Tag Archives: industry

Aqua America – A Retirement Stock

Analyst project positive revenue and earnings. Financial strength A-. Great price momentum. Retirement investing is a little different than the Total Return Investing you may have been doing all your life. You used to swing for the fence knowing that time, volatility and regular capital additions to your portfolio would prove the principles of long-term dollar-cost averaging. During retirement and distribution phase of your life, dollar-cost averaging works against you and becomes your worst enemy. Your new goals are: Capital preservation A conservative total return that exceeds your withdrawal rate, taxes and inflation A return that beats the market You fully research a stock and make sure you have the information needed to rationally decide the stock is a good addition to your portfolio. I use a screener provided by Barchart to find stocks that currently are having a positive price momentum and then make sure they fit the criteria listed above. When I screened the Russell 3000 Index stocks today, Aqua America (NYSE: WTR ) was right near the top of the list. Aqua America is one of the largest U.S.-based, publicly traded water utilities and serves nearly 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia. First I make sure the stock is outperforming the market. Why would I want to add a stock to my portfolio unless it significantly does better than the market? I use the Value Line Arithmetic Index as my Market benchmark for 2 reasons: 1) it contains 1,700 stocks with a total capitalization of almost 95% of the U.S. stock market, and 2) it is not weighted by capitalization, so the big stocks have the same weighting as the small ones. During the last year, while the market was down 2.79%, WTR gained 17.30%: I like to research the stock’s underlying fundamentals to see if that price momentum is warranted. Market Cap $5.28 Billion P/E 23.26 Dividend yield 2.45% Revenue expected to grow 4.80% this year and another 5.30% next year Earnings are estimated to increase 5.80% this year, an additional 7.10% next year and continue to compound at an annual rate of 5.55% for the next 5 years Financial Strength A- The overall sentiment of the investing community is very important. A stock will not maintain its upward momentum is some of the major players are starting to bail. Wall Street analysts have issued 4 strong buy, 2 buy and 4 hold recommendations on the stock to their clients Institutional investors own about 48.18% of the outstanding shares. During the last year, 170 added to their positions, while 140 decreased their shares for a net gain of 1.998 million shares Insiders decreased their positions with 22 buys and 36 sells but the net result was only down 225,665 shares On TheStreet, Jim Cramer’s staff gave the stock an A+ buy rating I like to follow the individual investors on Motley Fool, and its readers voted 540 to 32 that the stock will beat the market Short sellers have almost doubled their positions from around 2.846 million shares at the beginning of the year to 5.747 million shares recently I use Barchart for technical momentum data and only consider day from the current 6-month period: 100% technical buy signals Trend Spotter buy signal Above its 20-, 50- and 100-day moving averages 9 new highs and up 3.75% in the last month Relative Strength Index 63.29% Barchart computes a technical support level at 29.02 Recently traded at 29.99 with a 50-day moving average of 28.71 I try to compare my stock to the largest 3 stocks in the same sector. In the Water Utility sector, Aqua America gained 17.30% in the last year, while America Water Works (NYSE: AWK ) gained 14.00%, Companhia de Saneamento Basico do Estado De Sao Paulo (NYSE: SBS ) lost 23.21% and American States Water (NYSE: AWR ) gained 22.19%: Additional comparisons: American Water Works Market Cap $10.56 billion P/E 21.82 Dividend yield 2.40% Revenue expected to grow 5.40% this year and another 4.90% next year Earnings estimated to increase 6.50% this year, an additional 7.20% next year and continue to increase at an annual rate of 7.34% for the next 5 years Wall Street analysts issued 4 strong buy, 7 buy and 5 hold recommendations on the stock Financial strength B+ Companhia de Saneamento Basico do Estado de Sao Paulo Market Cap $ 3.02 billion P/E 44.00 Dividend yield 1.94% Revenue expected to decline by 53.50% this year but grow again by 16.50% next year Earnings are estimated to decrease 66.10% this year, increase by 168.40% next year and compound at an annual rate of 12.30% for the next 5 years Wall Street analysts issued 2 buy and 2 hold recommendation on the stock They did not rate the financial strength America States Water Market Cap $1.53 billion P/E 24.19 Dividend yield 2.23% Revenue expected to decline .70% this year, rise again by 4.10% next year Earnings are estimated to increase by 1.30% this year, an additional 6.30% next year and compound at an annual rate of 4.00% for the next 5 years Summary: My opinion is that the 2 best in the sector are WTR and AWR, but I think Aqua America has a slight edge. It has good price momentum, stable revenue and earnings projections, high financial strength and is expected to give investors an annual total return in the 11% range for the next 5 years. Below I have included a chart of the price against the 20-, 50- and 100-day moving averages plus a 14-day high/low turtle chart, which shows recent upward price momentum. If you’re looking for an exit point to protect your gains, the 50-100 Day MACD Oscillator has been a reliable technical trading strategy for this stock.

No Respite For Oil And Energy ETFs In 2016?

