Seeking Alpha

Harris Roen's  Instablog

Harris Roen
Send Message
Harris Roen is a financial writer with a passion for understanding the economic activity of our interconnected world. His previous experience of over 15 years as a professional portfolio manager helps him ground-truth the hype through independent research and analysis, providing valuable... More
My company:
Swiftwood Press LLC
My blog:
Roen Financial Report
View Harris Roen's Instablogs on:
  • Snowballing Returns For Alternative Energy Portfolio

    Investors who bought alternative energy stocks have been nicely rewarded over the past year. Since its inception in January 2013, The Roen Financial Report Paradigm Portfolio has posted extremely robust returns, up 47% after accounting for additions, removals, and rebalancing*.

    (click to enlarge)

    This portfolio contains a carefully filtered list of about 40 alternative energy stocks. These investments are hand-picked from a universe of +/- 250 publically traded companies in energy efficiency, environmental, fuel alternatives, smart grid, solar and wind.

    Returns

    The lift in alternative energy stocks has been broad, with 87% in the Paradigm Portfolio showing gains. More impressively, fully three-quarters of companies are up double digits or greater. In fact, the top ten gainers are up an average of 98%! SolarCity (SCTY) has the greatest gains by a long shot, up 314% after rebalancing.

    (click to enlarge)

    The bottom performing stock is the waste-to-energy company Covanta Holding Corp (CVA). There was a large price drop for Covanta back in October 2013 due to lowered cooperate guidance. Even though Covanta has had flat sales and a dip in earnings, long-term we believe this company's investment story is still intact.

    Portfolio Update

    There are no additions or removals from the Paradigm Portfolio this month. We are monitoring a few companies for removal, including CLARCOR, Inc. (CLC). If fair value calculation for this environmental stock becomes less favorable, it will be considered for removal.

    Alternative Energy Investment Outlook

    We still have an overall bullish posture on alternative energy stocks in the medium to long term. There are several positive tailwinds on the sector, one of which is decreasing overall deployment costs for renewables. This is especially true when the cost of developing renewable sources is compared to that of conventional power plants. Also, there are large investments being made in upgrading and modernizing the electric grid, which will greatly benefit distributed energy sources such as wind and solar. This smart grid investment will also benefit companies in the energy efficiency products and services business.

    The biggest tailwind on the sector has been the low price of natural gas, since natural gas is the largest competing fuel source for electric generation. While there has been a spike in natural gas prices as of late, we believe prices of this domestically abundant fuel source will remain relatively low several years out. Though that is good news in terms of carbon emissions, since natural gas is far less polluting than coal or oil, it puts competitive challenges on renewables. Still, on balance alternative energy stocks are likely riding a long-term trend that is here to stay.


    *Hypothetical gain from portfolio recommendations. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on this list. For an explanation of how hypothetical returns are calculated, please see the Returns section under How Investments are Picked in the Roen Financial Report User Guide.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 15 2:59 PM | Link | Comment!
  • Green Dividend Yield Portfolio

    There is a new and growing interest in the world of alternative energy investing, the search for high-quality dividend yield among green investments. To this end, the Roen Financial Report has created a Green Dividend Yield Portfolio, a select group of high-yield alternative energy stocks. Together, this selection of companies can produce a steady stream of income for the alternative energy investor.

    A New Source for Dividend Yield

    (click to enlarge)

    The Green Dividend Yield Portfolio is a collection of high-yield stocks that are in the alternative energy business. Companies that fall in the "sweet-spot" of dividend yield are included, which I consider to be between 3.5% and 7.0% yield. Anything lower and the yield is not meaningful enough to be of interest, anything higher and the risks are just too great. By having a range of yields from a variety of alternative energy stocks in this sweet spot, a significant yield can be achieved with reduced risk to stock price fluctuation. Subscribers to the Roen Financial Report get access to a list of all companies in the Green Dividend Yield Portfolio along with their ranks, dividend quality rating, exclusive company reports and monthly updates.

