State of the Union Address: Sectors and Stocks To Watch

So it came and went, the much anticipated State of the Union Address. While the pundits will inevitably focus the bulk of their attention and commentary on the Iraq question, there were undoubtedly some very interesting nuggets of alternative energy info in that speech.

Above all, one crucial variable has changed from a year ago: Congress is now controlled by the Democrats and already the slew of alt. energy and climate change proposals brought forth by various senators leads one to believe that, as far as the federal government is concerned, '07 should see more than just hot air on the alt. energy and clean tech fronts.

Sectors Of Focus

OK, so let's dive right into it (see a complete list of 2007 State of the Union Policy Initiatives here):

Automotive and Fuels

By far, this is the category that got the most attention and the clearest targets.
Key points are:

- Cut down gasoline consumption by 20% by 2017;

- A mandatory Fuels Standard requiring 35 billion gallons of renewable and alternative fuels by 2017 (read: mostly corn-based ethanol for now with coal-to-liquids starting in the latter half of 2010 and cellulosic ethanol in about 2012);

- Tougher fuel economy standards via a "modernization" of CAFE standards

- Research into battery technology for hybrid cars and plug-in hybrids (this is worth noting)

- Focus on cellulosic ethanol (not entirely unexpected but noteworthy nonetheless)

- Doubling the current capacity of the Strategic Petroleum Reserve (SPR) to 1.5 billion barrels by 2027 (hhmmmm...indirectly constraining oil supply in light of the forecasted supply-demand environment of the next two decades...that can only mean good things for alt energy!)

Electricity Generation

- More solar and wind (yyaaaawwwnnnnn...)

- Clean coal technology - at least another few years away, but worth trying to spot early movers on the technology development side (rather than on the utility side)

- A renewed focus on nuclear power (this is interesting and something several people have been pushing for - one the best ways to play this from a growth angle is via exposure to uranium miners and exploration companies, but that is for another blog)

Climate Change

- First time, as far as I can tell, that this administration was so emphatic about the need to combat climate change

- The President's strategy "will help confront climate change by stopping the projected growth of carbon dioxide emissions from cars, light trucks, and SUVs within 10 years (read: Bush agreed to saying "climate" and "change" together in the same sentence as a gesture of good will but he is nowhere near ready for federally-mandated greenhouse gas caps and carbon trading, so you can probably forget '07...but I wouldn't exclude '08)

Stocks To Watch

Here are a few stocks to watch over the near and medium terms. Admittedly, this is not an exhaustive list and I would welcome suggestions from our readers, especially with regards to battery makers.

Fuel Economy

Toyota Motors (TM)
Honda Motor Co. (HMC)
Borg Warner Inc (BWA)
Magna Int'l (MGA)
Raser Tech (RZ)

Ethanol

Himanshu Pandya beat me to it with a nice and comprehensive post. If you want to make a quick momentum buck, you should be in for a fun ride over the next few days. Beware the hangover!!

Coal-to-Liquids

Rentech (RTK)
Syntroleum Corp (SYNM)
Headwaters Inc. (HW)
Sasol (SSL)

Batteries for Hybrid and Plug-in Hybrids

Altair Nanotech (ALTI)
Maxwell Tech (MXWL)
Energy Conversion Devices (via its Cobasys unit) (ENER)

No public company with exposure to cellulosic ethanol to speak of...yet

To Conclude This Evening's Broadcast...

No, I did not include every single alt. energy company listed on U.S. stock markets, and that is because this speech was very light on details for most alt. energy areas except transportation. Transportation is the only category about which we heard some new and substantive things tonight. Nevertheless, I'm curious to see how the solar sector will do tomorrow. Something tells me we might be in for some interesting action.

Independently of this Address, there is some movement on a number of fronts that will be beneficial to various alt. energy sectors, but those initiatives have to be examined independently. Keep checking in for an upcoming review of all of the federal proposals currently on the table.

Disclosure: Author has no position in above-mentioned companies, but has exposure to the solar and uranium mining sectors.

