Do you think the clean energy industry will see big growth in the future as oil's dominance wanes? For a closer look at clean energy stocks, we ran a screen.
We compiled a universe of clean energy stocks, or companies that use or produce sources of clean energy. We then ran DuPont analysis of return on equity (ROE) profitability to find those with strong sources of profitability.
DuPont analyzes return on equity (net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage. The companies listed below have all three positive attributes found from DuPont.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these companies will continue to see healthy increases in profitability? Use this list as a starting point for your own analysis.
1. Covanta Holding Corporation (CVA): Provides waste and energy services in the Americas, Europe, and Asia. MRQ net profit margin at 6.05% vs. 5.49% y/y. MRQ sales/assets at 0.098 vs. 0.09 y/y. MRQ assets/equity at 4.049 vs. 4.147 y/y.
2. US Ecology, Inc. (ECOL): Provides waste treatment, disposal, recycling, and transportation services to commercial and government entities in the United States. MRQ net profit margin at 16.12% vs. 11.47% y/y. MRQ sales/assets at 0.205 vs. 0.182 y/y. MRQ assets/equity at 2.023 vs. 2.295 y/y.
3. Nalco Holding Co. (NLC): Engages in the manufacture and sale of specialized service chemical programs worldwide. MRQ net profit margin at 6.13% vs. 5.41% y/y. MRQ sales/assets at 0.233 vs. 0.207 y/y. MRQ assets/equity at 5.908 vs. 8.367 y/y.
4. Oil-Dri Corp. of America (ODC): Engages in the development, manufacture, and marketing of sorbent products in the United States and internationally. MRQ net profit margin at 5.38% vs. 3.11% y/y. MRQ sales/assets at 0.346 vs. 0.332 y/y. MRQ assets/equity at 1.782 vs. 1.873 y/y.
5. Questcor Pharmaceuticals, Inc. (QCOR): Provides prescription drugs for central nervous system and inflammatory disorders. MRQ net profit margin at 41.89% vs. 21.91% y/y. MRQ sales/assets at 0.274 vs. 0.193 y/y. MRQ assets/equity at 1.255 vs. 1.265 y/y.
*Accounting data sourced from Google Finance, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.