Tag Archives: power

Solar Energy ETFs – Decent Way To Stay Invested In The Volatile Solar Industry

Summary The top holdings in the portfolio are good companies with decent performances. The ETFs have considerably reduced their Chinese market exposure to tide the current downturn. The solar industry is set to grow at a rapid pace. I was sceptical about investing in solar ETFs earlier, mainly because of the fact that they included Hanergy Thin Film Power Group Ltd. (OTC: HNGSF ) among their top holdings. Since the Hanergy bubble has burst, the two ETFs have now minimized their exposure in that stock. The Guggenheim Solar ETF (NYSEARCA: TAN ) and the Market Vector ETF (NYSEARCA: KWT ) have also considerably reduced their exposure to Chinese stocks to avoid volatility. I think it should be a good opportunity to invest in these ETFs now, as they have increased their exposure to top quality solar stocks. The solar industry being a relatively new industry sees rapid changes in business models and technology – top companies (e.g. Hanwha Q Cells (NASDAQ: HQCL ) ) can go bankrupt in a matter of months due to changes in the supply chain/technology. Solar ETFs are a better way for retail investors to stay invested in the volatile solar industry to avoid company specific risks. They can also take advantage of the long term double digit secular growth of the industry using these ETFs. Top Holdings Then & Now – Portfolio looks decent now TAN Top Holdings As on 24th Apr-2015 29th Sep-2015 Hanergy Thin Film Power Group 11.45% – SunEdison Inc. (NYSE: SUNE ) 8.43% 5.15% First Solar Inc. (NASDAQ: FSLR ) 6.99% 8.06% GCL-Poly Energy Holdings LTD (OTCPK: GCPEF ) 6.45% 7.52% SolarCity Corp. (NASDAQ: SCTY ) 6.27% 7.01% SunPower Corp. (NASDAQ: SPWR ) 4.56% 5.01% Terraform Power Inc – A (NASDAQ: TERP ) 4.39% 4.27% Canadian Solar Inc. (NASDAQ: CSIQ ) 4.35% 4.22% Xinyi Solar Holdings LTD. 4.17% 5.88% Trina Solar LTD. (NYSE: TSL ) 3.93% 4.86% SMA Solar Technology (OTCPK: SMTGF ) – 4.19% Source: Guggenheim Solar ETF KWT Top Holdings As on 24th Apr-2015 31st Aug-2015 Hanergy Thin Film Power Group 8.16% – SunEdison Inc. 8.03% 4.06% First Solar Inc. 6.85% 8.90% SolarCity Corp. 6.46% 8.84% GCL-Poly Energy Holdings LTD 6.13% 5.66% Terraform Power Inc. – A 5.62% 6.91 Shunfeng International Clean Energy Ltd (OTCPK: SHUNF ) 5.32% – Trina Solar LTD. 4.71% 4.53% SunPower Corp. 4.65% 4.97% Canadian Solar Inc. 4.56% 3.72% Sino-American Silicon Products Inc. 4.11% – Xinyi Solar Holdings LTD. 3.10% 5.35% SMA Solar Technology – 4.85% Source: Van Eck Global Both the ETFs have removed Hanergy Thin Film from their respective portfolios. This is in line with my thoughts expressed earlier, that when the Hanergy bubble bursts – the ETFs will also suffer. Reducing exposure in the Chinese market makes sense now The ETFs had a considerable exposure in the Chinese market which made them vulnerable to low returns at the time of crisis. However, both the ETFs have reduced a considerable amount of their exposure in the Chinese market. KWT’s exposure in the Chinese market stands at 31% from 38% previously. For TAN the Chinese presence has been reduced from 48% previously to ~38% currently. All this shows that the ETFs are trying to reduce the volatility in their returns. Though the performance was slightly below the broader Dow Jones index, it was better than most of the individual stock returns. (click to enlarge) As on 12 th Oct 2015 Source: Google Finance YTD Performance of some of the stocks as on 12th Oct 2015 SPWR -2.9% SCTY -9.2% SUNE -52% TERP -34% CSIQ -10.7% Performance was better than individual Stock returns Investors look to invest in ETFs to guard themselves from the volatility in the sector. The solar industry is volatile and is facing a downturn currently. Other than Trina Solar and First Solar stock who returned ~22% and 15% YTD (as on 12th October 2015), other stocks have been battered. Both these ETFs have also suffered due to the recent selloff seen in the broader energy market. ETFs average the returns from all the stocks for investors. The investor will not unduly suffer if his one solar stock holding is punished. The Guggenheim Solar ETF has a total asset base of $225 million with an expense ratio of 0.7% and Market Vector ETF has a total asset base of $15 million with an expense ratio of 0.65%. Solar Energy has have a very bright future Though the Chinese stock market looks weak at the current time, the Chinese solar industry has a bright solar future. It is expected that China will be the largest