Comments

[Greg Calder...:]

TM is number 1 on Cramer's foreign legion. He has been a fan of this stock since nov 06, when he called it one of five stocks everyone should own. You can hear his speech at cramersez.com or thestreet.com. Both have his speech.

2007 Jan 26 04:14 AM

[Doctor Alpha:]

Alternative Green Energy is the Future. Rentech (RTK) Significant Announcement on the Horizon

Company: Rentech

Ticker: RTK

Company Snapshot: Rentech is composed of two business segments each focusing on a major global issue, alternative green energy and fertilizer production. Rentech’s alternative energy segment is one of the world's leading synthetic fuels technology and development companies. Over the last twenty-five years, Rentech has developed and patented the Rentech Process, an advanced version of the well-established Fischer-Tropsch process. The Rentech Process can convert a wide array of carbon-bearing materials, including green resources such as biomass and municipal solid waste, into ultra clean fuels and chemicals ranging from jet fuel to diesel gasoline. Rentech’s objective is to help the world reduce its dependency on oil and lower emissions, including greenhouse gases. Rentech’s second business segment is their fertilizer plant Rentech Energy Midwest Corp. -REMC-, located in East Dubuque, IL. REMC is one of the country’s largest nitrogen manufacturers producing nitrogen-based fertilizer products and industrial nitrogen products.

Recommendation: Buy

Recommendation Date: Friday, November 21, 2008 at .50 cents per share

Recommendation Results:
** 11/21/2008: UP 8.00%
** 11/24/2008: UP 12.96%
** 11/25/2008: DOWN -1.72%
** 11/26/2008: UP 3.42%
*** Since Date of Recommendation: UP 24.00%

______________________...
On Friday, November 21, 2008 we recommended Rentech (Ticker: RTK) with a buy rating at .50 cents a shares. Since then a few positive and significant developments have taken place.

* November 22, 2008 Indiana and Illinois announce they are pursuing major clean coal power projects. Illinois Attorney General Lisa Madigan has announced a measure that will create 2 clean coal projects including a $2.5-billion plant near Taylorville, Illinois. That plant comes in the wake of another $2 billion coal gasification project in southern Indiana.
www.wthitv.com/dpp/new...

* November 22, 2008 Baard Energy has received its final air permits from the Ohio EPA which in turn allows them to build a coal to liquid plant in Wellsville along the Ohio River. One of the first of its kind. The permit is the third and final state environmental permit necessary for Baard Energy to proceed into final design and construction of the 53,000 barrel-per-day coal/biomass to liquids plant at the Columbiana County Port Authority site in Wellsville. Baard has yet to release who will supply their Fischer-Tropsch technology.
www.reviewonline.com/p...

* November 22, 2008 President-elect Barack Obama reaffirmed his support for alternative energy. This includes Rentech’s Fischer-Tropsch technology that converts biomass, natural gas, and coal into liquid fuels ranging from jet fuel to diesel gasoline.
news.yahoo.com/s/ap/20...;_ylt=Anucx2RdHWzyzTRu...

* November 24, 2008 The US Air Force concluded analysis of the effects of using a natural gas-based synthetic fuel with its Lockheed Martin F-22, as work to trial the technology accelerates through its trainer, transport and fighter fleets. The office of the assistant secretary of the air force for installations, environment and logistics is expected to select a private partner during December to develop a Fischer-Tropsch production facility at Malmstrom AFB, Montana.
www.flightglobal.com/a...

______________________...
As of Friday, November 21, 2008 for an Aggressive short-term trade we like Rentech at these current levels. Rentech will release fiscal year 2008 financial statements December 16, 2008. Rumor has it these numbers will be very positive.

Rentech’s stock price has been down significantly along with everyone else:
15 days down –43%
45 days down –62%
65 days down –79%

The last time Rentech hit .46 cents a share was October 27, 2008 and the stock proceeded to rally .43 cents to .87 cents a share. An 89 percent increase in 7 days. Since March of this year a 40 to 80 percent fluctuation in price has been common and we look for this level of volatility to continue. Rentech could easily exceed a $1.20 per share before year-end based on a number of reasons.

