Take the Guggenheim Solar ETF (TAN) for comparison purposes, add the Energy Select Sector SPDR ETF (XLE) on a 3- to 6-month chart. What do you see? I see an evident parallelism between the two ETFs until September, but in the last three months that correlation turned into a divergence, as the solar stocks slowly deviated from the energy sector.
This was largely due to a softer demand in Europe, decreased lending and government subsidies in PIIGS, mixed with a fierce competition from China that severely lowered solar panel costs. While this is changing the playing field for smaller names as the pricing power is diminished, aggressive competition is, in fact, what the commercial consumers have been awaiting. Investors are anxious for solar prices to bottom and more struggling companies to go bankrupt or be acquired.
In my humble opinion, it still makes sense to diversify within the energy sector by picking up shares in the alternative energy industries, but not necessarily solar stocks. I would like to turn your attention to other names in the alternative energy window that are generating revenues from a range of products and services that have nothing to do with solar wafers: animal by-product recycling, wind turbine towers, LNG station equipments, nuclear fuel and decontamination services, low uranium enrichment for power plants, etc. Here are stocks that are staying on my “greener planet” watch list category for the upcoming year.
A number of investors will probably close this article once they read the word “ethanol,” but Green Plains Renewable Energy, Inc. (GPRE) is one of few ethanol companies that beat last quarter's earnings results -- and by 39.1%. The company’s P/E ratio is below the chemical manufacturing industry average, and in the past year, earnings growth has outpaced its historical five year growth rate.
Company constructs and operates dry mill, fuel-grade ethanol production facilities. Its three segments include: production of ethanol and related by-products, grain warehousing and marketing, as well as sales of agronomy and petroleum products. In 2009, company acquired membership interests in two companies that owned ethanol plants in Central City and Ord, Nebraska. At the time, ethanol blends accounted for approximately 7.7% of the U.S. gasoline supply. In addition, company acquired Global Ethanol, LLC in 2010.
Energy Solutions Inc. (ES) is trading at $3.69, way below its fair value calculation of $4.80 with a trailing twelve month P/E of 28.4. On Nov. 8, this $321 million diversified energy company reported Q3 losses of $0.04 per share, which was 82% better than last year’s Q3 results. The stock has plummeted since August’s high of $5.25, and has been gaining momentum since the earnings release.
Energy Solutions provides a range of nuclear services to government and commercial customers. It services includes engineering, in-plant support services, spent nuclear fuel management, decontamination and decommissioning, operation of nuclear reactors, logistics, transportation, processing and low-level radioactive waste disposal.
Another interesting business is Darling International Inc. (DAR), a provider of cooking oil and bakery waste recycling, as well as recovery solutions, to the food industry. It collects and recycles animal by-products, bakery waste, used cooking oil from meat processors, bakeries, butcher shops and provides grease trap cleaning services.
The stock had a 5 year EPS growth rate of 34.83%, currently trading with a P/E of 11.7 and a forward P/E of 8.1. DAR’s ratio is below the food processing industry average, and signals that investors are not willing to pay a premium. The stock seems to have found support near $13.00, despite the fact that this year's earnings growth has lagged its historical five year growth rate.
This next stock is for all the bottom-feeders out there that are looking to make a quick buck in a turn-around story. USEC Inc’s. (USU) losses have narrowed as the company reported a loss of only $0.06 vs. $0.08 analyst consensus. This is a significant improvement from the Q2’s loss of $0.18. This high-beta stock is very speculative and doesn’t show earnings history nor growth trends, so please tread carefully.
USEC Inc. is a supplier of low enriched uranium for commercial nuclear power plants. The company operates in two segments: the low enriched uranium segment with two components, separative work units and uranium, and the contract services segment. It supplies LEU to both domestic and international utilities for use in about 150 nuclear reactors worldwide. The company is deploying advanced uranium enrichment technology, known as the American Centrifuge.
Trinity Industries Inc. (TRN) is a much better bet with a larger market cap of $2.4 billion. Part of its business is to manufacture and sell inland barges, structural wind towers, highway products, tank containers, and a variety of steel components. Its main business, however, is to manufacture and sell or lease railcars to construction, energy and transportation industries.
