Tom Konrad CFA
| March Clip Art by Phillip Martin |
While the broad market of small stocks as measured by my benchmark
the iShares Russell 2000 Index (IWM) managed to turn in a small 2%
gain in March for the third month in a row, clean energy stocks
repeated February’s performance, giving back more of January’s
spectacular gains. My clean energy benchmark, the Powershares
Wilderhill Clean Energy Index (PBW),
declined
3.2% to end the quarter up 5.5% for the year, while IWM closed up
12.2% for the first quarter..
As designed, my ten clean energy picks for 2013 (introduced
here) again weathered the downdraft of the broader clean
energy sector, a relative stability which comes at the expense of
not participating in the clean energy sector’s periodic blistering
rallies. For the month, my model portfolio was flat, turning
in a total return of 6.8% for the first quarter. For the first
time this year, my portfolio has closed ahead of its industry
benchmark, although it still lags the broader market.
The chart and table show individual stock performance for my ten
picks plus the
six alternative picks I presented in a second article.
Significant Events
Below, I highlight significant events I feel affected performance
of the stocks in these two lists.
Waterfurnace Renewable Energy (TSX:WFI,
OTC:WFIFF)
Geothermal heat pump manufacturer Waterfurnace reported 2012
annual and fourth quarter results on March 13th. The
headline numbers were weak, but the outlook was strong. In
the conference call, management said they expect a much stronger
2013: Heat pump sales tend to lag housing starts by six to
nine months, and the housing market has recently been
recovering. While most of my managed portfolios are already
heavily invested in Waterfurnace, I added it as a holding to a
hedge fund which I co-manage.
Lime Energy (NASD:LIME)
On March 6th, a NASDAQ hearings panel granted Lime until June 30,
2013 to file all its delayed and restated financial results.
Expect the company to push the deadline. Unsurprisingly, Lime
just announced that its 2012 results would also be delayed until
prior years’ results are sorted out.
Maxwell Technologies (NASD:MXWL)
Maxwell Technologies gave investors a nasty shock on March 7th,
when they announced that some revenue had been booked too
early. When writing an article about it on March 9th, I
realized that there would probably be more bad news to come.
Growth in Maxwell’s Accounts Receivable was not fully explained by
revenue growth and the errors they had reported on the 7th.
Details
are here.
I promptly sold in all m managed accounts at $8. Readers of
the article on my Forbes blog should have been able to sell in the
$7.90 to $8 range.
On March 19th, Maxwell’s
independent accounting firm McGladrey LLP resigned.
McGladrey stated that it “could no longer rely on management’s
representations,” and that “there are material weaknesses in
[Maxwell’s] internal control over revenue recognition and
potentially, more broadly, in [its] overall control
environment.”
I take the accountants’ resignation as likely confirmation of my
suspicions, and believe readers should sell even at the current
price of $4.98, down 39% for the year. Hence, I am replacing
Maxwell in the portfolio with an equal amount of Ameresco, Inc.
(NASD:AMRC,)
one of my six alternative picks. Ameresco is also down this
year (-25.9%) but I believe the company’s fundamentals are strong,
for reasons I will discuss below.
I will substitute the two as if MXWL had been sold at the current
(April 2nd) price of $4.98 and Ameresco had been bought at the
current price of $7.27. Although it would be tempting to use
their prices when I published my warning about Maxwell, this
portfolio is intended to model the results of a small investor who
follows my advice, and only trades more than once a year in very
unusual circumstances. Such an investor would likely not be
following my writing closely enough to get out as soon as I
published my warning.
PFB Corporation (TSX:PFB,
OTC:PFBOF)
Green building product manufacturer PFB also reported 2012
results. Headline earnings were ugly, hurt by a slow housing
market and a margin squeeze caused by high chemicals costs and a
charge due to the failed acquisition of an upstream
supplier. Despite the poor 2012 results, PFB, like
Waterfurnace, should be able to benefit from the recovering
housing market, and management believes that cash flow is
sufficient to protect PFB’s C$0.06 quarterly dividend going
forward. I recently added a little to my position at $5.51.
Zoltek Companies (NASD:ZOLT)
Carbon fiber manufacturer Zoltek’s recent rise was explained when
turn-around specialist investment firm Quinparo partners and
allied investors revealed a 10.13% stake in the company and called
for a special election to replace the board. I interviewed
Quinparo’s founder, Jeffry Quinn, and concluded that the firm
would not go quietly, and possibly make a hostile bid for Zoltek (details
here.)
On April 2nd, Zoltek announced a “review
of its strategic options,” part of an agreement
with Quinparo to defer the investment firm’s special meeting
request. Such a review will almost certainly include an
independent evaluation of offers from Quinparo, as well as any
other outside bidders which might be interested in the firm.
The stock was up 46% in March, and continues to rally as I write
today.
Kandi Technologies (NASD:KNDI)
Chinese ATV and Electric Vehicle (EV) maker Kandi announced 2012
results, with full year revenues up 60.6% and earnings up 33.6% to
30 cents a share. EV sales for the year were 3,915, with EV
revenues up 204% to $19 million. This was still less than
the 1,000 vehicles per month starting in August I expected when
Kandi signed their agreement with the city of Hangzhou last July,
but Kandi’s EV sales are clearly ramping up, and a trailing P/E of
13 is quite cheap for a company growing this quickly.
