Wednesday, January 14, 2015

Fourteen Clean Energy Stock Picks for 2015

There are reasons to be bullish on clean energy stocks in 2015. Despite significant headwinds, clean energy has achieved so much momentum that it cannot be stopped, it will keep moving forward despite transitory impediments.

Midway through the first month of January, many investors are not looking favorably at the prospects for clean energy stocks this year. They have suffered from the plummeting price of oil at the end of 2014 and into the start of 2015. While this has caused heavy selling, some have argued that this is irrational.

Here are 14 clean energy stock picks for 2015, four are from the Cowen Group and ten are from Tom Conrad.

As reported by Lee Jackson in Wall Street 24/7, the Cowen Group predicts four big clean energy stock winners in 2015. Cowen Group Inc. is a diversified financial services firm that provides alternative investment management, investment banking, research, and sales and trading services.

In December, Analysts at Cowen made the point that solar, LED and smart grid stocks have very little, if no impact from swings in the oil market. Their research indicates that 90 percent of the world’s electricity pricing is not meaningfully impacted by oil price trends. Most industrialized nations have a regulated utility market where electricity pricing is controlled, and generation comes from a portfolio of assets. What that means for investors is a solid buying opportunity — and that perhaps not all clean tech stocks are created equally.

Here is the Cowen Group's top four top stocks that they expect will see gains in 2015:

1. Acuity Brands Inc. (NYSE: AYI) leads off the list, and it is a top stock to buy in the next-generation lighting space. The company is the leading provider of North American lighting fixtures (22 brands, 1.7 million SKUs). The Cowen analysts acknowledge that, trading at 24.6 times fiscal year 2015 earnings estimates, the stock is not cheap on a relative basis. However, they think that non-residential sales trends, combined with LED margin improvement, can continue to drive the share price higher.

The Cowen price target for the stock is $155. The Thomson/First Call consensus target is lower at $152.91. Shares closed trading Friday at $140.23.

2. Polypore International Inc. (NYSE: PPO) is another top stock in the next-generation transportation subsector at Cowen, and it is listed as one of the top picks in the clean tech coverage. This is a stock that is very levered to the fast-growing electric car arena as they produce specialty chemical separators used in the battery industry. After two disappointing years in 2012 and 2013, the Cowen team feels that expectations have been reset and the company is poised to take advantage of long-term deals with Samsung and Panasonic.

The Cowen price target for the stock is $60, and the consensus target is $50.21. Polypore shares closed Friday at $48.44.

3. SunEdison Inc. (NYSE: SUNE) is rated a top pick at Cowen, and the stock, which was absolutely pounded in the fall sell-off, got a big boost when hedge fund legend David Einhorn of Greenlight Capital continued to talk his book and said the stock remains a huge fund holding. SunEdison acquired First Wind, one of the largest wind power developers in the United States, for $2.4 billion in November, and the stock rocketed higher, but it has since backed up. The acquisition of First Wind, which is based in Boston, could make SunEdison the leading renewable energy development company in the world.

The Cowen price target for the stock is posted at $33, and the consensus target is $28.77. The stock closed Friday at $20.97.

4. SunPower Corp. (NASDAQ: SPWR) rounds out the big four clean energy top pick stocks to buy at Cowen to take advantage of the current weakness in the market. They like the stock because of the company’s proximity to making a yieldco decision, expected at some point in 2015, which the analysts think creates even more value for shareholders. The company offers solar power products, including panels, balance of system components, and inverters. It also designs, manufactures, and sells high-performance rooftop and ground-mounted solar power systems, as well as utility-scale photovoltaic power plants. In addition, the company offers operations and maintenance services, including remote monitoring, preventative and corrective maintenance services, as well as rapid-response outage restoration and inverter repair services.

The Cowen price objective is $46, and the consensus target is set at $39.13. The stock closed trading on Friday at $25.86 a share.

