For the second year in a row, I've asked my panel of green money managers for their top green stock picks for 2014. You can see how their 2013 picks did here.
This year, I asked them for three picks each. This is the first of a series of articles discussing those picks.
Green Income Stocks
Green investing began to mature in 2013 with a number of income-oriented green investments becoming available to retail investors. Until recently it had been impossible to build a diversified portfolio of clean energy stocks suitable for an income investor. That is now changing, and I'm working with Green Alpha Advisors to launch a fossil-fuel free equity-income strategy for separately managed accounts, potentially followed by a mutual fund using the same strategy if there is sufficient demand.
As investors become aware of this new type of green investing, and especially as income funds focusing on the sector are launched, I expect valuations to rise, so the next couple years are likely to be an opportune time to invest in the best green income stocks. You can be sure there will be several green income stocks in my annual list of "Ten Clean Energy Stocks for 2014″ which will be published around New Year's at AltEnergyStocks.com. For now, here are the three income picks from my panelists.
Jan Schalkwijk CFA is a portfolio manager with a focus on Green Economy investment strategies at JPS Global Investments in Portland, OR. I co-manage his JPS Green Economy Fund. Schalkwijk had two green income picks this year. Here's what he has to say about them:
Accell Group NV (OTCPK:ACGPF) is a bicycle company located in The Netherlands. It is reasonably cheap at 12.4x earnings and paying a 4.7% dividend. What has kept a lid on Accell is the seemingly perpetual European economic malaise, unfavorable weather conditions during the bike buying seasons in the last couple of years, and lack of analyst enthusiasm. In my view, Europe is likely to follow in the footsteps of our slowly improving economic recovery, which should bode well for European stocks and consumer spending. Additionally, Accell is well positioned for the continued electrification of the bike in northern Europe.
Companhia de Saneamento Basico do Estado de Sao Paolo (NYSE:SBS), is a mouthful, but also a very interesting water utility and waste water treatment company in Brazil. It had been on a tear until early 2013 when the regulated water rate increase disappointed the market. There is a good chance that come February/March the company will get a more favorable rate reassessment. Meanwhile the stock is trading at 7.7x earnings, pays a 4.6% dividend, and might have a chance to ride the wave of investor interest that is likely the accompany the Brazilian World Cup in 2014 and Olympics in 2016.
Shawn Kravetz is President of Esplanade Capital LLC, a Boston-based investment management company with a fund focused on solar and companies impacted by the emergence of solar. Last year, his top pick last year was Amtech Systems (ASYS.) It's up 137% in the 12 months since he picked it. His income pick this year is Hannon Armstrong Sustainable Infrastructure, (NYSE:HASI) one of the new income investments I mentioned above that IPOed in 2013.
HASI is a "broken" IPO, meaning that it has been trading almost exclusively below its issue price of $12.50, but it has touched $12.50 several times over the last few days. Kravetz says that HASI...
Provides and arranges secured and generally senior debt and equity financing for sustainable infrastructure projects (e.g., clean energy generation and energy efficiency). Established as a REIT pre-IPO, this 32 year-old firm is headed by veteran management team. We see them ramping to a $1.17 annualized dividend early in 2014, nearly a 10% dividend at today's stock price. At a peer multiple, the stock should command a price of at least $17, implying at least 40% upside.
Will Kravetz have the top pick in 2014 as well as this year? It's quite possible, but I hope it's not with Hannon Armstrong. Although I personally own all three of these stocks, it's not because I expect 100%-plus gains, but because they have the potential for appreciation, but are much safer than the growth stocks which dominate the available green investments.
If any of these three picks is the top pick for 2014, it will be because other green stocks will have had a terrible year, and these advanced in a flight to safety.
Broad market valuations are high, so there is a real risk of a broad market decline in 2014, and this would probably affect green stocks as well. Even without a broad market decline, it would be unreasonable to expect another spectacular year like 2013 for green stocks. Nevertheless, there are still a large number of green stocks that did not participate in this year's rally and remain great values.
My panel of managers have picked 15 of their favorites. You can read about the other twelve in my next few articles.
This article was first published on the author's Forbes.com blog, Green Stocks on December 17. The article also was published on AltEnergyStocks.com as The Pros Pick Three Green Income Stocks For 2014.
Disclosure: I am long ACCEL, SBS and HASI.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.