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
Whats the painful and sometimes brutal truth about being a socially responsible investor or any investor for that matter? Its hard work.
When we were kids, what did we want to be when we were growing up? We all know what we ideally wanted to be as kids, a star athlete, a musician, pro poker player, actor or actress, model etc…but what kid in their right mind wants to be a professional investor? Well, I was one of those unusual types who should have been guided to counseling early on because I did want to be a professional investor. The graphs and stock tables in the Wall Street Journal fascinated me early on and that fascination remains to this day. But this is not an article about a childhood gone awry but a glimpse into the single minded vision that it takes to be good at most anything, including investing.
To excel at investing means to devote oneself to the prospect of focusing day in and day out on the investment process. What am I doing right? What am I doing wrong, and why? Its an internal process of identifying internal strengths and weaknesses as much as it the search for the undervalued asset. We all make mistakes at one time or another, including major mistakes but in the long run did we accept them as mistakes and learn from them, or do we remain in denial and continue as business as usual?
We probably all know investors who have this continual habit of buying near the top when their confidence is high and selling at or near the bottom when their confidence is in panic. For this reason alone one should really be looking into the mirror of themselves and determining whether they should be managing a portfolio for themselves.
For individuals and organizations who conduct their own investing, they must realize they’re in competition with others who have a single minded devotion to excelling in investing and are happily, even gleefully devoted to their profession.
Any investor, be it a pro or an do-it-yourselfer can run a hot hand for a limited period of time and delude themselves into being the new Master of the Universe. But what will it take for the successful investor to transcend short term progress to long term success? Its really simple as are most things in life, it boils down to limitless learning and plain hard work. When we were 20 something years old, we thought we knew it all. Nowadays for each nugget of knowledge I realized there remains a mountain of educational boulders waiting to be tapped.
To be continued……….
Be careful out there
Brad
No positions
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
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
Interesting story on whats under the hood of SRI ETF’s:
Buyer Beware: What’s Really in Your Socially Responsible ETF?
Summer doldrums markets as participants are waiting for the FOMC message later today. While few expect any real change, the tone reflected in the post meeting communique tends to move markets.
NDR continues to predict that no Double Dip recession is on the horizon. Their Recession Probability Model remains at 0%. Economic activity advanced in 47 states in May and over the past three months.
Industrial Goods manufacturer Hawk Corporation (which we have a position in for clients) makes fuel cell components has raised their 2010 guidance based on an improving economy. The stock is responding nicely up $2 to $23.
Chinese Health Club owner Soko Fitness and Spa SOKF may be finally coming to life on news of two new facilities in the Harbin area. Soko is an example of a company where the valuation is hard to ignore with earnings capable of .50 cents a share in 2010 and .80 or more for 2011. While the stock has done little in light of the weakness in the Chinese stock market it has held up reasonably well. Should present growth rates continue for another year the valuation would be very compressed. Selling at just 2x book value and 7x present earnings with no long term debt, .70 in cash along with +50% revenue growth and 80% member retention rate this has some serious potential. But beware SOKF can be volatile and isn’t heavily traded with a big spread between bid and offer.
From the Carbon Disclosure Project: Corporate Clean Energy Investment Trends in Brazil, China, India and South Africa pdf
Long HWK, SOKF (client and personal accounts)
