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Inside The Recent Surge In Clean-Energy ETFs

Thanks to the oil price collapse and global slowdown concerns, the renewable energy space has performed appallingly this year. But positive trends have started building up in the space lately, especially after the historic Paris climate deal and the U.S. tax credit extension. This has started pushing the stocks and the ETFs higher, reflecting strong momentum and bullish sentiments going into the New Year. Paris Climate Deal About 195 countries agreed to a landmark treaty in Paris to curb global warming to a maximum limit of two degrees Celsius with a goal of lowering it further to about 1.5 degrees as soon as possible. Per the pact, the rich countries like the U.S. and those in Europe pledge to provide $100 billion per year to poorer nations to help them to eliminate greenhouse gasses by 2020. This is expected to bring an end to the fossil fuel era and alleviate global climatic conditions. The Paris deal will invariably motivate renewable energy companies to step up their investments in new technologies, boosting the industry’s future growth prospects. Tax Credit Extension Last week, the U.S. government surprisingly approved a five-year extension to the Investment Tax Credit (ITC) and Production Tax Credit (PTC) for solar and wind companies. It also approved a one-year extension for a range of other renewable energy technologies. Under the new plan, the 30% solar tax credit (ITC), which was due to expire on January 1, 2017, has been extended for another three years. But after that ITC will decline steadily to 10% in 2022. Subsequently, the credit for residential solar installations will be abolished, while commercial installers would continue claiming the credits at 10%. Additionally, the wind credit (PTC) of 2.3%, which had already expired at the end of 2014, has been extended for another year for the new projects that came online this year. However, PTC will start declining 20% each year until it expires in 2020. Further, other renewable energy sources like geothermal, landfill gas, marine energy, and incremental hydro also receive a one-year PTC extension. The extension has been a huge boon to the entire renewable energy space, as it will reduce project financing costs and increase profit margins in the sector. As per GTM Research, the extension of the ITC would result in a 54% jump in U.S. solar installations through 2020 and add 25 gigawatts of additional solar capacity over the next five years. On the other hand, the American Wind Energy Association expects the PTC extension to drive tens of gigawatts of new wind projects through 2020. Sound Industry Fundamentals Depletion of fossil fuel reserves, global warming and high fuel emission issues, new and advanced technologies, and more efficient applications are making clean power more feasible. Rising demand for renewable sources for electricity generation across the globe has added to the sector’s strength. According to the International Energy Agency (IEA), green energy will be the largest source of electricity growth over the next five years buoyed by declining technology cost and aggressive expansion in the emerging economies. Notably, global power generation through clean energy would rise to more than 26% by 2020 from 22% in 2013. Most of the growth will especially come from higher demand in China, India and Brazil. Given the bright outlook, the recent bullish run in the space is likely to continue into 2016. As such, investors seeking to ride out this booming trend want to tap the space in the ETF form. For those investors, we have highlighted five ETFs that could be worth a look given increasing green energy efficiency. Guggenheim Solar ETF (NYSEARCA: TAN ) This ETF targets the solar corner of the broad clean energy space by tracking the MAC Global Solar Energy Index. Holding 31 stocks in the basket, the fund is concentrated in the top two firms – First Solar (NASDAQ: FSLR ) and SolarCity (NASDAQ: SCTY ) – with 10% and 7.8% shares, respectively. Other firms hold no more than 6.02% of assets. American firms dominate the fund’s portfolio with nearly 50.9% share, followed by Hong Kong (19.8%) and China (17.5%). The product has amassed $299.5 million in its asset base and trades in solid volume of around 221,000 shares a day. It charges investors 70 bps in fees per year. The fund gained 19% in the past week. PowerShares WilderHill Clean Energy Portfolio Fund (NYSEARCA: PBW ) This product provides exposure to companies engaged in the business of advancement