
12/31/2014 Price: $14.23.  Annual Dividend: $1.04.  Beta: 0.81.  Low Target: $13.50.  High Target: $17.  
2/28/2015 Price: $16.63. YTD Dividend: $0.  YTD Total Return: 16.9%.

The stock of sustainable infrastructure financier and Real Estate Investment Trust Hannon Armstrong staged a dramatic advance of 21.4% in February.  I believe this advance was catalyzed by an article by Brad Thomas, the author of a leading REIT newsletter.  In the almost two years since its IPO, Hannon Armstrong has been the odd man out among renewable energy yieldcos, because of its REIT structure and focus on energy efficiency financing so different from the higher profile renewable energy project ownership of other yieldcos.  There are also no real comparables among conventional REITs, meaning that HASI has also struggled to catch the attention REIT investors.

Thomas' strongly positive article seems to have changed that, and now REIT investors seem to be pricing HASI closer to what that would be expected from traditional REITs that have a comparable level of risk.  Not that I'm selling at this point; I'm happy to hold a company that pays a 6.3% dividend at the current price, especially since management expects to continue to increase that dividend by 12-15% over the next 12 months.

An ironic note to this whole story is that Brad Thomas himself was surprised by the sea-change his article catalyzed.  Reading between the lines of his comments, he made up his mind that HASI was very attractive, but decided to share his insight with his readers before buying himself.  He has an admirable policy of waiting 10 days between publication and trading a stock.  In this case, the stock was trading at $14.57 when he wrote the article, but it closed at $16.37 10 days after publication.  A more recent note from Thomas leads me to believe he is still waiting for HASI to pull back.  

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Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, FF, BGC, RNW/TRSWF.  I am the co-manager of the GAGEEIP strategy.

Disclaimer: Past performance is not a guarantee ...

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Moon Kil Woong 5 years ago Contributor's comment

It is good to see solar surviving well in the lower cost energy markets. This could be partially because energy companies aren't passing on their lower costs to homeowners. Hopefully, solar like electric car companies can get off government subsidies because that does not prove the technology or staying power of solar.

Sadly in California electric companies are dead set to kill solar demanding the right to charge people putting them in place added fees because they cost the electric company money for not using them. PG and E wants to penalize them with a flat fee regardless of whether they use their power on top of the cost for using power. At first they wanted to charge all customers the flat fee for the privilege of getting access to power, but apparently it was shot down by the government watchdog that oversees their little monopoly. Needless to say, solar will have troubles with such utilities that hate them competing with their monopoly.

Tom Konrad 5 years ago Author's comment

Disruptive technologies like solar always have trouble with incumbents, but I believe that solar's growing cost advantage has reached the point that utilities cannot win, they can only delay. And the worse they make the economics for grid-connected solar, the more attractive off-grid solar will become.

The smarter utilities are the ones taking the "if you can't beat em join em" tactic, and are incorporating distributed solar in their business plans by doing things like renting homeowner's rooftops for their own solar installations. The homeowner gets the rental payment and no headaches, while the utility avoids losing marketshare to a solar leasing company, and gets to ratebase the installation.