As reported in Renewable Energy World, here are some clean energy stock picks from Tom Konrad a private money manager and freelance writer focused on Peak Oil and Climate Change as investment themes. He manages portfolios for individual clients and is Head of Research for the JPS Green Economy Fund, a hedge fund open to accredited investors looking for exposure to Peak Oil and Climate related themes. He also edits and contributes to AltEnergyStocks.com, where he has been analyzing clean energy stocks since 2007.

Here are Konrad's top clean energy stock picks for 2015 (Posted on January 8):

Income Stocks

1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI). Current Price: $14.23. Annual Dividend: $1.04 (7.3%). Beta: 0.81. Low Target: $13.50. High Target: $17. Insider Sentiment: Mildly Positive. One insider is selling but three are buying; sale was an automatic sale which is unlikely to be a response to market conditions. Why it's green: All financed projects reduce greenhouse gas emissions.

Hannon Armstrong is a Real Estate Investment Trust and investment bank specializing in financing sustainable infrastructure. Konrad considers it a peer of the yieldcos (companies that invest in clean energy infrastructure and use the cash flows to pay a high dividend yield to shareholders, but HASI trades at a substantial discount to most yieldcos because other investors seem to compare it more closely to mortgage REITs. However, Hannon Armstrong's investments are very different from those of other mortgage REITs.

In 2014, management delivered on it promise to increase the dividend by 12-15%, something they expect to do again in 2014. In 2014, the stock increased only 3.2% for a 9.9% total return for the year. With the dividend yield now even higher than it was a year ago and more dividend increases likely, Konrad expects even better results in 2015.

2. General Cable Corp. (NYSE:BGC) Current Price: $14.90. Annual Dividend: $0.72 (4.8%). Beta: 1.54. Low Target: $10. High Target: $30. Insider Sentiment: Mildly Positive. No trades in last 3 months, but insiders are not selling incentive awards. One officer was buying at much higher prices ($21+) in August. Why it's Green: The geographically dispersed nature of renewable energy resources means they require more wire/connections. Improving the interconnection of our grid also allows utilities to use existing generation more efficiently.

General Cable Corp. is a leading international manufacturer for electrical and fiber optic cable. In 2014, the company disappointed investors because of weak demand for electricity infrastructure, especially in Europe. The company is undertaking a restructuring to focus on its core markets in the Americas and Europe. The company is also searching for a new CEO and expanding its board to include more members with operational experience.

With the company trading near book value with healthy cash per share and in the process of selling its Asia Pacific operations, only a reduction in uncertainty should be needed to bring investors back to the stock.

3. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF). Current Price: C$3.20. Annual Dividend C$0.30 (9.4%). Low Target: C$3. High Target: C$5. Insider Sentiment: Strongly Positive; 200,150 shares bought by 8 insiders over 3 months. Only sale was of preferred stock by an insider also buying common. Why it's green: Capstone's energy division sells electricity and heat from gas cogeneration, wind, solar, and hydropower. Konrad considers its utilities climate-neutral.

Capstone was included in the 2014 list because Konrad expected the worst possible result in its negotiations with the Ontario Power Authority over the future of its Cardinal gas cogeneration plant had already been priced in. That thesis initially paid off, with the stock rising significantly during the first half of the year. Unfortunately, Britain's water regulator OfWat issued a final determination for rates at its Bristol Water subsidiary which fell considerably short of what the utility had proposed and vetted with consultants. Bristol Water is considering appealing the ruling, but will operate under the determination beginning April 1st until at least August 2015, when the final appeal (if it takes place) will be resolved. A previous appeal by Bristol water in 2010 resulted in a "significantly improved" business plan from the utility's perspective.

Even without an appeal, Capstone's management is confident that they can maintain the current C$0.075 quarterly dividend and increase funds from operations enough to bring that dividend back into line with its 80% target payout ratio by 2017. Konrad expects the stock to appreciate when investors regain confidence that the dividend and very attractive 9.4% current annual yield is safe. Company insiders seem to share Konrad's confidence, with eight of them buying over half a million dollars worth of stock in the week since December 23rd, after a conference call discussing the OfWat ruling and management's outlook for 2015.

4. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF) Current Price: C$11.48. Annual Dividend: C$0.77 (6.7%). Low Target: C$10. High Target: C$15. Insider Sentiment: Positive. One recent purchase, no selling. Why it's green: All financed projects reduce greenhouse gas emissions.

TransAlta Renewables is the yieldco created by TransAlta Corporation(NYSE:TAC),Canada's largest Independent Power Producer with facilities in the Canada, the US, and Australia. TAC is the sponsor majority owner of TransAlta Renewables and has stated that it intends to retain a majority stake because the dividend cash flows help it maintain its credit rating.

Konrad believes that TransAlta Renewables trades at a discount to most other yieldcos because it is not listed in the US, and because it has not provided clear guidance regarding future dividend growth through the drop-down of additional renewable facilities.

Konrad does not consider the lack of guidance a serious problem because the market seems to be overvaluing dividend growth compared to the current dividend. Since yieldcos return most of their cash to shareholders, they can only increase their dividends by issuing stock or raising debt to buy new facilities. While many yieldcos have a "Right of First Offer" (ROFO) on the renewable facilities developed/owned by their sponsor companies, these ROFOs do not confer the right to buy these facilities at below market prices. This competitive market means that no yieldco will be able to acquire new renewable facilities at prices substantially below the others, and so their cash flow and dividend per invested dollar will be capped. Hence, the current 10-15% annual growth in dividends that investors expect from yieldcos can continue only as long as investors are willing to provide yieldcos with cheap capital by accepting the low 3-4% dividends currently on offer from many yieldcos. When the music stops, all yieldcos will be revalued based on more reasonable future dividend growth. This should have little effect on today's high yield yieldcos (such as TransAlta, Capstone, and Hannon Armstrong) but could cause the stock prices of yieldcos with high expected dividend growth (NYLD, NEP, and TERP, for instance) to fall substantially.

5. New Flyer Industries (TSX:NFI, OTC:NFYEF). Current Price: C$13.48. Annual Dividend: C$0.585 (4.3%) Low Target: C$10. High Target: C$20. Insider Sentiment: Positive. 81,000 shares bought by a 10% owner and no selling over last 3 months. Why it's green: Buses produce far fewer emissions, require less parking and road space, and have fewer accidents per person-mile than cars.

Leading North American bus manufacturer New Flyer took advantage of the industry downturn over the last few years to consolidate its lead in the North American bus market as well as expand its product offerings, especially in the fragmented parts and service market. Aging bus fleets are leading to a market revival, and New Flyer is in an excellent position to benefit from this rebound. New Flyer was one of the strongest performers in the 2014 list, but improving margins and the possibility of expanded production could drive even larger gains in 2015.

6. Accell Group (Amsterdam:ACCEL, OTC:ACGPF). Current Price: €13.60. Annual Dividend: Varies: at least 40% of net profits. €0.55 in 2014 (4.0%). Low Target: €12. High Target: €20. Insider Sentiment: Mixed buying (7000 shares) and selling (10,000 shares) over 3 months. Why it's green: Bikes and e-bikes are among the greenest forms of transportation.

International bicycle manufacturer Accell remains in the portfolio for the third year in a row. Over the last couple years, the stock has appreciated slightly and paid €1.30 worth of dividends, while the business has improved substantially due to the acquisition of additional brands (Such as Raleigh and Currie) and distributors. Business rationalization and increasing adoption of e-Bikes are also driving sales growth. Konrad expects the strength of Accell's business to drive some price appreciation and another healthy dividend in 2015.

Value Stocks

7. Future Fuel Corp. (NYSE:FF) Current Price: $13.02. Annual Dividend: C$0.24 (1.8%). Beta 0.36. Low Target: $10. High Target: $20. Insider Sentiment: Mildly positive. No trades in last 3 months. Previous buying in last year above current price ($14-$16), selling at much higher price ($20+) Why it's green: Biodiesel has the lowest environmental impact per mile driven (roughly 1/3 of that of gasoline) of any conventional biofuel.