of cleaner energy and conservation. It follows the WilderHill Clean Energy Index and holds about 45 stocks in its basket, which are pretty well spread out across various securities as each makes up for less than 6.9% of total assets. Information technology takes the top spot at 50%, while industrials takes a quarter share. The fund has amassed $113.5 million in its asset base and sees moderate volume of nearly 90,000 shares a day. Expense ratio came in at 0.70%. PBW was up 11.9% last week. Market Vectors Global Alternative Energy ETF (NYSEARCA: GEX ) This ETF provides global exposure to about 31 stocks that are primarily engaged in the business of alternative energy by tracking the Ardour Global Index. The fund holds about 31 stocks in its basket with AUM of $89.6 million, while charging 62 bps in fees per year. Average daily volume is paltry for this fund. The product is highly concentrated in the top two firms – Vestas Wind Systems ( OTCPK:VWDRY ) and Eaton Corp (NYSE: ETN ) – with 12.1% and 10.4% of assets, respectively, while other firms make up for single-digit allocation. From a sector perspective, industrials takes the largest share at 47%, while information technology (28.1%) and utilities (13.5%) round off the next two spots. In terms of country exposure, the fund is skewed toward the U.S. with 49.2% share, followed by Denmark and China. The ETF has gained 8.6% in the same period. First Trust NASDAQ Clean Edge Green Energy Index Fund ( QCLN ) This fund provides exposure to the U.S. clean-energy companies across a wide range of industries, including solar power, biofuels, advanced batteries, as well as the installation of new technological systems. It tracks the Nasdaq Clean Edge Green Energy Index and manages assets worth $65.5 million. It charges 60 bps in fees per year, while volume is light at nearly 23,000 shares. In total, the product holds 46 securities with none holding more than 8% share in its basket. From a sector look, technology firms dominate this ETF, accounting for nearly 30% of the assets while oil and gas companies take another one-fourth share. QCLN added 8.6% over the past week. Original post

5 Best-Ranked Fidelity Mutual Funds To Watch For

With $1.5 trillion (excluding money market assets) of mutual fund assets under management and a wide variety of mutual funds spanning various sectors, Fidelity Investments is one of the largest and oldest mutual fund companies in the world. The company provides investment advice, discount brokerage services, retirement services, wealth management services, securities execution and clearance and life insurance products to its clients. Fidelity provides potential investment avenues worldwide for its investors after extensive and in-depth research by a large group of investment professionals. Fidelity Investments carries out operations in the U.S. through 10 regional offices and over 180 Investor Centers. It also has a presence in eight other countries of North America, Europe, Asia and Australia. Below, we share with you 5 top-ranked Fidelity mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy), and we expect the funds to outperform their peers in future. To view the Zacks Rank and past performance of all Fidelity mutual funds, click here . Fidelity Select Biotechnology Portfolio No Load (MUTF: FBIOX ) seeks capital appreciation. FBIOX invests a large chunk of its assets in companies primarily involved in research, development, manufacture, and distribution of various biotechnological products. Factors such as financial strength and economic conditions are considered to invest in companies located all over the world. The Fidelity Select Biotechnology Portfolio No Load is a non-diversified fund and has returned 8.8% over the past one year. FBIOX has an expense ratio of 0.74% as compared to a category average of 1.37%. Fidelity Small Cap Growth Fund No Load (MUTF: FCPGX ) invests the majority of its assets in securities of small cap companies that are believed to have impressive growth prospects. FCPGX focuses on acquiring common stocks of both US and non-US firms. The Fidelity Small Cap Growth Fund No Load has returned 5.6% over the past one year. As of July 2015, FCPGX held 176 issues, with 2.40% of its assets invested in 2U Inc. (NASDAQ: TWOU ). Fidelity Select Software & Comp Portfolio No Load (MUTF: FSCSX ) seeks growth of capital. The fund invests a lion’s share of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. It uses fundamental analysis to select companies for investment purposes. The Fidelity Select Software & Comp Portfolio No