Investors are willing to pay a premium for this stock as it reported in-line earnings results in the last two quarters, which represented roughly a 45% increase from its last year’s results. The company’s P/E ratio is above the average of the construction/raw materials industry, and its earnings growth has outpaced its historical five year’s growth rate. Its 2012 operating EPS expectations are $2.23 vs. the 2011 EPS of $1.50. In addition, stock pays a nice dividend of 1.27% and still trades below its target price of $33.
Calgon Carbon Corporation (CCC) is a provider of products, services, and solutions for purifying water and air. The company’s equipment segment provides solutions to customers' air and water purification problems through the design, fabrication, installation, and sale of its equipment systems that utilize a combination of the company's enabling technologies: carbon adsorption, ultraviolet light, Ballast Water Treatment, and advanced ion exchange separation.
The company’s earnings not only outpaced its historical five year growth rate, but it also holds the highest PE ratio of any stock in the chemical manufacturing industry. Stock trades with a forward P/E of 16.5 and a PEG ratio of 1.2. CCC doesn’t pay any dividends, but it has managed to growth its EPS by 26% in the past five years.
We can’t leave out the photovoltaic industry leader First Solar, Inc. (FSLR), which manufactures and sells solar modules with an advanced thin-film semiconductor technology. Its components segment is its principal business and involves the design, manufacture, and sale of solar modules, which convert sunlight into electricity.
If Richard Keiser is right on the significant acceleration of PV installations in US over the next five years, then this stock could bounce fairly quickly, after losing 75% of its value in the course of this year. FSLR does not pay any dividends and currently trades with a PEG ratio of 0.37 with a Price-to-Book of 0.95. Trading 3.67% above its 52 week low with a forward P/E of 5.80 and a trailing P/E of 7.25, the stock seems undervalued at these levels.
Barclays Capital initiated a Equal Weight rating on the stock with a $52 target price on November 11. In January 2010 First Solar completed the acquisition of certain assets from Edison Mission Group's solar project development pipeline, consisting of utility-scale solar projects located primarily on private land in California and the Southwestern United States.
Entergy Corporation (ETR) has made my “green list” due to its wholesale commodities segment owning and operating six nuclear power plants in the northern United States. This $12.2 billion company also provides services to other nuclear power plant owners. Its plants have approximately 30,000 MW of aggregate electric capacity and deliver electricity to 2.7 million residential, commercial, and industrial customers.
Company pays a hefty dividend of 4.79%, trades with a forward P/E of 11.56 and a trailing P/E of 8.74. Being a utility company, a five year EPS growth of only 8.64% is average. On August, the stock has reversed from its downtrend and overtime managed to break the resistance of its 50 and 200 day moving averages with an increased volume. ETR is fairly valued near the $70 range per UBS estimates.
Nancy Pelosi's favored company Clean Energy Fuels Corp. (CLNE) has made notable moves recently as the NATGAS Act that was introduced to the Senate shed some optimism over the company’s gloomy earnings miss. The purpose for the New Alternative Transportation to Give American Solutions Act is what Boone Pickens aimed for all his life: to have the trucking industry switch from diesel to natural gas utilization.
CLNE has a target price of $15.67 and currently trades with a book value per share of $5.81. Clean Energy is a provider of natural gas as an alternative fuel for vehicle fleets. It designs, builds, finances and operates fueling stations and supplies the customers with compressed natural gas and liquefied natural gas. It also sells non-lubricated natural gas compressors and related equipment used in CNG/LNG stations and produces renewable biomethane. On December 15, 2010, it acquired Wyoming Northstar Inc., Southstar LLC, and M&S Rental LLC.
And last but not least I wanted to shed light on an unpopular company that trades with a relatively a low volume, US Ecology, Inc. (ECOL). Formerly American Ecology Corporation, it provides radioactive, hazardous, polychlorinated biphenyls and non-hazardous industrial waste management and recycling services to refineries and chemical production facilities. The company operates in two segments: Operating Disposal Facilities and Non-Operating Disposal Facilities.
Although trading with a volume of mere 30,000 shares, the stock pays a dividend of 4.72% and boasts a trailing ROE of 17.19%. On November 1, company reported Q3 earnings of $0.33 that beat the analyst consensus of $0.28, and beat last year’s results by 50%. One item to watch for is that US Ecology’s past year earnings growth has lagged its historical five year growth rate. Analysts expect an EPS growth of 17.89% at $1.12 for the year of 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.