Tag Archives: etf

Cleco: The Closing Of A Stable Growth Story

Cleco Corporation has had a good run, generating investors substantial returns in the form of dividends and capital appreciation. But now, the story is closing, with a potential acquisition granting investors an automatic 10% upside. Invest in Cleco now for the high probability of receiving this upside. Even if the deal falls through, this well-run company can still deliver more upside over a longer time frame. As investors know, small cap companies provide investors with overall better-than-expected returns than mid caps or large caps, and as a whole, they definitely provide a better return than the S&P 500. Small caps are an excellent way for investors to add some more growth potential to their portfolios if they are willing to also pump in more risk as well. However, most investors who are looking for stable returns are unwilling to pump in more risk-these investors like the idea of the company handing them a steady quarterly paycheck, and they are willing to sacrifice the potential large capital gains in exchange for peace of mind and a good night’s sleep. But what if investors want the best of both worlds? Is it possible to get both growth and stability in one investment? Some industries with highly inelastic consumer demands such as the utilities industry or large diversified business segments such as the industrials industry can provide investors with stability, but not growth. But what if investors combined the small cap size of a company with industry stability? That would lead to the small cap utilities company. Enter Cleco Corp. (NYSE: CNL ), a small cap utilities company that serves customers in Louisiana. Cleco is a holding company composed of both Cleco Power, which is the actual regulated electric utilities firm that serves customers in Louisiana, and Cleco Midstream Resources, which is an energy services company. The two different functions that Cleco’s business segments have enable Cleco to vertically diversify some of its operations and offer investors greater stability in the form of supply chain protection and/or stabilization. While the Company has done an excellent job serving its customers over the years and would be an excellent investment in and of itself, there is something going on with the Company that would enable investors to profit without staying invested for too long, as we’ll see later. As investors can clearly see, just from the stock chart, the Company has done investors well over the past five years. Capital invested at the onset of calendar year 2011 would have generated a total return on investment of about 100%, which is excellent given the fact that this is a utilities company we are talking about. In the recent year, the stock price has been stagnating; volatility from normal market fluctuations is clearly visible in the years leading up to 2015, but since then, the stock price has barely budged at all from about $54. Only recently has the stock dipped to about $50.50. This drastic drop in volatility is due to an event we will go more into later on. From a technical perspective, the 50-day moving average has been dancing above the 200-day moving average for quite some time, with occasional dips back down but never staying below the 200-day moving average for long. Recently, the two indicators have converged on each other due to the decreased volatility in share price. (click to enlarge) Source: Stockcharts.com In terms of fundamentals, the Company’s two business segments, Cleco Power and Cleco Midstream Resources, generate a substantial amount of free cash flow for investors to feast on. While free cash flow was mostly negative in prior years, for the past five years, the Company has generated positive free cash flow, which signals a better handling on the businesses’ operations. Dividends have seen increases in the past five years from a constant $0.90 per share up to $1.60 per share TTM; these dividends have been increasing on a non-stop basis since the 2008 financial crisis. Margins have also seen improvement through the Company’s earlier 2005-06 years, and liquidity ratios have mostly held steady. But what’s more important to investors is the potential deal to acquire the Company that could close very soon . This deal would essentially allow Cleco’s shares to be acquired for $55.37 per share, which represents about a 9.3% premium over the current market price within this week. This deal was announced last year and is expected to close in the 2nd half of 2015, although investors are waiting to see whether this deal will get approved by regulators. The most important regulator in this deal is the Louisiana Public Service Commission, and without the approval of this regulatory body, this deal will fall through. Some members of the commission are leaning against the passing of the deal , but members are keeping an open mind. Should the deal close, an automatic almost 10% return on investment would be cherry on top of an already great investment that has generated investors substantial capital appreciation and dividends. While the latter has passed already, an investment in Cleco now will yield a good chance of a 10% return given the high probability of the deal passing through.

Is A Liquidity Crunch In The Solar Sector Ahead?