Load is a non-diversified fund and has returned 8.6% over the past one year. Ali Khan is the fund manager of FSCSX since 2014. Fidelity Select Construction & Housing Portfolio No Load (MUTF: FSHOX ) invests a major portion of its assets in the common stocks of companies principally engaged in the design and construction of residential, commercial, industrial, and public works facilities, as well as companies engaged in the manufacture, supply, distribution, or sale of products or services to these construction industries. It invests in securities issued through the globe. The Fidelity Select Construction & Housing Portfolio No Load is a non-diversified fund and has returned 7% over the past one year. FSHOX has an expense ratio of 0.82% as compared to a category average of 1.41%. Fidelity Select Consumer Discretionary Portfolio No Load (MUTF: FSCPX ) seeks capital growth. The fund heavily invests in securities of companies mostly involved in the consumer discretionary sector. It primarily invests in common stocks of companies all over the globe. Factors including financial strength and economic conditions are considered before investing in a company. The Fidelity Select Consumer Discretionary Portfolio No Load is a non-diversified fund and has returned 6.8% over the past one year. As of October 2015, FSCPX held 60 issues, with 9.45% of its assets invested in Amazon.com Inc. (NASDAQ: AMZN ). Original Post

SCANA Corp. Dividend Stock Analysis

Summary SCANA Corp operates in electric and gas utilities in North Carolina, South Carolina and Georgia. SCANA Corp is a dividend contender having raised dividends for 15 consecutive years and has a Chowder Rule of 5.8. SCANA Corp’s new facility construction in S.Carolina is seeing higher costs and delays resulting in a credit rating downgrade from both Moody’s and Fitch. SCANA Corp (NYSE: SCG ) is an electric and gas utility company operating in North Carolina, South Carolina and Georgia. It owns nuclear, coal, hydro, natural gas and oil, and biomass generating facilities. The major subsidiaries include: South Carolina Electric & Gas – provides electricity and natural gas throughout South Carolina. A regulated public utility and principal subsidiary of SCANA Corporation, SCE&G generates, transmits, distributes and sells electricity to over half a million customers in 24 counties and provides natural gas to customers in 36 counties. PSNC Energy – provides natural gas services in North Carolina. A regulated public utility, PSNC Energy purchases, sells and transports natural gas to more than 508,000 residential, commercial and industrial customers. SCANA Energy – markets natural gas services in Georgia. A leading natural gas marketer, SCANA Energy serves about 460,000 residential, commercial and industrial customers statewide. Other subsidiaries include: SCANA Energy Marketing Inc (markets natural gas and provides energy-related services), SCANA Services Inc (provides administration, management, and other services to SCANA subsidiaries), South Carolina Generating Company Inc (supplies electricity for SCE&G), and South Carolina Fuel Company Inc (fuel supplier for SCE&G). (click to enlarge) (Source: SCANA 2015 Wells Fargo Energy Symposium Presentation ) Corporate Profile (from Yahoo Finance) SCANA Corporation, through its subsidiaries, engages in the generation, transmission, distribution, and sale of electricity to retail and wholesale customers in South Carolina. It owns nuclear, coal, hydro, natural gas and oil, and biomass generating facilities. The company also purchases, sells, and transports natural gas; offers energy-related services; and owns and operates a fiber optic telecommunications network, ethernet network, and data center facilities in South Carolina. In addition, it offers tower site construction, management, and rental services, as well as sells towers in South Carolina, North Carolina, and Tennessee. As of December 31, 2014, the company supplied electricity to approximately 688,000 customers; and provided natural gas to approximately 859,000 residential, commercial, and industrial customers in North Carolina and South Carolina, as well as markets natural gas to approximately 459,000 customers in Georgia. It serves municipalities, electric cooperatives, other investor-owned utilities, registered marketers, and federal and state electric agencies, as well as chemical, educational service, paper product, food product, lumber and wood product, health service, textile manufacturing, rubber and miscellaneous plastic product, and fabricated metal product industries. The