10 Green Energy Stocks for 2009 - Q3 Performance Update

For the first 9 months of 2009, my ten green energy stocks for 2009 are up 23.4% vs. the S&P 500, and up 20.4% over my clean energy benchmark, the iShares S&P Global Clean Energy Index (ICLN). For the third quarter, that amounts to a loss of 1% relative to the S&P 500, and a gain of 7% relative to ICLN.

In my second quarter update, I attributed the out-performance of both clean energy in general, and my picks to the Obama Effect. That is, green energy outperformed the market strongly in the first half of the year because of the strong political and financial support it received from the new administration and Congress.

In the third quarter, with the administration and congress distracted by the health care debate, the market as a whole made up a lot of ground against my general green energy index, but my picks were able to hold on to almost all of their gains, despite the less favorable climate.

Below is a detailed rundown of the 9 month results. The somewhat cryptic last pick, "3x $ - 2x SPY" is a hedge against a possible market decline. Rather than using a pure short, I wanted to give it approximately equal weight to the other picks. In order to have an initial investment of $1 in each pick, including the short, I sold a hypothetical $2 worth of SPY short, but kept the $2 cash proceeds, along with an extra $1 cash allocated to the pick. Hence that pick is a combination of $2+$1 = $3 cash and -$2 short of SPY. (I left out a few details here for simplicity. All the gory detail is here.)

Company	Ticker	Change 12/27/08 to 9/30/09	Dividend & Interest
The Algonquin Power Income Trust	AGQNF.PK	77.42%	11.16%
Cree, Inc.	CREE	144.02%	0%
First Trust Global Wind Energy ETF	FAN	37.42%	0.46%
General Electric	GE	2.82%	4.51%
Johnson Controls	JCI	50.89%	2.30%
New Flyer Industries	NFYIF.PK	26.73%	9.98%
Ormat	ORA	37.03%	0.44%
Trinity Industries	TRN	0.24%	1.40%
Warterfurnace Renewable Energy	WFIFF.PK	68.63%	3.27%
-2x S&P Depository Receipts + 3x Cash (was SDS until Feb 13)	3x $ - 2x SPY	-54.81%	-0.17%
Total Portfolio		41.51%
Benchmarks
Standard & Poors 500 Index (S&P500)		17.13%
iShares S&P Global Clean Energy Index (ICLN)		21.11%

My Trades & Updates

I continue to expect a market decline, and am now more worried than 3 months ago, when I had sold most of my positions in Cree, Ormat, and General Electric. In the meantime, in addition to increasing the overall level of market hedging for my portfolio, I sold more of my GE stake.

If you want to delve deeper, I recently published an update on the Algonquin Power Income Trust. I'll also have an update on New Flyer Industries which will be published at the preceding link early next week (link broken until then). The original article has more information on the other picks.

Three months ago, I told readers, "If I had to buy any of these stocks today, it would be Trinity." In the three months since then, Trinity has risen 29%, compared to a rise of 14% for the S&P 500, a rise of 6% for ICLN, and a rise of 11% for my portfolio as a whole (relative to their prices at the time.) Trinity was not the best performer for the quarter, but readers who chose to buy it then will probably be happy with the results.

If I had to buy any of these stocks today, I wouldn't. I'd take a position shorting the market (i.e. 3x $ - 2x SPY.) Let's see how that works out in three months.

Other Portfolios I'm Tracking

I recently published the half year update for my quick mutual fund tracking portfolio. That portfolio had continued to outperform the mutual funds it was designed to track, and, in my investigation, I discovered it was because the portfolio had higher market risk (beta) than the funds it was drawn from. Since I've now determined that it is not a good tracking portfolio, I don't intend to update readers on its performance again, but I may use some of the lessons learned in future portfolio design.

I also need to update my ten green energy gambles for 2009, which I intend to do (schedule permitting) about 6 months after the list was published, or around October 11. The six month update is here. That portfolio also continues to do well, although it is much more vulnerable to a market decline than the 10 stocks I discussed here.

DISCLOSURE: The author and/or his clients own AGQNF.PK, CREE, FAN, GE, JCI, NFYIF.PK, ORA, TRN, WFIFF.PK.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Comments

[Alan Young:]

Good job, Tom! I wish I had given you more credence (or more CREEdence) earlier in the year.

Oct 04 05:42 AM

[Franck Pris...:]

Interesting. I missed your ealier comments. My average agressive growth portfolio is up 80% since Octobre 31, 2008, vs. 9% for the S&P 500 and 23% for the NASDAQ Composite. My best Alernative Energy picks have been MXWL ($17.50 - sold it last week), ACPW ($0.80 - still own it), Echelon ($12.80 - trimmed, but still long), AES ($13.70 - still own it) and CPN ($11.20 -still long too).

Oct 04 09:53 AM

[Franck Pris...:]

OUps - I forgot to mention I too am covered, anywhere from 30% cash to market neutral.

With regards to securities law, none of the comments contained in this message regarding specific securities or funds are to be construed as an advice to buy or sell said securities or funds. Any reference to past performance should not and cannot be viewed as indicative of future performance

Oct 04 09:59 AM

[Tom Konrad:]

Alan - There will be a new set of 10 for 2010.