    The 15 companies currently in the Green Dividend Yield Portfolio have yields ranging from 3.5% to 6.2%. The average yield of the Green Dividend Yield Portfolio is 4.4%, which is a better than going all the way out to the 30 year U.S.Treaury. Even for lower investment grade corporate bonds (A rated), an investor would need to go to 10 years to get an equivalent yield.

    Ranked Dividend Yield Stocks

    Alternative energy companies in the Green Dividend Yield Portfolio are evaluated on many criteria important in determining the quality of dividend yield that a company puts out. These include dividend growth, earnings per share, free cash flow, return on equity and yield to debt risk. Companies are then compared to each other and given a dividend quality rank of 1 to 5, with 1 being the highest. This ranking gives dividend yield investors a simple yet powerful way to gauge the likelihood that a stock will be able to offer consistent or growing yields into the future.

    Dividend Yield Quality

    (click to enlarge)

    An example of how the concept of yield quality applies is clearly shown in the chart at right. The graph shows the correlation between the quality of yield, as determined by the Roen Financial Report, to the amount of dividend yield that a company is able to pay out. The theory is that the more risk the investor is willing to take on, the higher yield a company is willing to pay.

    The top 25 yielding alternative energy companies that the Roen Financial Report tracks are shown in the graph. Stocks determined to have higher quality yield are on the left, and those with lower quality yield are on the right. Though it is not a perfect fit, the stocks do graph along a clear trend line. A statistical way to determine the validity of a trend line is to look at its R2 value. This trend line has an R2 value of 0.4, which implies a significant correlation.

    For many investors, owning a diversified basket of high-yield stocks is a very good strategy as part of a well-balanced portfolio. As a word of caution, though, there are dangers to weighting a portfolio too heavily in high dividend yield stocks. This is especially true in a rising interest rate environment, so be aware of the risks. Having said that, owning a collection of these high-yield alternative energy stocks can be a very attractive way to add income to a green investor's portfolio.

    Disclosure: I am long PW.

    Feb 27 1:08 PM | Link | Comment!
  • Strong Returns For Alternative Energy Portfolio

    (click to enlarge)

    The Paradigm Portfolio is a carefully filtered list of alternative energy stocks chosen by the Roen Financial Report. This hand-picked collection of about 40 alternative energy companies has had extremely robust returns, up 37% since inception after accounting for additions, removals, and rebalancing*.

    Returns

    Of the companies currently in the portfolio, all but one are up since the portfolio was started in January 2013. 33 out of the 37 stocks, or 89%, are up in the double digits. The top ten gainers are up an average of 54%, with SolarCity (SCTY) having by far the greatest returns. Even the bottom 10 are up over 10%. The one company with a loss, Renewable Energy Group Inc (REGI), is a biodiesel company, an industry that may be facing hard times ahead.

    (click to enlarge)

    Portfolio Update

    One company is being added to the Paradigm Portfolio, the container and packaging company Rock-Tenn Company (RKT). This Georgia-based manufacturer has over 25,000 employees and processes about 8 million tons of recycled material annually, making it one of the world's largest recyclers. RKT is a profitable company with nicely growing sales, currently over $9 billion annually. This is more than triple revenues generated in 2010. Our positive conviction on Rock-Tenn is bolstered by a very positive earnings report released Tuesday. Even though the stock price jumped about 6% in one day on the report, we still believe that RKT is trading at below fair value. In short, we see low-risk upside potential from here.

    Portfolio Developments

    (click to enlarge)

    Looking back to the last portfolio update, we announced that The Andersons, Inc. (ANDE) was being removed from the Paradigm Portfolio after gaining 58%. ANDE was removed because it was considered overvalued, and we thought it prudent to take profits in the biofuel industry. The removal was a good decision, as the stock has dropped 9% since that time. Looking ahead, we have placed CLARCOR, Inc. (CLC) on a watch list for removal from the portfolio. It has not measured well under our stock screens, and is considered overvalued. CLARCOR will be monitored closely over the next few months.


    *Hypothetical gain from portfolio recommendations. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on this list. For an explanation of how hypothetical returns are calculated, please see the Roen Financial Report User Guide.

    Jan 30 1:45 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.