The vicious trading of oil and the energy sector is likely to persist for more months especially after the Fed finally pulled its trigger on the first rate hike in almost a decade. Higher interest rates will drive the U.S. dollar upward, making dollar-denominated assets more expensive for foreign investors, and thus, dampening the appeal for the commodity. In addition, it will make the borrowings, in particular for high-yield firms, costlier and result in less money flows into capital-intensive shale oil and gas drilling projects. This in turn will lead to higher bankruptcies, hitting the already battered energy sector. Following the rate hike announcement, U.S. crude dropped nearly 5% to $35.52 per barrel, just a few dollars away from $32.40 that it hit during the financial crisis in 2008. Meanwhile, Brent oil tumbled to the nearly 11-year low of $37.11, which is not very far from the December 2008 low of $36.20. Analysts expect breaking the 2008 levels could take oil prices to levels not seen since 2004 given fears of growing global glut and weak demand that have been weighing on the oil prices. Weak Trends The latest inventory storage report from the EIA for the last week showed that U.S. crude stockpiles unexpectedly rose by 4.8 million barrels against the expected 1.4 million-barrel drawdown, underscoring further weakness in the energy sector. This is because production has been on the rise across the globe with the Organization of the Petroleum Exporting Countries (OPEC) continuing to pump near-record levels of oil to maintain market share against non-OPEC members like Russia and the U.S. Additionally, Iran is looking to boost its production once the Tehran sanctions are lifted. On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook. Further, a warm winter in the U.S. will depress demand for energy and energy-related products. Adding to the grim outlook is the International Energy Agency’s (IEA) expectation that the global oil supply glut will persist through 2016 as worldwide demand will soften next year to 1.2 million barrels a day after climbing to a five-year high of 1.8 million barrels this year. ETF Impact The Fed move and the bearish inventory data have battered the oil and energy ETFs and are expected to continue doing so in the coming months with bleak oil fundamentals. In particular, the iPath S&P Crude Oil Total Return Index ETN (NYSEARCA: OIL ) , the United States Oil ETF (NYSEARCA: USO ) , the PowerShares DB Oil ETF (NYSEARCA: DBO ) and the United States Brent Oil ETF (NYSEARCA: BNO ) lost over 3% in Wednesday’s trading session. All these products focus on the oil futures market and are directly linked to the U.S. crude or Brent oil prices. In the equity energy ETF space, the First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) and the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP ) were the worst hit, shedding 2.7% and 2.2%, respectively. These were followed by declines of 2% for the Market Vectors Unconventional Oil & Gas ETF (NYSEARCA: FRAK ) and the PowerShares S&P SmallCap Energy Portfolio ETF (NASDAQ: PSCE ) . FCG This fund offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows the ISE-REVERE Natural Gas Index and holds 30 stocks in its basket that are well spread out across each component with none holding more than 6.95% of the assets. The fund has amassed $161.1 million in its asset base while charging 60 bps in annual fees. Volume is solid with more than 1.8 million shares exchanged per day on average. XOP This fund provides equal-weight exposure to 66 firms by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. Each holding makes up for less than 2.3% of the total assets. XOP is one of the largest and popular funds in the energy space with an AUM of $1.5 billion and expense ratio of 0.35%. It trades in heavy volume of around 12 million shares a day on average (see all the energy ETFs here ). FRAK This ETF provides exposure to the unconventional oil and gas segment, which includes coalbed methane, coal seam gas, shale oil & gas, and sands market. This fund follows the Market Vectors Global Unconventional Oil & Gas Index, holding 57 stocks in the basket. Average daily volume at 39,000 shares and an AUM of $41 million are quite low for the fund while expense ratio is at 0.54%. PSCE This fund provides exposure to the energy sector of the U.S. small-cap segment by tracking the S&P Small Cap 600 Capped Energy Index. Holding 32 securities in its basket, it is heavily concentrated on the top two firms that collectively make up for one-fourth of the portfolio. Other firms hold less than 5.8% of total assets. The fund is less popular and less liquid with an AUM of $33 million and average daily volume of about 19,000 shares. Expense ratio came in at 0.29%. In Conclusion Investors should stay away from the above-mentioned funds as more pain is in store for oil and the energy sector. FRAK and FCG have a Zacks ETF Rank of 5 or “Strong Sell” rating while XOP and PSCE have a Zacks ETF Rank of 4 or “Sell” rating, suggesting their continued underperformance going into the New Year. Original post