company was founded in 1924 and is based in Cayce, South Carolina. A Closer Look SCANA Corp operates both in electric and gas utility sectors. This has been identified in the industry as the path to growth going forward. Other competitors who operated solely in the electric-only business, have started purchasing assets in the gas-utility business in order to diversify and achieve growth. We have seen this lately with the moves from Southern Company (NYSE: SO ) acquiring AGL Resources Inc (NYSE: GAS ); and Duke Energy (NYSE: DUK ) acquiring Piedmont Natural Gas (NYSE: PNY ). The moves are motivated by the fact that electric-only utilities are seeing declining revenues over the years due to a combination of energy conservation, energy efficiency and shift towards independent power generation/natural gas usage. In addition, power generating companies are moving to secure natural gas infrastructure as the industry moves to accommodate the US government mandate targeting power plants to cut carbon emissions by 32% (by 2030) on the 2005 levels. Most of the CEOs in the utility industry have accepted the terms and do not intend to fight against the mandate. SCANA has an advantage here as the company is ahead of competition in securing the electric and natural gas infrastructure. In addition, a major part of the company’s power generation comes from zero-emitting sources: hydro and nuclear. The company also has an advantage by operating in North and South Carolina, which is seeing population growth as residents move to these states where cost of living is lower. (click to enlarge) (Source: SCANA 2015 Wells Fargo Energy Symposium Presentation ) SCANA intends to grow earnings in a target range of 3%-6% (95% of which comes from regulated operations) and analysts expect a growth rate of 4.45% over the next five-year period. Credit Rating Downgrades Two rating agencies, Moody’s and Fitch, downgraded SCANA Corp earlier this year. Moody’s gives the company a Baa3 credit rating with a “Negative” outlook ( downgraded in Sep 2015 ). Fitch gives the company a “BBB-” with a “Stable” outlook ( downgraded in May 2015 ). The rating downgrade was mainly due to the delay and cost of the construction of new nuclear reactors in Jenkinsville, South Carolina. The costs are expected to rise to $11B from the initial $9.8B price tag and completion of Unit 2 reactor will be pushed out three years to 2019. SCANA has announced that the delay and related cost increases are due to design and fabrication issues associated with the production of submodules used. Moody’s issued the following statement with the ratings downgrade: “The negative outlooks reflect the projected deterioration in the financial profile across SCANA and its subsidiaries over the next few years” said Ryan Wobbrock, Assistant Vice President. “Although the supportive regulatory environment in South Carolina helps assure the recovery of new nuclear build expenses at SCE&G, we see leverage ratios rising across the family” added Wobbrock. The negative outlooks for SCANA and SCE&G incorporate the 2 September South Carolina Public Service Commission (SCPSC) vote of approval for a revised cost and construction schedule on the Summer new nuclear project. Moody’s views the SCPSC support as a material credit positive because it allows SCE&G to recover increased costs over a protracted time period. Through LTM 2Q15, SCANA and SCE&G produced cash flow to debt metrics of around 14% and 18%, respectively. However, over the next twelve to eighteen months, we expect each company to produce cash flow to debt below 15%, as capex for the nuclear spend reaches its highest levels (i.e., as of the 2Q15 Base Load Review Act (BLRA) filing, new nuclear gross construction capex is projected to be around $776 million for the 2015 period, $1,077 million for 2016, and $1,003 million for 2017), accompanied by an increasing debt load. We see the annual BLRA revenue increases, which recover Construction Work in Progress costs, as insufficient to improve the current negative trend of financial performance through 2019. Dividend Stock Analysis: Financials Expected: A growing revenue, earnings per share and free cash flow year over year looking at a 10-year trend. A manageable amount of debt that can be serviced without affecting future operations. (click to enlarge) (Source: Created by author. Data from Morningstar) (click to enlarge) (Source: Created by author. Data from Morningstar) Actual: The utility industry is resilient and has seen steadiness over the years. However, revenue has continued to face