Overnight Chevron has made a bid for Atlas Energy which to my way of thinking confirms that natural gas has real potential to be a bridge fuel, a transition away from gasoline for the nations trucks and autos. While it has been believed by many that our President was loathe to get behind natural gas and is a supporter of the fuel of Dickens, coal. This purchase of Atlas may indicate that natural gas and not coal could come to the forefront if the US intends to wean itself off gasoline.
Green Investors should understand that the weaning process away from petro based gasoline fuels will be a piecemeal process, sometimes moving glacially slow and very dependent upon political support. The purchase of Atlas by Chevron marks the second major purchase in recent years followed by Exxon’s purchase of XTO Energy. Do we see a trend emerging?
RMHI has had a substantial position in Atlas subsidiary Atlas Pipeline Holdings for several months. While the search for more glamorous alternative energy investments can be enticing for green investors, we’ve preferred a more conservative position with investing the eventual transition from gasoline fuels to natural gas to ??.
Long AHD
Brad
Catching my eye today is Spain’s Iberdrola SA which is the worlds largest clean energy utility symbol IBDRY and the second largest utility in Spain. It is also the worlds largest provider of Wind Power. Iberdrola stated in 1998 they intended to invest over $8 billion dollars in clean energy, primarily wind power in the United States, regardless of what Congress may or may not do with tax incentives.
IBDRY plans on building a 30 megawatt wind farm on US forest service land in Vermont and will be called Deerfield Wind Power. Vermont Public Service plans to buy 20 megawatts of power from Deerfield at an undisclosed price with a contract for nine years. Iberdrola will have the option to sell the remaining 10 megawatts at market prices. The project will have 15 wind turbines.
Iberdrola SA is an interesting company in which we have no position in but will commence doing our homework on. In 2008 the company was the potential target of a takeover attempt by France’s state owned Électricité de France and Germany’s E.ON.
Shares of IBDRY are trading at just under $30 a share with an estimated Book Value of $29.73 with a dividend of just over 5.8%. Cash on hand is $6 a share which subtracting from the Book Value and using last years $2.68 in earnings creates an Earnings Yield of 13%, pretty good.
Based upon valuation relative to growth I believe IBDRY deserves further attention. IBDRY meets our standards for Green Investing in that IBDRY is not a speculative company dependent upon a make or break product. IBDRY could make sense for most investors who seek a long term investment in Alternative Energy.
No Position
Brad
The the recent attention of the Tesla IPO attention has been also drawn to the manufacturers of electric car components, especially to the Holy Grail for the electric car…the battery.
Lithium is a major ingredient in the creation of batteries for electric cars but the extraction from the Lithium mines will be at odds with most SRI funds and advisers. For example in our screening process we eliminate the extraction industries which includes mining. Hence would this not eliminate Lithium mining from consideration?
Recently we received an update on an upcoming ETF IPO that will focus on the chain of Lithium production: the Global X Lithium ETF which will trade under the symbol LIT.
The top holding in the LIT ETF which will comprise a 20% weighting will be Chemical and Mining Company of Chile symbol SQM, a company we ordinarily would avoid for purchase.
The second holding is industrial giant FMC which is a major manufacturer of insecticides, crop production and pest control products and will represent just over 17% of the portfolio composition.
For a report on the state of the battery industry and its relative position in lieu of forthcoming developments and consumer adoption of electric vehicles we suggest the recently published report from Goldman Sachs: Americas: Clean Energy, Energy Storage
Brad Pappas
No positions
While we may be unabashed in our enthusiasm for Socially Responsible Investing (SRI) that does not mean we look at Green stocks with rose colored glasses. In truth we devote more time and attention, plus number crunching to make sure the holding is justified and meets our financial criteria.
