1. Waterfurnace Renewable Energy (TSX: WFI / OTC: WFIFF)
Waterfurnace has appeared in my annual picks several times over the years because they are a pure-play leader in geothermal heat pumps, which the US EPA calls “the most efficient way to heat and cool a building.” Heat pumps have a high up-front cost, and so they benefit from low interest rates and a high price of heating alternatives, such as natural gas. Recent low natural gas prices have been hurting Waterfurnace’s business, which has recently driven the stock price down and brought the dividend yield up to a very attractive 6.74%.
2. Lime Energy (NASD:LIME)
Lime Energy’s core business is running energy efficiency programs for small utilities, a business which is expanding rapidly. The stock is currently trading at rock-bottom prices because the company has been conducting an internal review of its past revenue recognition policies since July 2012. The review has recently been expanded to include possible improper revenue recognition all the way back to 2008 and up to and including the first quarter of 2012, and may include up to $15 million in fictitious revenue in the more recent years.
Lime has not published a quarterly financial report since the first quarter, and says all its financial statements as far back as 2008 are not to be relied on, so investors abandoned the company in droves in 2012. While I have my own doubts about how the review has been handled, I think the worst case scenario has more than been priced in. Since Lime expects to report the results of the review in the first quarter of 2013, I estimate that investors who get in today are likely to see price appreciation of 50% or more when that happens.
While Lime has large upside potential at the current price, many investors may feel this stock is inappropriate for their portfolios given the large cloud of uncertainty surrounding the company.
3. PFB Corporation (TSX:PFB / OTC:PFBOF)
PFB is a leading North American manufacturer of expanded polystyrene (EPS, aka “Styrofoam”) building products such as insulated concrete forms and structural insulated panels. The stock trades infrequently, and did not trade at all on December 28th, so I will be using the midpoint of the bid and ask for the purpose of measuring its return over the coming year. At $5.53, PFB pays a 5.75% annual yield.
The stock price has fallen significantly after the planned purchase of NOVA Chemicals’ Performance Styrenics business as a move towards vertical integration with the acquisition of the EPS manufacturer. This deal fell though, and many investors sold the stock, driving it down from the mid $7 range to the mid $5 range where it is today. Already a good value, PFB stands to gain from continued recovery in the housing market or any increase in investor recognition. However, since the stock is so illiquid, larger investors will probably want to substitute one of my upcoming alternative picks for PFB, while small investors should limit themselves to good-til-cancelled limit orders to avoid paying over the odds for their shares.
4. Maxwell Technologies (NASD:MXWL)
Maxwell Technologies is a leading manufacturer of electrodes for ultracapacitors. Ultracapacitors are electricity storage devices which excel in applications requiring high power but low energy and extremely long life. In layman’s terms, they pack a big punch, but have little staying power. They pair well with batteries, which are best in low power, high energy applications.
Ultracapacitors are used in a wide variety of electronics and electricity transmission and distribution applications, as well as in wind turbines and heavy-duty hybrid vehicles, such as buses. They expect to have a large and growing market in “stop-start” hybrid cars. Stop-start technology is one of the most cost effective measures for improving automotive fuel economy, and auto manufacturers are scrambling to meet increasingly stringent fuel economy standards in both the US and Europe.
The main reason for Maxwell’s current low price has been the lack of a design win with a major manufacturer for start-stop technology using Maxwell’s ultracapacitors. Many investors were anticipating such a win in 2012, and the lack of one so far and slower revenue growth overall led to extreme investor disappointment, driving the stock from over $21 at the start of the year to the low $8 range where it has been recently trading. Maxwell insiders, including the CEO, David Schramm, have been demonstrating their faith in the company’s prospects since the stock fell to $10 with large stock purchases. They have acquired 128,400 shares since then.
5. Accell Group (Amsterdam:ACCEL)
Accell is a leading bicycle manufacturer and a leader in electric bikes based in the Netherlands with worldwide sales mostly in Europe but expanding rapidly in the United States and Asia. The company’s strategy is to leverage its strong distribution network by acquiring strong brands in a highly fragmented industry. In 2012, they acquired Raleigh, which was a slightly larger than usual acquisition. Integrating Raleigh took longer than management expected, and depressed third quarter earnings and the company’s current share price. The company has a variable annual dividend, but based on the last payment of 0.782 euros, it’s currently trading at a 5.9% annual yield. Stock appreciation in 2013 could be driven by the start of synergies from the Raleigh acquisition, increased adoption of electric bikes in the US, or easing of uncertainty in Europe.
Because smaller investors may find Accell difficult to buy through their broker’s foreign trading desk, they may want to substitute one of my upcoming alternative picks.