solar market globally. The country is expecting to install 18 GW of new capacity this year. China and other major carbon emitters such as India and Europe have to considerably reduce its carbon emissions as part of the INDC. Solar energy is expected to be the biggest source of capacity expansion among all energy sources in the next 20 years, as per major forecaster (Bloomberg and others). Global solar installation are expected to increase by 40% y/y to 55 GW and continue to increase in the double digit range in the long term as well. USA solar energy is booming as well, with 22.7 GW of total installed capacity by the end of Q2’15. Downside Risks Staying invested in the solar industry through an ETF makes more sense if the investor is not very well acquainted with the market trends. However for someone who follows the industry closely, I think a better way to stay invested should be through individual stock holdings. If an investor believes in any particular stock(s) and stays invested, he should end up making more money than the ETF. For example, Trina Solar stock was up ~22% during the time the ETFs were seeing their values decline. Conclusion Solar ETFs have also been hurt by the decline in the energy sector, even though the industry is seeing strong growth and well run companies are showing good profitability and revenue growth. Solar ETFs were a bad bet earlier because of the heavy weighting being given to highly risky companies. But they have become a better investment, with the pruning of such stocks from their portfolios. The solar industry is an extremely dynamic and volatile one. It carries both high risks and rewards and for normal investors ETFs may be a good choice to take advantage of the long term secular growth of the industry. They represent a good investment now, as they have fallen unduly due to the oil price decline. Currently, both TAN and KWT represent good investment options in my view.

True Management Excellence Is Reasserting Its Power And Importance

Summary A weak market environment reveals weaknesses in companies that would go unnoticed in good or moderate times. Management excellence becomes critically important as economic stresses emerge. Excellence is achieved by integrity in relationships with three key constituencies. Only when the tide goes out do you discover who’s been swimming naked. –Warren Buffett A weak market environment reveals weaknesses in companies that would go unnoticed in good or moderate times. –David Merkel Would you rather invest your hard earned dollars with the best-run companies in the world or the worst? The answer may seem obvious but there are millions of people have their money invested with managers who are plainly bad. I have been one of them in the past and perhaps you have been as well. Over the past 6 years investors haven’t had to give quality of management much thought, as rising stock prices and profits have allowed us to overlook mistakes and bad decisions. This happy time has already begun to change. Regardless of what the economic future holds, it’s undeniable that stresses have developed in the global economic system. Quality of management is about to become a much more important factor in company fortunes. For years it is been reasonably easy for management to keep shareholders happy with regularly increasing stock prices and higher profits. As the quotes above suggest, in times of stress management becomes critically important. Quality of management could soon become the differentiator between success and failure — even life and death — on the corporate level. Identifying Excellence In Management With widespread improvements in common metrics like profits and stock prices, how do we differentiate? How do we tell where the truly excellent (and truly bad) management is? A more comprehensive approach is required. The vast majority of managements will fall in the middle range of quality, and time is best spent identifying the very best and worst. After all, these are the managements that will produce the most consequences for us as investors. In addition, sustained excellence does not flow from a single great leader. No one can deny the importance of Steve Jobs at Apple, Alan Mulally at Ford, or Jack Welch at General Electric, but great leaders aren’t forever and their performance is not often repeated by their successors. In fact, it is dangerous to trust your money to a single individual no matter how talented, as Apple after Jobs’s first departure and GE after Welch demonstrated. True excellence