Franck - This portfolio is much more conservative than an agressive growth portfolio would be. Note that it is 20% large cap (GE,JCI), and 20% Income (NFI+AGQNF.) It is only 50% "aggressive growth" and the double short did a significant amount to reduce risk (and returns) though the year. This portfolio would be better described as "Growth and Income."

I note you say "you" are covered/hedged. Is that true for the aggressive growth portfolios you're bragging about? Have they been hedged the whole year, as this one has?

Oct 04 10:28 AM

[tc1:]

Tom, thank you for your updates.
I'm still holding on to some GE, regretting i didn't sell more of it when it hit $17 recently.
I made out quite well with CREE, buying a lot of it at $14 in Dec. 08 and riding it all the way up to $31, when its P/E surpassed 105 and even its forward P/E looked excessively high at over 40. I was hoping CREE would "correct" to about $26 or $27, where i was ready to buy more, but, of course, this promising stock never did anything of the sort, soon surging as high as ~$38.50 in mid-Sep. along with the general market and Nasdaq this-year highs.

Do you think CREE is worth buying again in the low $30s? (e.g., $32?) One thing that concerns me is that, whereas CREE is greatly impressing govts, municipalities, universities and engineering-award committees with its l.e.d. lighting products, and it has those big contracts with certain HDTV manufacturers (like LG), the general home/office lighting marketplace (e.g., Home Depot) sees no evidence thus far of CREE entering that market. I'm seeing several other brands with their lighting products out there. I'm concerned that CREE may not gain the massive revenues from that home/office l.e.d. market if it waits too long to enter.....

Oct 04 02:00 PM

[Tom Konrad:]

Regarding Cree, I think it's a great company, but am going to wait for it to fall A LOT before I buy again. I don't generally have price targets; I try to look what's happening with investor sentiment. When I feel like investors in stocks are again bearish, then I will be buying. With individual stocks, I look for stocks that continue to fall DESPITE good news. One such example was Poretc Rail Products PRPX www.altenergystocks.co...

It's the same type of thing I'll be looking for with Cree, but I have to admit that I did not participate in Cree's great performance this year... I got out at $30.


On Oct 04 02:00 PM tc1 wrote:

> Tom, thank you for your updates.
> I'm still holding on to some GE, regretting i didn't sell more of
> it when it hit $17 recently.
> I made out quite well with CREE, buying a lot of it at $14 in Dec.
> 08 and riding it all the way up to $31, when its P/E surpassed 105
> and even its forward P/E looked excessively high at over 40. I was
> hoping CREE would "correct" to about $26 or $27, where i was ready
> to buy more, but, of course, this promising stock never did anything
> of the sort, soon surging as high as ~$38.50 in mid-Sep. along with
> the general market and Nasdaq this-year highs.
>
> Do you think CREE is worth buying again in the low $30s? (e.g., $32?)
> One thing that concerns me is that, whereas CREE is greatly impressing
> govts, municipalities, universities and engineering-award committees
> with its l.e.d. lighting products, and it has those big contracts
> with certain HDTV manufacturers (like LG), the general home/office
> lighting marketplace (e.g., Home Depot) sees no evidence thus far
> of CREE entering that market. I'm seeing several other brands with
> their lighting products out there. I'm concerned that CREE may not
> gain the massive revenues from that home/office l.e.d. market if
> it waits too long to enter.....

Oct 04 09:16 PM

[danno:]

GE? GE?

Clean Energy makes up an minute fraction of GE's business. Do you really think that this will drive GE's stock? No way, no how.

Also why is the S&P 500 the benchmark here?

Oct 04 09:27 PM

[Tom Konrad:]

danno-

The S&P is one of my two benchmarks because I'm lazy... I usually use it as a proxy for the whole market. Since it's mostly large cap, that's probably not an ideal choice... Which benchmark do you prefer? If you have a good suggestion, I'll use it for my 10 picks for 2010 (I specified the S&P in the original article as a benchmark, so I won't change it for these 10 stocks. Pre-specified benchmarks are very important. But you're right, it could be improved.)

Regarding GE, I think its revenue is currently between 10% and 20% green energy (especially efficiency and smart grid), which is enough to make a difference in the stock price. Furthermore, with GE, you tend to pay less for every $ of green energy earnings than you would with a pure-play firm. www.altenergystocks.co...

Finally, part of the justification of the short was that it would "un-do" the non-green aspects of conglomerates like GE and JCI. Those two are greener than your average large-cap company, and so if you combine them with a short of the S&P (literally your average large cap company) you end up with something rather green.

But, hey, if you saw my article at the start of the year, and decided to buy only the truly green companies (which means you avoided GE, JCI, and TRN, and you wouldn't need the short, either) your returns would have been better (69%.)

Clearly I wish I had not picked GE, but not because it's not green enough. I wish I had not picked it because it has too big a financial arm. Ouch!

I've been writing about investing in green energy since 2006 (and doing it since 2000.) I've had to make a lot of this up as I go along. I'm not a purist- I'm more interested in two things: saving the planet, and making money. Not necessarily in that order (although I'd really like to have a planet to spend my money on.)

Oct 04 10:13 PM