some pressure over the years although the earnings have seen steady rise since 2011. The debt load is stable over the course of time although high at $6.3B (vs. equity of $5.4B) resulting in a debt/equity of 1.16. The company’s balance sheets show a current ratio of 0.90. Credit ratings: S&P gives it a “BBB+” credit with a “Stable” outlook. Moody’s gives the company a Baa3 credit rating with a “Negative” outlook (downgraded in Sep 2015). Fitch gives the company a “BBB-” with a “Stable” outlook (downgraded in May 2015). SCANA’s yield to maturity is as shown below: (click to enlarge) (Source: Morningstar) Dividends and Payout Ratios Expected: A growing dividend outpacing inflation rates, with a dividend rate not too high (which might signal an upcoming cut). Low/Manageable payout ratio to indicate that the dividends can be raised comfortably in the future. (click to enlarge) (Source: Created by author. Data from Morningstar) Actual: Utility companies are slow and steady growers and are perfectly suited for long-term dividend investors. SCANA is a Dividend Contender having raised dividends consecutively for 15 years. The 1-, 3-, 5-, and 10-year dividend CAGRs are 3.3%, 2.6%, 2.2%, and 3.8% respectively. Coupled with a current dividend yield of 3.61%, SCANA has a Chowder Rule number of 5.8. The current payout ratio is 41%. Outstanding Shares Expected: Either constant or decreasing number of outstanding shares. An increase in share count might signal that the company is diluting its ownership and running into financial trouble. (click to enlarge) (Source: Created by author. Data from Morningstar) Actual: The number of shares have steadily increased over the years. Book Value and Book Value Growth Expected: Growing book value per share. (click to enlarge) (Source: Created by author. Data from Morningstar) Actual: The book value has trended upwards at a good pace over the years. Valuation To determine the valuation, I use the Graham Number, average yield, average price-to-sales, and discounted cash flow. For details on the methodology, click here . The Graham Number for SCANA with a book value per share of $37.92 and TTM EPS of $5.27 is $67.05. SCANA’s average yield over the past five years was 4.39% and over the past 10 years was 4.44%. Based on the current annual payout of $2.18, that gives us a fair value of $49.66 and $49.10 over the 5- and 10-year periods, respectively. The average 5-year P/S is 1.42 and average 10-year P/S is 1.21. Revenue estimates for next year stand at $34.41 per share, giving a fair value of $48.86 and $41.63 based on 5- and 10-year averages, respectively. The consensus from analysts is that earnings will rise at 4.45% per year over the next five years. If we take a more conservative number at 4%, running the three-stage DCF analysis with an 8% discount rate (expected rate of return), we get a fair price of $92.86. The following charts from F.A.S.T. Graphs provide a perspective on the valuation of SCANA. (click to enlarge) (Source: F.A.S.T. Graphs ) The chart above shows that SCANA is slightly overvalued. The Estimates section of F.A.S.T. Graphs predicts that at a P/E valuation of 15, the 1-year return would be 3.88%, confirming that the valuation is high. (click to enlarge) (Source: F.A.S.T. Graphs ) Conclusion Electric utilities in general have seen slower sales industry-wide amid a combination of energy conservation, energy efficiency and shift towards independent power generation/natural gas usage. Coupled with the new regulations from the US government to reduce carbon emissions, electric utilities have started focusing a shift away from dirty fuels such as coal. SCANA has operations concentrating on the nuclear field and already owns a lot of the natural gas infrastructure. However, the capex costs from the construction of new nuclear facilities in South Carolina are ballooning and has resulted in ratings downgrade from both Moody’s and Fitch; and chances of an upgrade anytime soon are low. Earnings are expected to grow at 4.45% over the next five years and dividend growth will lag a bit, although the company has some leeway to grow those dividends making the investment lucrative. The company appears slightly overvalued based on the valuation metrics used above. If we give equal weight to all metrics used above, we get a fair value of $57.95. An added risk for investors is the rise of interest rates by the US Fed. Bond substitutes such as utility stocks suffer in a rising rate environment and investors should stay weary. Full Disclosure: None. My full list of holdings is available here .