Clean Energy Fuels – Expect A Turnaround In 2016

Summary A closer look at CLNE indicates that despite the drop in natural gas prices this year, its volumes delivered have increased as fleet operators are adding more natural gas vehicles. Low natural gas prices have been CLNE’s bane, but this should improve as marketed production in the U.S. declines, consumption increases, and exports begin. CLNE’s volumes will continue increasing as its customers have increased their fleets, while products such as the Redeem renewable natural gas fuel are gaining traction due to environmental benefits. Redeem is made from organic waste and is up to 90% cleaner on carbon emissions, making it the cleanest automobile fuel available commercially, leading to higher adoption by fleet operators. Technological improvements, such as the Cummins-Westport Low NOx 9-litre engine that can cut NOx emissions by 90%, are improving CLNE’s addressable market by gaining adoption due to their environment-friendliness. The rapid drop in oil and gas prices this year has created a lot of pressure on Clean Energy Fuels (NASDAQ: CLNE ) for two reasons. First, the decline in diesel prices has hurt the conversion of diesel vehicles to natural gas, and second, low natural gas prices have hurt Clean Energy’s financial performance. As a result of these two headwinds, Clean Energy shares trade near the lower end of their 52-week band, having lost over a quarter of their value this year. Looking past the weakness When Clean Energy Fuels had announced its third-quarter 2015 results, its revenue went down 11% year-over-year. Also, for the first nine months of the year, Clean Energy’s top line performance has diminished, as shown in the chart below: Source: Press release But, as we take a closer look at the distribution of revenue, we find that in the third quarter, Clean Energy’s revenue from the sale of fuel has actually increased by 6.7% despite a 40% decline in the natural gas price. This can be attributed to the fact that Clean Energy saw a 17% increase in gallons delivered last quarter, though weak natural gas pricing took out $5.7 million in revenue from its top line. More importantly, in the first nine months of the year, Clean Energy’s gallons delivered have increased over 19%, indicating that the company is still finding traction despite the drop in diesel prices. The following chart shows the improvement in Clean Energy’s volumes this year: Source: Press release Thus, the only problem that Clean Energy is facing currently is in terms of natural gas pricing, as a result of which its financials have taken a beating. However, over the long run, the conditions in the natural gas market should improve due to a few reasons, as stated below. Gauging a recovery in natural gas pricing There are two factors that could lead to an improvement in natural gas prices going forward – lower production and the start-up of exports from the U.S. As far as the first point is concerned, marketed natural gas production in 2016 is anticipated to grow at just 1.9% after rising 6.3% this year. At the same time, natural gas consumption is expected to rise from 76.5 billion cubic feet/day this year to 76.7 Bcf/d in 2016. As a result, a slight increase in consumption and a slowdown in marketed production will ease the oversupply in the end-market to some extent. Concurrently, as the U.S. is anticipated to start with its LNG shipments in the coming year, more supply will go out of the market and have a positive impact on prices. As such, it is not surprising that the EIA expects Henry Hub Natural Gas prices are expected to increase from $2.09/MMBtu in November to $2.88/MMBtu in 2016. The following chart shows the gradual increase in natural gas prices going forward: Source: EIA So, going forward, there might be respite for Clean Energy on the natural gas pricing front that will allow it to improve its financial performance. At the same time, Clean Energy will continue seeing an increase in its volumes delivered due to the benefits of using natural gas as fuel and the increasing fleet size of its customers. Why Clean Energy’s volumes will continue increasing As already discussed earlier in the article, Clean Energy is seeing an increase in its volumes, and the trend will continue going forward. During the third quarter, Clean Energy Fuels’ customers increased their gas-powered fleets. For example , Raven Transport’s natural gas fleet has increased by 40 LNG trucks recently and it now has a total of 223 LNG trucks in its fleet. Similarly, Saddle Creek Logistics hit the 50 million mile mark of its CNG fleet and announced that it will add 50 more CNG trucks soon to the existing 200 CNG tractor fleet. Additionally, Clean Energy has signed contracts for supplying to more than 300 new heavy-duty trucks, representing a fuel volume of 4.5 million gallons annually. Going forward, the U.S. should see an increase in natural gas-powered fleets as companies take steps to reduce emissions. Companies such as Unilever, Procter & Gamble, Anheuser-Busch, and others are considering the use of clean natural gas by the trucking companies as an important plus point while signing contracts. As a result, more and more fleet and individual vehicle owners are making this transition from oil to natural gas, which is simpler and economic than other available green options like oil to electric or even hybrid. Clean Energy is able to capitalize on this trend with products such as the Redeem renewable natural gas fuel. This is the “first commercially available renewable natural gas made from organic waste and is up to 90% cleaner on carbon emissions,” which makes it the cleanest automobile fuel available on a commercial basis. As a result of the qualities of this fuel, the sales volume of Redeem has almost tripled from 13 million gallons to 36 million gallons on a year-over-year basis last quarter. In the case of electricity generation too, natural gas is among the cleanest and safest fuels. Technological improvements such as the Cummins-Westport Low NOx 9-liter engine are aiding operators’ decision to adopt natural gas as a fuel. This engine, as mentioned during the Q3 earnings call, is able to cut NOx emissions by as much as 90% as compared to current EPA standards from 0.2 gm to 0.02 gm. Thus, given the environmental benefits of using natural gas engines and fuel, their demand should increase as the U.S. is looking to reduce pollution under the Clean Energy Plan . Conclusion One would think that low oil prices would have reversed the trend of increasing demand for natural gas. But, the reason for adopting natural gas for almost all users may not be solely the economics. Environmental safety is playing a big part in that decision, which is why Clean Energy has continued to see an increase in gallons delivered. Thus, going forward, Clean Energy Fuels should be able to come out of its slump as it will benefit from both an increase in volumes and better natural gas pricing, making it a good investment opportunity.