Rentech’s management is currently in a pickle. The stock has dropped significantly and the officers of the company need results ASAP if they want to be able to justify their year-end bonuses. In addition, all stock options are underwater including those belonging to the board of directors. As we have seen in the past, Rentech actively manages their stock price by issuing press reports before releasing their latest financial numbers. Only to be followed with additional press releases over the coming weeks in an attempt to influence the stock price. One news release could easily move Rentech’s stock price .50 to .60 cents like it has done so many times in the past. Two or more press releases could be very significant.

Press releases for Rentech's alternative energy segment could focus on:
* Technology licensing partnerships = Revenue increase
* Revenue and cost sharing relationships = Revenue increase and cost decrease
* New business strategies and directions = Shareholder assurance
* New product sales revenue generated by their Product Demonstration Unit -PDU- leading the way to future business opportunities as companies discover value in Rentech’s numerous gas to liquid products = Revenue increase and shareholder assurance
* Continued process improvements at their Product Demonstration Unit -PDU- facility in Commerce City, CO = Shareholder assurance

Rentech’s fertilizer plant, Rentech Energy Midwest Corporation -REMC- located in Dubuque IL, is an extremely valuable asset that generates a tremendous amount of cash. The value of this plant alone creates a support at current levels helping to reduce downside risk. Rentech currently has 166 million shares outstanding and their fertilizer plant alone is valued between 120-210 million. A quick back of the envelope calculation, 122/166 and 210/166, suggests a stock price between .73 to $1.27.

Rentech recently reaffirmed EBITDA guidance for their fertilizer plant and there’s a good chance Rentech will post a net income, something they haven’t done in years. Moving from a net loss to a net income would be a significant event and I think the street HAS NOT priced this into the stock. Last quarter Rentech successfully completed their Product Demonstration Unit -PDU- that converts natural gas into various petroleum based products like jet fuel and diesel gasoline. The completion of the PDU means a reduction in expenses. Combine reduced expenses with record fertilizer sales revenue, coming from greater demand for corn that is used in the production of ethanol based fuels, could translate to a positive earnings per share. Management needs a homerun if they want to justify year-end bonuses; there’s an incentive for them to be aggressive. Shareholders are less likely to be pissed off when they hear about seven figure total compensation packages when the stock is trading at $3.15 versus .50 cents a share. Again, management has a strong incentive to move this stock and all stock options are currently underwater.

Press releases for Rentech's fertilizer segment could focus on:
* Record fertilizer sales revenue growth for fiscal year 2008
* Very favorable EBITDA guidance for 2009
* Favorable asset valuation discussion of their fertilizer plant

As reported at Mutual Fund Facts About Individual Stocks -MFFAIS- the overall number of institutional owners has recently increased 20 percent from 81 to its current level of 97. This is very positive.
Institutions adding to an already existing position include:
Goldman Sachs added 825,221 shares
Vanguard Group added 5,662,885 shares
Barclays Global Investors added 1,918,971 shares
Credit Suisse added shares
Putnam added shares
Oppenheimer added shares
Northern Trust added shares
Bank of New York Mellon added shares
Bank of America added shares
Wells Fargo added shares

There’s a large short position, I believe 8-9 million shares and it’s probably a safe assumption that these sellers are in the money since Rentech is currently near 52-week lows. If Rentech’s stock price does move quickly, press releases and an overall market rally, we could see short sellers add to the buying as they lock in profits. This 1-2 combo could move Rentech’s stock price in excess of .40 cents a share.

Because of a crisis in confidence the major indices, DJIA and S&P 500, have seen a record setting retreat in the last 30 days, especially in the last 7, and the market is due for a 1,200-point rally. This alone could move Rentech’s stock price .30 cents a share.

2008 Nov 28 02:24 AM