6. Zoltek Companies (NASD:ZOLT)
Zoltek is a leading manufacturer of carbon fiber, which are used for a wide variety of applications requiring high strength to weight ratios. Consumers may be familiar with carbon fiber tennis rackets and racing bicycles, but carbon fiber is also used to manufacture wind turbine blades (Zolek’s largest source of revenue) and to replace heavier steel and aluminum in transportation applications such as Boeing’s Dreamliner 787, performance cars and electric vehicles. I think it’s likely that automakers pursuit of fuel efficiency standards will lead to more carbon fiber being used in more mass market vehicles to reduce weight and lead to improved fuel economy without sacrificing safety.
The company never recovered from its fall in 2008-9, but company insiders, including its CEO have been buying ZOLT shares since it fell to the $10 range last year, and the company’s fundamentals have been improving even as the stock traded basically flat for the last 3 years. Having lost money in 2010 and 2011, Zoltek made a profit of $0.66 per share on record sales in its Fiscal 2012, which ended on September 30th. Analysts expect $0.52 per share earnings in 2013, for a forward P/E of 14. The company has a strong balance sheet with no net debt and several unused lines of credit at favorable interest rates, and the company has several opportunities to achieve high growth as carbon fiber usage expands in its existing markets and breaks into new markets.
One misgiving I’ve long had about Zoltek is the centralization of power in the hands of its Founder, Chairman, President, and CEO Zsolt Rumy. This concern is ameliorated by his recent stock purchases. These, along with the historically low valuation, led me to add Zoltek to my annual clean energy stock list for the first time.
7. Kandi Technologies (NASD:KNDI)
Kandi is a manufacturer of ATVs which is creating a new class of mini electric vehicles (EV) for congested Chinese cities. Kandi’s mini-EVs are well suited for rental and leasing programs where the ownership of the the batteries is often separate from the vehicles, which are designed for quick battery swapping. One early agreement has Kandi selling its EVs without the batteries to China’s State Grid utility, which owns the batteries and uses them for grid stabilization when they are not in EVs in use by commuters.
As a Chinese stock which achieved a US listing through a reverse merger, Kandi has been the target of a number of short sellers and articles claiming to expose shadowy self-dealing among industry insiders which has kept the stock at its low current valuation. However, unlike many of Kandi’s Chinese peers, its detractors have yet to uncover the sort of shoddy accounting we saw at such disasters as SinoForest, but not for want of trying.
In 2011, Kandi earned $0.30 a share based almost entirely on its legacy off-road vehicle business. The company’s fans have estimated that just Kandi’s existing EV deals could generate $4.42 in annual earnings in their first year of ramp-up, which could be as soon as 2014 or ’15. I’m not comfortable projecting that far into the future, but I think that $0.60 to $1.20 of earnings in 2013 is quite likely, and would leave the current stock price of $3.90 looking quite cheap at only four to six times earnings in a rapidly growing company.
8. Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF)
Finavera is a hold-over from 2012 which I had until a week ago expected to drop from this year’s list. That’s because the company had put itself up for sale for a lack of another way to refinance a past-due note from General Electric (NYSE:GE). I expected a sale to be completed early in 2013, which would have meant that followers of my portfolio would have to redeploy funds early in the year.
On December 23rd, Finavera announced a deal to obtain financing from and sell its projects for C$40 to Pattern Renewable Energy Holdings. Investor disappointment at it not being a sale caused the stock to plunge in the thinly traded holiday market to what I anticipate will be a very short-lived buying opportunity in the 20-30 cent range. I just posted a valuation of Finavera stock in light of the Pattern deal here.
9. Alterra Power (TSX:AXY / OTC:MGMXF)
Alterra is another hold-over from 2012, which I also expected to remove from the list until the stock unexpectedly declined over the last few weeks. Alterra owns a portfolio of run-of-river hydroelectric and Wind projects in Western Canada, as well as geothermal projects in the Western US, Iceland, and Chile. With its diverse and growing portfolio of operating renewable energy projects, Alterra is one of the most stable of the small renewable energy developers, but not yet so big that its assets are fully valued.
A recent agreement with Philippine utility EDC could easily lead to significant price appreciation if the companies jointly develop Alterra’s projects in Peru and Chile as envisioned in the agreement.
10. Waste Management (NYSE:WM)
The only household name in this year’s list, Waste Management is coming back for an encore performance in 2013. WM is the North American leader in recycling and renewable biogas among waste and environmental services companies. The industry has been in a cyclical downturn, and WM’s well-covered 4.2% dividend makes it a solid anchor for this portfolio of small and micro-cap clean energy stocks.
Source: AltEnergy Stocks
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