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How Investors Can Make Money with Clean Tech Energy
Sep 25, 2013 By: The_Energy_Report AEIS GTLS ENOC KIOR SZYM Let’s get one thing straight: Clean tech is much more than solar panels. So if you’re squeamish about the Solyndra bankruptcy, it’s time to do some more homework. Raymond James Energy Analyst Pavel Molchanov is following clean tech companies around the world that help utilities avoid rolling blackouts, connect solar systems to the grid and produce biofuels that don’t compete with food crops. Discover these fascinating stories in this interview with The Energy Report and find out which names Molchanov is recommending for short- and long-term profits—as well as stocks to steer clear of. The Energy Report: A large number of photovoltaic (PV) manufacturing firms went bankrupt during the past year. What is the outlook for solar energy firms? Pavel Molchanov: Most of the solar bankruptcies that took place in the U.S., Europe and China have occurred among companies that manufacture solar modules. But it’s important to note that a bankrupt company does not necessarily shut down production. About 75% of these companies, as measured by production capacity, have continued to operate, either on a stand-alone basis during bankruptcy or following an acquisition by a strategic partner. Take, for example, China’s Suntech Power Holdings (STP:NYSE) . It was the largest solar manufacturer in the world as recently as 2011. It declared bankruptcy in March, and continues to operate and generate revenue. Solyndra, of course, has been wiped off the face of the earth. But such liquidation is a very rare outcome for large solar companies that take temporary refuge in bankruptcy. TER: Are bankrupt, producing solar companies attractive investments? PM: Rule of thumb: Do not invest in a bankrupt company! The broader point is that bankrupt solar companies are continuing to contribute to the overcapacity that plagues parts of the industry. A year ago, the amount of production capacity exceeded demand by a ratio of 2:1. In other words, the industry had twice as much production capacity as there was global demand. Obviously, that is an absolute nightmare. Since 2012, though, overcapacity has been reduced a bit as certain bankrupt firms were liquidated. Meanwhile, demand for solar modules has picked up. My best guesstimate of the overcapacity in the solar industry is about 60%–which is still a challenging situation for any manufacturing industry, but not as bad as it had been. TER: Please explain what you mean by the term “clean tech.” PM: Clean tech is an investment theme that comprises a broad set of industries, including solar, wind, biofuels, natural gas fuels, fuel cells, electric vehicles and smart grid. The overarching theme is production and distribution of energy using technologies that are more environmentally sustainable than conventional methods. TER: What are solar inverters? PM: Inverters transform DC current to AC current and connect a solar system with the grid. Modern inverters are very sophisticated pieces of electrical equipment. The competitive landscape for inverters is much more manageable than for solar panels. TER: What firms are hot in the solar inverter space? PM: Advanced Energy Industries Inc. (AEIS:NGS; AEIS:BSX) is the third biggest inverter company in the world behind SMA Solar Technology AG (S92:Xetra) from Germany and ABB Ltd. (ADR:NYSE) from Switzerland. It is the biggest U.S.-based manufacturer of inverters. On average, inverter gross margins are in the 20–30% range, double the margins for panel manufacturers. TER: Is Advanced Energy a start-up? PM: Advanced Energy has an interesting history. Until about five years ago, it was barely involved in the solar industry. It was primarily a semiconductor capital equipment provider selling to customers such as Applied Materials Inc. (AMAT:NASDAQ). Through acquisitions and organic growth, Advanced Energy has morphed into much more of a solar company; this year more than half of its revenue comes from the sale of solar inverters. TER: What other promising clean tech firms do you follow? PM: EnerNOC Inc. (ENOC:NASDAQ) is a one-of-a-kind company. It provides demand response services to utilities and energy management services to enterprises. About 90% of its revenue comes from utilities and 10% from enterprise customers. For utilities, demand response aims to prevent blackouts in times when power demand exceeds supply. Traditionally, utilities compensated for excess demand by building peak-power plants, which are capital-intensive investments that mostly just sit there and depreciate. By contrast, EnerNOC connects electric utilities with commercial and industrial power consumers, reducing the need to build peak-power plants. It prevents blackouts—most recently in the mid-Atlantic region in September—by carefully controlling and curtailing power consumption, spreading the pain across a broad base. TER: What happens when a utility signs up with EnerNOC? PM: The utility assigns EnerNOC a quota of megawatts that EnerNOC’s sales force needs to fill. Commercial and industrial power users in that utility’s region sign up to enter EnerNOC’s network. When the grid is stressed and demand is at the risk of exceeding supply, the utility automatically signals EnerNOC’s computers. The machines take over and reduce power consumption by the commercial and industrial consumers. In an office building, for example, thermostats will go from 72 degrees to 74 degrees in the summer. Most people will not even feel that increase. Or if there are 10 production lines in a factory, one line might be turned off. It is much more controlled and manageable than rolling blackouts. TER: How does this affect the price of electricity? PM: The utility pays EnerNOC a fee