is a culture that endures over generations of executives. Superior management is identified by integrity in relationships with its three main constituencies: customers, shareholders, and employees. All three of these “pillars of excellence” are essential – none can be ignored. In times of stress deficiencies in any one will be magnified and threaten the success of the enterprise. Excellence in each area, however, will support the others and the entire company. They provide a complete and robust assessment of management when added to standard measures like return on equity, share prices and dividend growth. The Three Pillars Customers Excellence in the customer relationship starts with high quality products and services that are valued by customers. Well-known examples are Nike, Tesla, Google, Tiffany, Johnson & Johnson, Caterpillar, Deere, Union Pacific, Apple, and Boeing. A different example is Family Dollar (NYSE: FDO ) which, although the products it sells are ordinary, has a combination of selection and price that fills an important customer need. Another aspect is customer service, and there are many studies of the best and worst companies in this regard. A recent study by 24/7 Wall Street rated these at the top. Best: Amazon (NASDAQ: AMZN ) Chick-fil-a Apple (NASDAQ: AAPL ) Marriott (NASDAQ: MAR ) Kroger (NYSE: KR ) Fedex (NYSE: FDX ) Trader Joes Sony (NYSE: SNE ) Samsung ( OTC:SSNLF ) UPS (NYSE: UPS ) And these rated worst: Comcast (NASDAQ: CMCSA ) DirectTV (NASDAQ: DTV ) Bank of America (NYSE: BAM ) Dish Network (NASDAQ: DISH ) AT&T (NYSE: T ) AOL (NYSE: AOL ) Verizon (NYSE: VZ ) T-Mobile (NYSE: TMUS ) Wells Fargo (NYSE: WF ) Walmart (NYSE: WMT ) Obviously, customer service is more challenging in some industries than others. The survey recognizes this and has two sets of rankings: from all executives and experts within each industry. Employees Who better to say which are the best companies to work for than the employees themselves? Fortune and the Great Place To Work Institute have been doing comprehensive surveys of employees for 25 years produce an annual list of the 100 Best Places to Work . Their model is based on five dimensions: Credibility, Respect, Fairness, Pride and Camaraderie. The top ten public companies (fourteen of the top twenty-four are private) in 2015 are: Google (NASDAQ: GOOG ) Salesforce (NYSE: CRM ) Genentech ( OTCQX:RHHBY ) Camden Property Trust (NYSE: CPT ) Klimpton Hotels and Restaurants (NYSE: IHG ) NuStar Energy (NYSE: NS ) Stryker (NYSE: SYK ) Ultimate Software (NASDAQ: ULTI ) Workday (NYSE: WDAY ) Twitter (NYSE: TWTR ) In times of economic distress investors want to a part owner in companies with employees who support and have confidence in management, and are invested in the company’s success. This is achieved when management does the same for their employees. Shareholders This is perhaps the most complex of the three “pillars” of excellence. Continuing the survey theme, Fortune and the Hay Group compile an annual list of the most admired companies in America. There are some methodological issues with and it includes only the largest companies, but healthy financials and stock performance are major factors so it is useful in this regard. The full list is here . The top ten “All Stars” for 2015 are: Apple Google Berkshire Hathaway ( BRK ) Amazon Starbucks (NASDAQ: SBUX ) Walt Disney (NYSE: DIS ) Southwest Airlines (NYSE: LUV ) American Express (NYSE: AXP ) General Electric (NYSE: GE ) Coca Cola ( K O) Institutional Shareholder Services has been assessing corporate governance for over 30 years. They examine over 200 factors to rate boards of directors in four areas: board structure shareholder rights compensation audit risk & oversight It addresses important questions like Is the board of directors independent or controlled by the chairman? Is compensated reasonable or detrimental to shareholders? Is there overboarding — do they sit on so many boards that they have excessive time commitments and may be unable to fulfill their duties? The rankings are interesting. Apple scores near the top in three of the four areas, but is in the bottom decile in compensation. Companies like Google and Groupon (GRP) that have dual stock classes generally rate poorly. Shareholder input An important aspect of this pillar comes from the shareholders themselves. Shareholders are very vocal on sites like Yahoo and Seeking Alpha about their relationship with management. When unhappiness is expressed, it can be an important sign that management is not