FutureFuel is a combined specialty chemicals and biodiesel producer which has been suffering from the expiration of the blender's tax credit for biodiesel and the uncertainty surrounding the EPA's decision to delay the release of cellusoic biofuel targets for 2014. In November, the agency announced that it would not finalize the requirements until next year, when it is expected to announce the targets for 2014, 2015, and 2016 together.

FutureFuel's specialty chemicals business had also been suffering from some problems with ramp-up of a new product over the summer, but those problems seem to have been largely dealt with. With the biodiesel market in flux, FutureFuel cut its dividend from and annual $0.48 to $0.24. This will free up cash and could potentially finance acquisitions of weaker biodiesel producers if the industry downturn continues.

Over the last few years, the prices for biofuel feedstocks have been set by what biofuel producers can profitably pay for them. This means that, even without government support, biofuel and feedstock prices will reach eventually an equilibrium where the most efficient producers can be profitable. Konrad expects FutureFuel to be one of those, and the current uncertainty is providing an attractive buying opportunity.

8. Power REIT (NYSE:PW). Current Price: $8.35. Annual Dividend: $0. Beta: 0.52. Low Target: $5. High Target: $20. Insider Sentiment: Mildly poitive. One small buy over last 3 months, no sales. Why it's green: Owns land under solar farms and rail lines (efficient transportation.)

The ongoing civil action between rail and solar investment trust Power REIT and its lessee Norfolk Southern Corporation (NYSE:NSC) and sub-lessee Wheeling & Lake Erie Railway (WLE) looks likely to go to trial in early 2015. The case grew out of Power REIT's attempt to foreclose on the lease due to WLE's refusal to pay a legal bill which Power REIT believes it is entitled to under a clause of the lease which states that the lessee is responsible for any of Power REIT's expenses which are "necessary or desirable" for maintaining its interest in the track. NSC and WLE commenced the action to prevent the foreclosure on a lease which favors them greatly.

The two sides are very far apart in their interpretations of the lease. Power REIT's interpretation seems is mostly supported by the lease itself, which the lessees say should be ignored in favor of how the parties have actually behaved under the lease over the last 50 years. Konrad finds it impossible to predict how the judge will rule, but the downside for Power REIT is limited to a return to the status quo, while the upside could easily double the value of Power REIT's shares. Even Power REIT's legal expanses could be reimbursed under the very broad "necessary or desirable" language of the lease discussed above.

At the current price, Konrad sees significant upside and limited downside potential from the civil action, and he is optimistic that potential will be realized in 2015.

9. Ameresco, Inc. (NASD:AMRC). Current Price: $7.00. Annual Dividend: $0. Beta: 1.36. Low Target: $6. High Target: $16. Insider Sentiment: Mildly positive. One director bought 2,500 shares with no selling over 3 months. Why it's green: Provides energy efficiency and renewable energy solutions with a service model.

Energy service contractor Ameresco has been suffering for the last two years because its clients, mostly government entities, have been slow to finalize contracts. Over the last two quarters, however, management has indicated that they see signs of improvement in certain markets. They have also worked to diversify Ameresco's business into renewable energy development.

Despite these positive signs, the market has failed to reward the stock, which is now trading near book value. Another quarter or two of improving market conditions should be enough to produce a strong price rebound.

Growth Stock

10. MiX Telematics Limited (NASD:MIXT). Current Price: $6.50. Annual Dividend: $0. Beta: 0.78. Low Target: $5. High Target: $20. Insider Sentiment: Neutral. No trades in last 3 months. Previous trades mixed, but at higher prices. Why it's green: MiX's fleet management solutions reduce fuel use and accidents.

MiX provides vehicle and fleet management solutions customers in 112 countries. The company's customers benefit from increased safety, efficiency and security. Based in South Africa, Mix's stock price has suffered from the general decline of emerging market stocks over the last few months. The falling oil price may also have hurt the stock, since many of its fleet management customers are in the oil and gas industry.

Konrad does not expect the oil price to stay this low for all of 2015, and MiX's emerging market home belies the global nature of its revenues. Considering that MiX delivered 15% subscriber growth in 2014 but the stock fell by almost half from what he considered an already undervalued level, this stock is poised for a massive rebound with any shift of market sentiment.

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