for having the megawatts available, even if the energy is never utilized. In other words, if the utility does not end up needing any of this demand response, then EnerNOC gets paid anyway. And, best of all, when there are demand response events, and EnerNOC is called upon to activate its network, it is paid extra. About half of EnerNOC’s revenue is transferred to the commercial and industrial power users as their compensation for simply being in the network. TER: Are EnerNOC’s financial fundamentals sound? PM: One reason that I like EnerNOC as a stock is it has a high free-cash-flow yield, not just by clean tech standards, but by anyone’s standards. This year, we estimate that EnerNOC’s free cash flow yield will exceed 12%. Next year, it could exceed 16%. These are very high numbers. Because its business model is based on recurring revenue, there is a certain similarity between EnerNOC and the software-as-service platform, which is justifiably popular among investors. TER: Are you following any natural gas companies involved in exporting liquefied natural gas (LNG)? PM: Exporting LNG—whether from North America or Australia or Qatar—is an interesting theme, but it is not part of clean tech. What does fall in the clean tech category is the production of liquefied and compressed natural gas for powering fleets of trucks and buses. There are several companies that participate in this market. They are not all buys, but I am very positive on Chart Industries Inc. (GTLS:NGS; GTLS:BSX) . Among other things, it makes the equipment that is installed at fuel stations to convert natural gas into LNG for trucking transport. Chart Industries is a diversified business. It has leverage to many other types of gas consumption, not just LNG. It is a profitable company with positive free cash flow. And it has nice leverage to various international markets, especially China, not just North America. I watch some other companies in the natural gas transportation theme. Clean Energy Fuels Corp. (CLNE:NASDAQ) is a fuel distributor for both compressed natural gas and LNG, but the stock is overvalued right now. If investors are looking for a good trade, I suggest go long Chart Industries and short Clean Energy Fuels. Both companies are connected to the same theme—but one is very well positioned, and the other not so much. A Canadian company with leverage to this theme is Westport Innovations Inc. (WPT:TSX; WPRT:NASDAQ) . It makes engines for natural gas vehicles. It is an interesting company with a differentiated technology, but it is also a very expensive stock and not worth chasing at current levels. I am neutral on Westport for the time being. TER: What about clean tech consumer products? PM: There are some public companies that use renewable feedstocks, especially sugar cane, to produce materials that can be turned into cosmetics or nutrition products. Solazyme, Inc. (SZYM:NASDAQ) uses an algae technology platform. It is going into commercial production in the U.S. and Brazil to make oils that can be turned into nutrition and cosmetics products. In the long run, I anticipate that Solazyme will focus more on chemicals and fuels—but for now, it has good traction in the consumer arena. TER: Are clean tech industries as a whole responsive to political crises like the oil and gas industry is? PM: One of the nice things about clean tech companies is that they do not have to worry about wars in the Middle East. They do not have to worry about nationalizations. They do not have to worry about oil spills: You cannot spill solar power or wind power. You could spill some ethanol, but that would hardly be the end of the world. Political risk for these companies does exist, but that is related to governments suddenly changing policies that support the adoption and deployment of renewable energy. For example, in Europe, solar subsidies have been cut, and that has slowed down solar installations in Europe. Conversely, in China, the solar market went gangbusters this year because the government is pushing very aggressively for it. In the U.S., renewable fuels have historically been politically popular in Washington on a bipartisan basis. The Renewable Fuels Standard, a set of regulations developed by the Environmental Protection Agency, requires the industry to use increasing amounts of biofuels through 2022. Meeting the standards will require increased production of advanced biofuels and cellulosic biofuels, both of which are early-stage industries. Corn ethanol has lately caused some political controversy, but the newer kinds of biofuels have not. Advanced biofuels can be manufactured from different types of biomass, including sugars, vegetable oils and corn, whereas cellulosic biofuels are made from non-food materials. That means no sugar cane or soybean oil resources are used—nothing that would compete with food production. Cellulosic fuels are based upon switchgrass, miscanthus, wood chips or municipal solid waste, all of which have the advantage of lower input costs. We also like a company called KiOR, Inc. (KIOR:NASDAQ) , which is the only public pure play on cellulosic biofuels. It makes gasoline and diesel, not ethanol, from wood chips. KiOR’s first commercial plant, in Mississippi, began producing earlier this year and is currently in the process of ramping up. TER: Any final thoughts to share with investors? PM: Political leaders the world over have almost unanimously concluded that cleaner, lower-carbon, renewable energy should be supported by governments. Europe has historically led the way in solar and wind adoption. Biofuels are much more prevalent in the U.S. and Brazil. China is now becoming a major driver of demand for renewable energy. In markets that some people may not normally associate with renewable energy, such as Thailand, South Africa and Chile, the clean tech sectors are starting to get traction at the political level. All that is encouraging for clean tech investment in the long run. It’s worth keeping in mind that some of these companies are earlier-stage businesses that are a ways off from profitability, so the risk profile of clean tech tends to be on the high side. TER: Thanks for your time, Pavel. PM: Cheers, Peter. Pavel Molchanov joined Raymond James & Associates in June 2003 and has worked as part of the exploration and production research team since that time. He also initiated coverage on the alternative energy sector in fall 2006. Molchanov became an analyst in January 2006. He graduated ***** laude from Duke University in 2003 with a Bachelor of Science degree in economics with high distinction. Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page. DISCLOSURE: 1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None. 2) The following companies mentioned in the interview are sponsors of The Energy Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment. 3) Pavel Molchanov: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Chart Industries Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent. 5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. 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Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734. Participating companies provide the logos used in The Energy Report . These logos are trademarks and are the property of the individual companies. 101 Second St., Suite 110 Petaluma, CA 94952 Tel.: (707) 981-8204 Fax: (707) 981-8998 Continue reading
The Global Guru: Why Emerging Markets Will Soar in Q4
By Eagle Financial Publications , September 19, 2013 EMF) between 1990 and 1993. And much like biotechnology, emerging markets are overdue for a boom. That boom may have already started, as the MSCI Emerging Markets Index bottomed on Aug. 27 and has rallied 11.43% since. And here’s why I think emerging markets will continue to soar in Q4… 1. Because They (Almost) Always Do As a former emerging markets mutual fund manager, I can reveal that one of the “dirty little secrets” of emerging markets managers is that we expected to make the most money for our clients during Q4. Sure, there are exceptions, like the period after the collapse of Lehman Brothers in 2008, when investors abandoned all risky assets and everyone headed for the exits at once. But during normal times — and yes, today counts as normal — the story goes something like this: Big, institutional money, as opposed to more nimble hedge funds, starts thinking ahead to the next year. Strategists write reports, committees meet and the powers that be nod their heads in agreement. And institutional managers start implementing their new asset allocation decisions before the start of the year. After all, they want to have them in place by Jan. 1. That means shifting money out of, say, U.S. markets into emerging markets, or taking money out of India to put it to work in Thailand. This process always tended to move markets in December. But since they want to get a jump on the competition — after all, why wait to buy at a higher price — they start a bit earlier, say November. And all of that activity and buying tends to move the prices of markets up. 2. Because You Hate Them Emerging markets were pegged by most institutional investors as the most popular asset class at the start of 2013. I made the same error. That positive sentiment stands in stark contrast to a recent survey of 900 Bloomberg subscribers, according to which the formerly high-flying BRICs (Brazil, Russia, India and China) were expected to do the worst among any markets on Earth. India fared the poorest, followed by Brazil, Russia and China. A full 36% of respondents said the BRIC era is over. Brazil has fallen from its commodities boom-driven perch. Russia has resumed its traditional position as the market that investors love to hate and as the Putin mafia’s playground. India magically transformed from a country that churned out engineers that put the United States to shame into a dysfunctional mess. The only relatively good news is coming from China. And given that country’s Soviet-like penchant for making up numbers, even that is suspect. Only 14% of survey respondents said China will be one of the two best places to invest in the next year and 23% called it one or two of the worst. If you are a contrarian investor, there is hardly a better time to buy emerging markets. 3. Because Markets Always Revert To The Mean The underperformance of emerging markets compared with, say, the United States in 2013 almost has been unprecedented. As of today, the U.S. market has outperformed emerging markets by over 26.7% — just this year. And that’s after the recent double-digit rally in emerging markets. But as the economist Herb Stein observed, things will keep going the way they do until one day they don’t. Put another way, emerging markets’ underperformance, compared with the United States, will last — until it inevitably narrows. And why that gap won’t narrow is because of a collapse in the U.S. stock markets, supported, as it is, by an improving economy. After all, emerging markets are as cheap as they’ve ever been and are trading at a price-to-earnings (P/E) ratio of roughly 10 versus 15 for the U.S. market. My prediction? At some point, emerging markets will have a sustained — and lasting — rally reminiscent of the monster rally in the early 1990s. That rally may have already started. Disclosure: I hold the iShares MSCI Emerging Markets (EEM) both personally and on behalf of my clients at my firm Global Guru Capital . Read more: http://www.nasdaq.co…5#ixzz2fQmg992Q Continue reading
The Future Of Global Real Estate: Where To Put Your Hard Earned Money