aligned with shareholder interests. Dissatisfaction can occur whenever a company is underperforming, so it’s important to distinguish between general grumbling and more specific concerns. Questions about things like management compensation, risk, dilution, and conflicts of interest merit attention. Recent examples of serious red flags include: Prospect Capital (NASDAQ: PSEC ): Many investors have criticized management compensation, honesty about nonperforming assets, and other issues. This comment is typical: Leopards don’t lose their spots. Those of us who owned in the 10 dollar range remember Mgt. sold more shares, raised their mgt. fees, then cut the dividend. Leaving us stockholders holding the bag. I’m out and staying out. American Realty Capital Properties (ARCP): Minor accounting issues blew the top off a company with excessive compensation, conflicts of interest, excessive risk-taking and more. Management and the company name have been changed to Vereit (NYSE: VER ), but the point is that big losses were avoided by investors who heeded problems which were well known before the blowup. The entire medical marijuana industry: Marijuana has attracted more serial fraudsters, incestuous management and shareholder abuse than any industry in living memory. For an unfortunately common example, see this article on Medical Marijuana ( OTCPK:MJNA ), trading at three cents a share and a long history of issuing new shares to insiders like Halloween candy. To see how pervasive shareholder abuse is in the industry, see this article and others by Anthony Cataldo. Standard Metrics of Effectiveness Standard metrics that directly affect the bottom line are still the most important area of management assessment. They show how skilled executives are as businesspeople and are clearly related to the shareholders relationship. Revenues and profits matter. Metrics like return on assets (ROA) and return on equity (ROE) show how efficiently management utilizes the resources available to them. Debt/equity and debt/earnings can show the degree of risk that management is exposing shareholders to. Conclusion Complacency is deadly. For six years investors have been lulled into a sense that picking investment winners is easy, or at least something they have largely mastered. Conditions are changing however, in ways that will make successful management more challenging and will separate the good from the bad. Recognition of excellent management will be more critical to investment success and in some cases company survival. Standard measures of management effectiveness like return on assets and return on equity are still the first place to go, but they don’t tell the complete story. Excellent management is also identified by the relationships with three key constituencies: customers, employees, and shareholders. Excellence is defined by integrity, respect, and fairness with these three groups. A few examples of how to identify the best and worst companies are given here – there are many others. Choosing investments based on a comprehensive determination of excellence will enable us to be successful in even the challenging times. In addition, we can have the satisfaction of knowing we are associating with individuals that are not only talented, but act honorably and ethically towards others. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Regulatory Decision Confirms Attractive Value At Capstone Infrastructure

Competition Markets Authority released its summary decision, with management confident that dividends can be sustained under new rates. Management discussed additional levers to find value at Bristol Water, including new financing options, additional efficiencies and increased leverage. Overall, following the decision, valuation has been derisked and significant upside maintained. Nearly two months ago, we published a report on Capstone Infrastructure Corporation ( OTCPK:MCQPF ), a Canadian small-cap infrastructure company. The company has a variety of critical infrastructure assets, from solar, wind, hydro and biomass power generation, to natural gas co-generation, district heating and a water utility. The firm’s assets are geographically diverse, with the power assets located in Canada, the district heating business in Sweden and the water utility located in the U.K. The company has a market capitalization of just over C$300 million (US$230 million) and is traded primarily on the Toronto Stock Exchange under the symbol “CSE.” Today, we would like to share some analysis of a recent