By Ronald Delegge Stocks in the solar and alternative energy space are getting crushed. Will it lead to a liquidity crunch? Since the beginning of the year, the Guggenheim Solar ETF (NYSEARCA: TAN ) has lost a stunning 21.80% in value compared to a +0.20% gain for the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). And while a 21.8% loss is most certainly ugly, many individual stocks within the solar sector are getting slaughtered. Widely held solar stocks like SolarCity (NASDAQ: SCTY ) and SunEdision (NYSE: SUNE ) are down 55.85% and 81.92%, respectively. Others like First Solar (NASDAQ: FSLR ) have lost 17.29% while SunPower (NASDAQ: SPWR ) is down 32.99%. All of these stocks are among the top 10 holdings in the $262 million Guggenheim Solar ETF. Most solar stocks are reporting large earnings per share (EPS) losses. For third-quarter earnings, SunEdison reported a $284 million loss compared to a $283 million loss from a year earlier. That prompted its stock to sink further and the company is slashing up to 15% of its workforce and scaling back its growth plans by 20%, according to reports. The Maryland Heights, MO-based company is the globe’s largest developer of renewable energy. Meanwhile, SUNE holders are getting burned, literally. Top institutional owners of SUNE include David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point, and Vanguard. Hedge fund managers like Einhorn and Loeb are having their worst collective performance since 2011. Like SunEdison, SolarCity has negative earnings and missed its third quarter EPS of $-2.41 by 46 cents. SolarCity, which is headquartered in San Mateo, CA, designs, installs, and leases its solar power systems. (click to enlarge) Other alternative energy ETFs that own solar shares like the Market Vectors Global Alternative Energy ETF (NYSEARCA: GEX ) and the PowerShares WilderHill Clean Energy Portfolio ETF (NYSEARCA: PBW ) have dropped more than 20% over the past six months. Negative earnings coupled with crashing stock prices plus changing risk appetite by investors will lead to an inevitable shakeout in the overcrowded solar marketplace. And the liquidity crunch has already started. In the meantime, prudent investors should add these questions to their due diligence checklist before diving in: When will the risk appetite for financing the aggressive growth plans of money-losing solar projects wane? When will institutional investors with significant losses finally bail and what further impact will it have on already beaten up share prices? How will a recession or credit crunch impact the ability of solar companies to operate? How much will existing shareholders be diluted when solar companies decide to sell more shares to raise capital? With cheap natural gas prices, will utilities increase competition with solar by lowering electricity rates? Sector ETFs that invest in solar stocks, if you decide to hold them, always go into a person’s non-core investment portfolio, whereas a person’s core portfolio is always diversified across the five major asset classes via ETFs that are accurate proxies of each category. Disclosure: None Original Post

Market Lab Report – Volatility Model Update

MDM is designed to catch longer term moves rather than every short-term move. On the other hand, the Volatility Model is designed to catch shorter term moves. It has caught enough moves in extensive back tests and in real-time to put reward way ahead of risk, thus profits have outperformed all other strategies even in a sideways sloppy market as we have seen for much of this year. The success of the results put the model in beta phase on the website. Of course, always remember that past success is no guarantee of future success. The volatility model went to a buy signal on Nov 12 because the risk level was about -2.5% and the potential upside was much larger. Nov 12 marked the seventh day of its pullback, so there was a fair chance the market would find its low and bounce as it has done many times in similar situations this year. Plus the S&P 500 was looking to get support around its 200dma. But selling persisted on Nov 12 as the S&P 500 stayed under its 200dma, so the model went back to cash as its fail-safe was hit for a -2.6% loss using a 1x ETF such as XIV. But then, shortly before the Nov 12 close, the volatility model issued a rare sell signal, but since it is in beta, I decided not to issue another signal when the model had gone to cash just a couple hours prior. The sell signal was a rare, higher risk signal as such a sell signal comes along only 1-3 times a year based on back tests, but carries potentially very high reward. But since this signal was out of the model’s norm, and given that the model had just gone to cash, I decided to keep the model in cash. That said, I’m figuring out how best to provide risk/reward for members that will be conducive to most trading psychologies. But that is a difficult task, so I’m thinking of just issuing ALL signals and let members deal with the sometimes large number of whipsaws as the results in backtests and in real-time overall seem to speak for themselves even with all the whipsaws designed to protect the downside. That said, the issue I sometimes have is taking my own signals, always to my detriment, especially if I’ve been whipsawed. But mistakes are learning opportunities for refinement so I think that will be the best course of action. And as signals are issued, members can see for themselves how all signals should be taken as it is nearly impossible to predict which signals are whipsaws at small losses while other signals have resulted in substantially larger gains.