Photo: Ken Lund/Flickr Monday, September 16, 2013 – Moving A Needle by Jona Jone MANILA, September 16, 2013 – Many developed and developing countries are making promising contributions to the world of international real estate. Such an important upturn in international real estate investing currently takes place between China and the United States. The Chinese have become the second-largest foreign buyers of U.S. homes, not far behind the Canadians according to the National Association of Realtors. Consumers from China and Hong Kong also spent $1.71 billion on commercial property in the U.S. in 2011. Currently, it appears that the Chinese investors are attracted to commercial projects, residential properties, and shopping centers to name a few. According to Zhang Zu Wei of China Daily, “It’s no news that Chinese real estate developers and property buyers are flooding into the US – something that’s currently, to many Chinese, a better investment than gold – and it’s bringing more than just cash into the market.” The growing interest by the Chinese in US real estate is also creating new business opportunities. Shenzhen World Union Properties Consultancy Co. Ltd., a Chinese-listed company that offers real estate consulting services, sees the real estate appetite of the Chinese for U.S. land as a trend that may continue for a long time. Teaming up with local American realtors to serve the growing needs of Chinese investors is one approach that may prove to be productive. A recent article in China Daily notes that the National Association of Realtors affirmed that the Chinese are huge participants in acquiring residential properties in the U.S. The Chinese also ranked third in terms of land purchases in California, after the Mexicans and the Filipinos, the website Realtor.org noted. Sally Forster Jones, who works as an agent with Coldwell Banker International in Los Angeles, believes that the increasing level of international real estate purchases in LA is indeed an ongoing trend. Mary Alice Hines, author of “Investing in International Real Estate,” identified two types of passive investments international real estate investors are making. One type involves investing in securities based on international real estate collateral; the other investing in international real estate service firms and offices. The general term “real estate” also embraces real property development, sales and leasing relations across domestic borders. And indeed, the sub-category of international real estate could be regarded as one of the most dynamic branches of this business area. It is best broken down into two categories: international commercial real estate and international residential real estate. The majority of international real estate transactions will come about between corporations and may encompass or be a result of authorized urban planning, engineering, financing, and construction work. Persuading foreign investors into real estate development projects may be a priority for snowballing national revenue and an excellent strategy for finding new capital to build or improve infrastructure and services. The growth in international investment practices makes it feasible for investors to look beyond their own locales for above average performing investments. A major portion of international residential real estate transactions occur through individual purchases of lots or built units. Currently, most of these individual investments are for condominiums located in Asia, such as those existing or being built in the Philippines. Experts say that acquiring such property does not merely depend on location but also on reputation. These acquisitions account for the bulk of what is sometimes referred to as the second home market. As such, international investors may find that renting in South East Asia could be one excellent way of researching this type of investment before an actual purchase. The actual acquisition of a property, of course, always depends on the terms laid down between the realtor and the potential client. Renting in a desired locale for a time will enable an investor to research property acquisition laws and customs in a new market, better enabling him to evaluate each deal. In one article posted through investopedia.com, experts have duly noted how the tiger economies of Southeast Asian countries such as Hong Kong, Singapore, South Korea, Taiwan and China, and even the rising market economies of Thailand, Malaysia, Vietnam, Indonesia, India and Pakistan have all seen rapid growth in recent years. China remains the most promising country, currently, followed by India, although real estate inflation has become an issue in both countries. Kenneth Rapoza who contributes to forbes.com and covers Brazil, India and China wrote recently that the decision whether to jump onto the international real estate bandwagon depends on the individual. He finds the situation in China, for instance, to be most interesting. As compared to the housing market in the U.S., real estate investing the Asian tiger can be considerably different. Compared to the zero-money down, liar-loan scenarios common in the U.S. prior to the popping of the housing bubble, most buyers in China do not have mortgage issues. One simple reason: the Chinese indeed have an inclination to purchasing homes in cold cash. In the case of cash purposes, of course, there are never any foreclosure issues to worry about. Most importantly, there is no staying late at night worrying that the next day might be the owner’s last in their dream house. Chinese and Southeast Asian buyers of American real estate often make their investments on a cash basis as well. Perhaps such purchases will help head off a real estate bubble of the future by putting many housing units in the strong hands of cash buyers likely able to weather the next storm. Continue reading