This morning, Kandi announced the completion of its (and China’s)
first full-scale EV production line, with annual production
capacity expected to reach 100,000 EVs.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
Finavera is taking
longer than expected to finalize its deal with Pattern,
announced in December, and the reason I included the stock in my
list. In the meantime, Finavera issued C$42,200 worth of
shares at the current market price of $C0.21 a share to settle debts
to insiders. While I don’t like even this mild dilution, it
does show some faith among insiders that the deal is likely to go
through, since a failure of the Pattern deal would be disastrous for
the otherwise cash-starved company.
Alterra Power (TSX:AXY,
OTC:MGMXF)
Renewable energy developer and power producer Alterra lost ground
because of delays in multiple development projects caused by
uncertainty surrounding the terms of one off take power purchase
agreement, and planning studies for for a hydropower project being
more complex than anticipated. Also, the possible sale of
Alterra’s stake in the Icelandic HS Orka geothermal plant has been
put on hold because Iceland’s capital controls would prevent the
repatriation of the sale proceeds. Instead, Alterra is
working to arrange for HS Orka to start paying a small dividend,
the proceeds of which should not be affected by the capital
controls.
Alterra has trimmed staff and cut overhead to accommodate the
delays and preserve cash for its longer than anticipated
pre-construction periods. While the delays reduce the
current value of development assets, I don’t feel any of these
events undermine the original reason I included the stock in my
list: the stock price is far below the value of its assets,
especially when the stock’s recent decline in considered. I
also added to my position in Alterra in March.
Six Alternative Clean Energy Stocks
New Flyer Industries (TSX:NFI, OTC:NFYEF)
Transit bus maker New Flyer also had lower sales and profits in
2012 compared to the previous year, but this was mostly due to a
now-resolved supplier quality issue and the delay of a notice to
proceed on a large order from the New York City Transit
Authority. Nevertheless, the results exceeded analyst
expectations, and the company’s backlog continues to grow, most
recently with an order for 120 compressed natural gas buses for
the city of Phoenix.
LSB Industries (NYSE:LXU)
LSB fell significantly in March, despite beating analyst estimates
for both earnings and revenue at the end of February. My
best guess as to the reason for the decline is significant stock
sales in the $38-$40 range by a number of insiders. My
regular readers were fortunately able to exit this one as well,
since I highlighted it as one
to sell at $42 in mid February, after which it traded as
high as $42.15.
I’m considering getting back in if it falls below $30.
Ameresco, Inc. (NASD:AMRC)
Performance contractor Ameresco again disappointed expectations in
Q4 because many of its clients were delaying making final decisions
on previously awarded projects. Because they are unable to
determine when the current climate of uncertainty will end,
management revised revenue and earnings guidance for 2013
downward. The stock fell significantly as a result. I
added to my positions because I like the company’s long term
prospects and growing backlog, as well as the current price.
Note that I’m going to be substituting Ameresco for Maxwell in the
“10 Clean Energy Stocks for 2013” portfolio for the remainder of the
year; see the comments under Maxwell above for more details.
US Geothermal (NYSE:HTM)
US Geothermal announced what I expect to be the first of many
quarterly profits. Commercial operations and higher output at
multiple geothermal plants achieved in 2012 mean that I expect a
profitable 2013 is a near certainty, and will probably be over 4
cents a share for the year. The company also received a $33
million cash grant for the completion of its Neal Hot Springs
project this month.
Ram Power Group (TSX:RPG)
Geothermal developer Ram Power announced
2012 results and raised
C$50,855,000 in secured 8.5% debt and $0.30 warrants to
refinance the company’s outstanding balance on its credit
facility, where the company had been paying 16% annual interest,
and extended the term to 2018. Revenue increased six-fold to
C$28 million in 2012 from 2011 with Phase I of its signature
project operating for most of the year. The increased
revenues narrowed Ram’s loss from 64 cents in 2011 to 19 cents per
share in 2013. Most of this loss was due to an impairment
charge, and with Phase II having achieved commercial operation in
December, we should see a move to positive earnings in 2013.
Conclusion
While I like to be beating my benchmark, I would prefer if clean
energy stocks as a whole were ahead of the broad market for
once. Still, I’m happy that the good news at Zoltek offset the
ugly surprise at Maxwell. Such effective diversification is
the reason why I chose ten stocks, and not just one or two. I
hope most of my readers also managed to do a bit better than this
portfolio by getting out when I raised the alarm about Maxwell on my Forbes blog,
rather than waiting until now.
I added to existing positions in several of these stocks in some of
the accounts I manage. Stocks bought are Waterfurnace, Accell,
PFB, Finavera, Alterra, New Flyer, and Ameresco. I sold Maxwell
Technologies.
Disclosure: Long WFI, LIME, PFB, ACCEL, ZOLT, KNDI, FVR, AXY,
WM, NFI, LXU, AMRC,PW, HTM, RPG. Short: MXWL.
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.
Source Article from http://www.altenergystocks.com/archives/2013/04/ten_clean_energy_stocks_for_2013_march_update.html
