2015 marks my seventh annual list of ten clean energy stocks. An equal weighted portfolio of the ten stocks in each year's list has outperformed my industry benchmark every year except 2013. 2014 was no exception, but it was a bittersweet victory in that the model portfolio was slightly down while the benchmark lost considerably more in a very challenging year for clean energy stocks.
I will publish a wrap-up article for the 2014 list in the next couple days, but I wanted to get the 2015 list out on New Year's day.
Again this year, I will be providing a high and low target for each stock. These are the range within which I expect the stocks to end the year. In 2014, three of the picks violated the downside targets, and none violated the upside targets. I've also included annual dividends and yield, and Beta, a measure of market risk for US stocks. Low Beta stocks generally perform better than high Beta stocks in market downturns; the market average Beta is 1.
Finally, I include a discussion of insider sentiment: company insiders buying or selling the stock. Since company insiders usually receive stock as part of their compensation, insider sales are generally more common than insider purchases. Hence insider buying is almost always a good sign, and I consider it particularly important in the small capitalization stocks I favor. These stocks are more likely to be mispriced than larger, more widely followed stocks for which there is much more information available to investors. Company insiders are the ones most likely to see such mispricing. Since insider trading information is much easier to find for US stocks than foreign stocks, I include links to my sources of information for insider trading.
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. I consider 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 its 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, I expect 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. I consider its utilities climate-neutral.
At the start of 2014, I believed that the market was being overly pessimistic about negotiations between Capstone and the Ontario Power Authority over the operating agreement for Capstone's Cardinal gas cogeneration plant. I included Capstone in last year's list because the worst possible result 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.
