5 Electricity Transmission Stocks for Your Clean Energy Shopping List 12 comments
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We may be headed into a renewed market slump. If so, it will pay to wait before buying, but when the time does come to buy, here are 5 electric transmission stocks I have my eye on.
On June 2, I wrote that I thought the market was near its peak. That day, the S&P 500 closed at 944.74. On June 12, it closed up 0.15% at 946.21, and has since trended down, currently trading down 5% as I write. I expect further declines this year, either with the market heading straight down from here, or bouncing around for a while, possibly for a few months, before declining in earnest.
This article continues my Clean Energy Stocks Shopping List series, which I started with the intent of occupying myself while I wait for the market to fall. Like most people, I find it difficult not to buy when I find a company I'm interested in, even if I don't like the valuation. I find planning my future purchases lessens the need to use the cash I've been accumulating now, and possibly will be of some help to readers in the meantime. So far, I've brought you five clean transport stocks, and five energy efficiency stocks. I have enough others for about three more lists, which you will be able to find here as they are published.
When I'm done, you should have enough to put together a diversified portfolio of companies involved in what I consider the most promising clean energy sectors. In other words, don't expect any Algae Biofuel stocks (I like the industry, but not the stocks) or Hydrogen Fuel Cell Stocks (I'm skeptical about the economics of the technology.)
I'm not skeptical about either the electric transmission industry or the technology. As a century-old industry, it contains many mature, profitable companies, but the need to build out and enhance our existing (and rather decrepit) electric grid in order to integrate renewable energy means that there are also exciting opportunities for growth. Here are five.
Equipment Providers
#1 General Cable (BGC) produces exactly what you'd expect: cable of all sorts, for electrical transmission, wiring, and communications. If you believe (as I do) that the long term decline in the use of fossil fuels will mean the increasing electrification of the economy, General Cable is the one company I'd point to as most likely to benefit from the trend. The company is solidly profitable, with a forward P/E of 10, almost $4 of cash per share, and strong operating cash flow.
#2 ABB Group (ABB) is a global technology firm based in Switzerland with products focused on electrical transmission and distribution, and one of two global leaders in High Voltage Direct Current [HVDC] transmission (the other is Siemens (SI).) HVDC is the best currently available technology for transporting large amounts of electricity over long distances, and is essential to the hoped for European Destertec Project, and would likely be necessary if we were to use concentrating solar power in the US Southwest as dispatchable power to balance variable renewable energy in the rest of the US.
On a more prosaic level, ABB also has technology to improve the efficiency of electricity distribution as well as transmission. The company currently trades at a P/E of 12.6, has $3 cash per share on the balance sheet, strong operating cash flow, and pays a dividend over 3%.
Service Providers
The companies which will contract to build out the new electric infrastructure seem most likely to be able to leverage the build-out to achieve high levels of growth, and hence large gains in stock price. Here are three:
#3 Pike Electric (PIKE) performs service and upgrade of electric transmission and distribution throughout the US. Although the company has a strong balance sheet and cash flow, analysts expect earnings to drop significantly next year. If lower earnings materialize, we can expect significant price deterioration (especially in the context of an overall market decline,) and may be able to purchase this stock at an attractive valuation. The forward P/E is currently over 17 at a stock price of $11.60. The relatively high valuation makes Pike likely to be hit hard by a general market decline, leading to an excellent buying opportunity.
#4 MasTec (MTZ) not only builds and maintains transmission and distribution infrastructure, they also provide those services for fiber optic communications networks, as well as wind farms. Mastec is less well capitalized than ABB and General Cable, but still has a strong balance sheet and cash flow, and it currently trades at a more attractive valuation than Pike, with a P/E of only 11.6. As such, it's an interesting wind and transmission play.
#5 Quanta Services (PWR) No stock list of mine is complete without Quanta Services, which was once described to me by an industry insider as the company to call if you want to put steel in the ground on a transmission project. Quanta has a strong balance sheet (strong cash flow, $2.65 cash per share, and a current ratio of 3.3,) but its high growth means that it trades at the relatively rich forward P/E ratio of 18.6. Like Pike, a general stock market drop should hit Quanta disproportionately, providing an excellent buying opportunity.
DISCLOSURE: Tom Konrad and/or his clients own BGC, ABB, SI, PIKE, MTZ, and PWR.
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This article has 12 comments:
I'm not going to stop thinking that you guys should put together an Energy Eff, Storage and Transmission Index. Theres got to be a good solid 50 stocks that fit this niche. Solid like ABB, PWR, ITRI, XIDE, JCI, etc.