Case in point is Gaiam Corp. (GAIA)
Company description: “Gaiam, Inc., a lifestyle media company, provides a selection of information, media, products, and services to customers focusing on personal development, wellness, ecological lifestyles, and responsible media. The company engages in content creation, product development and sourcing, customer service, and distribution. It operates in three segments: Direct to Consumer, Business, and Solar segment. The Direct to Consumer segment provides an opportunity to launch and support new media releases; a sounding board for new product testing; promotional opportunities; a growing subscription base; and customer feedback and the lifestyles of health and sustainability industry?s focus and future. This segment offers content through direct response television, catalogs, e-commerce, and subscription community services. The Business segment provides content to businesses, retailers, international licenses, corporate accounts, and media outlets. The Solar segment offers turnkey services, including the design, procurement, installation, grid connection, monitoring, maintenance, and referrals for third-party financing of solar energy systems. This segment also sells renewable energy products and sustainable living resources; and offers residential and small commercial solar energy integration services. Gaiam, Inc. sells its products in the United States, Canada, Mexico, Japan, and the United Kingdom. The company was founded in 1988 and is headquartered in Louisville, Colorado.”
Current Price $6.61
NCAV $2.88
Intrinsic/Discounted Cash Flow Value $10.67
Price to Book: 1.0
Book Value $6.45
Cash per share : $2.07
LT Debt $0
Market Cap $156 million
Piotroski score: 7 out of 9 (which is good)
Altman score 5.7 (little chance of bankruptcy)
GAIA is a small cap retail stock focused on the lifestyle/yoga market/alternative energy in Colorado. The stock has pulled back along with the market albeit at a faster pace for the past two months and in our opinion is nearing a very attractive valuation as it begins to touch Book Value along with minimal expectations.
The company has met or exceeded analyst expectations for the past year and current and 2011 estimates have been firm. However this stock is thinly traded and there is only one analyst following the stock.
Back in late 2007 and 2008 when the consumer was empowered the stock traded in the high $20’s and topped at $30. The company posted a loss of (.08) for 2008 The stock does seem to be volatile long term and has a bust / boom personality as it trades in sympathy with the economy. We don’t envision that the US consumer is completely on its back:
“socially acceptable deleveraging needn’t entail the pesky inconvienence of forgoing consumption.”
Revenue growth does appear to be making an improvement with sales improving 14.8% year to year.
A comparison to competitor Lululemon Athletica (LULU) shows the contrast between the much loved LULU and the loathed GAIA. Eco-cache has a cost in terms of potential return:
Current Price $38
NCAV $2.38
Intrinsic/Discounted Cash Flow Value $12.5
Price to Book: 10.4
Book Value $3.79
Cash per share : $2.45
LT Debt $0
Market Cap $2.7 billion
Piotroski score 7
Altman Z 44 (excellent)
To be a successful investor frequently means to cut against the grain of popularity and think in terms of buying a business cheaply. LULU is an excellent example of the price you pay for “Glamour” to own what is currently in fashion and popular. No doubt there are many unhappy GAIA shareholders at present but we believe there will be a Reversion to Mean Valuation which in our definition would be appreciation above DCF valuation ($10+), a level GAIA sustained during the economic expansion of 2003 to 2007. In addition, GAIA is a candidate for tax loss selling within the next 3 to 5 months which could be the catalyst to drive the price lower.
In sum, GAIA represents good value at present however the company’s volatility requires an even greater discount to intrinsic value/DCF than the current price offers, but we’re near those values. A move in price below $6 might just be the opportunity for longer term investors comfortable with the risk of a consumer cyclical company with a very Green edge.
No positions
Brad Pappas
With the disaster ongoing in the Gulf many people have asked me if this is a good time to invest in proactive Green energy. Can you imagine how badly I would like to say yes? But how do we weigh the desire to invest in Green Tech sensibly with a weak economy? With a tightrope of course and a strong balance sheet with a dirt cheap stock valuation as our net.
With this post I’d like to draw attention to the strong correlation to the price of oil (USO) which is driven primarily by economic growth and activity and the Powershares Wilderhill Clean Energy ETF (PBW) which I’m using as a proxy for Green Energy. At present we do not have the necessary worldwide GDP growth necessary for a price run in oil, especially with the world’s economic driver China attempting to cool its GDP growth, the present soft patch in the U.S. and the austerity measures in Europe.
The bottom line for the “Green Investor” is to look elsewhere for the time being. Look to other industries and companies that are not quite so cyclical and dependent upon fast GDP for growth. We must always keep in mind that “return of capital” is more important than “return on capital”.
Fear not, soon enough I’ll be writing on at least two very “Green” companies that meet our model of investment.
No Positions
Brad Pappas