regulatory decision that we believe adds considerable certainty to the future sustainability of Capstone Infrastructure and confirms the company as an attractive value play. At the time of publication of our initial report, one of the material risk factors to Capstone’s valuation was the pending U.K. Competition Markets Authority (CMA) decision in the appeal of a previous Ofwat regulatory decision for its Bristol Water business. This pending decision was a major factor in the decline in Capstone’s share price and has been a drag on the stock’s value for the past several months. We are happy to now see this decision released, and investors can largely put this concern behind them. The regulator’s press release and a summary decision regarding Bristol Water was released on October 6 , clarifying several factors for the business, including increased operating expenses, increased capital expenditures on a reduced scope, a higher return on equity and higher customer billing rates. While the company felt that the billing revenue side of the decision was disappointing, overall the decision will, in the view of management , enable Bristol Water to maintain its dividend level going forward. We agree that their approach to managing the lower rates does seem reasonable and that dividends at or very near the previous levels should be able to be maintained. The trading response to this decision has been fairly muted, perhaps because the outcome is not substantially different from the preliminary findings of CMA released earlier this year. But today we stand faced with more certainty about the short-term sustainability of the dividend, which at nearly 10 percent is underpinning a great deal of the company’s value today. In our valuation case presented in our original piece, we indicated that the impact of the Bristol Water decision would be plus or minus C$7 million on adjusted funds from operations. It seems that via management’s responses on the conference call, overall distributions from Bristol Water should be maintained at their previous levels, in line with our “mid-case.” With this uncertainty removed from the picture, we can tighten the 2017 share price target range from C$2.92-7.53 to C$3.82-6.56, maintaining our mid-case target of $4.90 per share. (thousands) Low Case Mid Case High Case Comments Start: 2014 AFFO $56,412 $56,412 $56,412 Impact of Cardinal ($36,000) ($36,000) ($30,000) Low case is with project financing, high case is without. Impact of Bristol $0 $0 $0 2015 Commissioned Wind $5,000 $6,000 $7,000 Skyway 8, Saint-Philemon, Goulais 2015 AFFO $25,412 $26,412 $33,412 2016 Commissioned Wind $2,500 $3,500 $4,000 2016 AFFO $27,912 $29,912 $37,412 2017 Commissioned Wind $0 $3,500 $4,000 Corporate Savings $2,000 $5,000 $10,000 Management projects $10 million in corporate SG&A, project cost, interest and tax savings 2017 AFFO $29,912 $38,412 $51,412 2017 Projected Share Count 96,408 96,408 96,408 Based on 93,573 outstanding at Dec 31, 2014, increased by 1% annually for DRIP 2017 AFFO per Share $0.31 $0.40 $0.53 Payout Ratio 80% 80% 80% Projected 2017 Dividend/share $0.25 0.32 $0.43 Projected Dividend Yield 6.5% 6.5% 6.5% Conservative dividend level based on peer group 2017 target share price (CAD$) $3.82 $4.90 $6.56 There are still risks present in this valuation of course, including Bristol’s inability to implement cash flow enhancements to the level that management currently anticipates, or potential schedule issues or underperformance on their new energy assets. Even if these risks materialize, however, we believe the downside is not much lower than where the stock is trading today. At a significant discount to book value, this is a true value play with considerable upside for investors. We believe there is considerable short-term upside here heading into the third-quarter results in early November, and of course stand behind our call for considerable upside into 2017. To summarize, this decision derisked the situation at Capstone Infrastructure, while in the subsequent trading days, the company has maintained a substantial discount to what we perceive as a fair value. With a dividend that we’re comfortable with calling sustainable at near 10 percent and future cash flow growth supported by a higher degree of regulatory certainty, Capstone Infrastructure is currently positioned as a fantastic value play for investors with a greater than 50 percent upside to our target price and a sustainable 10 percent dividend. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.