And then some big organization can base an ETF on it. Most individual investors have trouble investing in this field because there are so many players rather than several dominant ones. One can't spread themselves too thin, but an ETF would garner alot of attention.
I see this sector as kind of like the tools and shovels analogy to clean energy.
Thanks.
With $300 in free cash flow it will take a long time to pay that off. I was also concered to see the stock pice hit a low of $6 in December. But like you prefaced, buy on the next dip, which I also believe is coming.
On Jul 01 09:47 AM quick wrote:
> Good list, thanks for the ideas. I've been looking at ITRI more of
> as a smart grid play, but these are some good ideas too!
I follow an active investing style, and eblieve that stock picking and timing have a valuable role to play in a sector as under-analyzed as clean energy. So an ETF (essentially an index fund) goes against the grain. There are also serious regulatory and compliance issues which would involve a headache I'm not interested in.
I feel a small investor would do better just buyinf one of the many modle portfolios I list, such as my 10 stocks for 2009, www.altenergystocks.co... or my quick clean energy tracking prortfolio www.altenergystocks.co..., and they'd incur lower cost in the porcess.
On Jul 01 10:52 AM isaac the terrible wrote:
> Tom,
> I'm not going to stop thinking that you guys should put together
> an Energy Eff, Storage and Transmission Index. Theres got to be a
> good solid 50 stocks that fit this niche. Solid like ABB, PWR, ITRI,
> XIDE, JCI, etc.
> And then some big organization can base an ETF on it. Most individual
> investors have trouble investing in this field because there are
> so many players rather than several dominant ones. One can't spread
> themselves too thin, but an ETF would garner alot of attention.<br/>I
> see this sector as kind of like the tools and shovels analogy to
> clean energy.
> Thanks.
On Jul 01 10:57 AM Gravity404 wrote:
> I like the idea of BGC. I have never followed it, but checking it
> out you failed to mention while they do have almost $4 per share
> in cash they also have approximately $24 in debt.
>
> With $300 in free cash flow it will take a long time to pay that
> off. I was also concered to see the stock pice hit a low of $6 in
> December. But like you prefaced, buy on the next dip, which I also
> believe is coming.
They claim their transmission cable is between 33 and 38% more efficient than the traditional transmission cable.
CPTC is a foavrite of mine, but it's a very risky play... I left it out because I'm worried that they will have to issue more stock soon and dilute exisitng shareholders. It's a very exciting company, and I included it in my "10 gambles for 2009" www.altenergystocks.co... but it does not currently make it inot my mainstream lists.
messages.finance.yahoo...
messages.finance.yahoo...
On Jul 01 10:57 AM Gravity404 wrote:
> I like the idea of BGC. I have never followed it, but checking it
> out you failed to mention while they do have almost $4 per share
> in cash they also have approximately $24 in debt.
>
> With $300 in free cash flow it will take a long time to pay that
> off. I was also concered to see the stock pice hit a low of $6 in
> December. But like you prefaced, buy on the next dip, which I also
> believe is coming.
"Their debt is high due to a majority acquisition of Phelps Dodge in the Philippines, a very worthy acquisition. In 2007 Phelps Dodge brought in 100 million. They're continuing to expand their global reach. Most of the long term debt doesn't begin coming due until 2012 and is quite manageable, with locked in revolving credit. They're even executing a stock re-purchasing program. Here's a link to the transcript from their recent 4th Q conference call. If you're really interested in this company it's well worth the read. Hope this helps.
seekingalpha.com/artic..."
On Jul 14 04:53 PM Juin wrote:
> Here are some Yahoo Finance threads on BGC's debt in case anyone
> is interested:
>
> messages.finance.yahoo...;bn=24755&tid=...
>
>
> messages.finance.yahoo...;bn=24755&tid=...
>
I like this article. While not as sexy as some of the AMR and demand response stocks I think infrastructure build out on transmission is your best bang for your buck regarding smart grid. They don't seem over valued and already have solid cash balances. I'm a real big fan of PWR and MTZ. Speaking of which, I'm disappointed with the recent weakness of MTZ especially relative to the broader market. I understand they were recently downgraded by Kauf. Bros, citing slow flow of stimulus money and tight credit. They reduced 2009 EPS to 1 from 1.10. The stock is trading at a multiple of under 10 on a forward basis in a growth sector. Also, PWR was recently started as a buy from GS with target price of 25 bucks. Am I missing something on MTZ, or is it just completely oversold???
thanks