Harris Roen's  Instablog

Performance for MF's have been outstanding, following a surge in solar stocks, energy efficiency companies, and other alternative energy sectors. Over the past 12-months the average alternative energy MF returned 30.3%, and not a single fund was down for the year. Three-month and one-month returns were similarly spectacular, gaining 10.5% and 7.3% respectively on average, also with no losers.

I expect this trend to continue, as many of these alternative energy sectors are bouncing back from the overly pessimistic levels of 2012.

Returns for ETFs have been more variable, ranging from a gain of 68.3% in one year for First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN), to a loss of 52% for iPath Global Carbon ETN (GRN). This loss for GRN is not surprising, since it is pegged to Barclays Capital Global Carbon Index. This index is trading at 10% of what it was five years ago.

On average, alternative energy ETFs have had respectful gains for the past one-month, three-months and 12-months. As with MFs, these gains reflect the solid returns and improving prospects seen in several of the alternative energy sectors.

The Roen Financial Report closely covers the universe of almost 30 alternative energy Mutual Funds (MFs) and Exchange Traded Funds (ETFs). We use a proprietary ranking method to pick the best funds, looking at measures that include fees, risk, tax liability, and the financial health of individual holdings within each fund. To download your complimentary sample MF and ETF report, including rankings and technical breakdowns in both Excel and PDF format, please go to www.roenreport.com/mfsetfs/ .

SolarCity (SCTY) has been one of the hottest alternative energy stocks since its Initial Public Offering five short months ago. Yesterday it shot up 24% in one day, on the largest one-day volume since it opened, in anticipation of its quarterly earnings release. It is up 95% in the past three months, and has more than tripled from its initial trading price. As of this writing SCTY has given back about a third of yesterday's stratospheric gains.

Now that earnings have been released, let's take a grounded-in-reality look at this innovative solar company.

(click to enlarge)

SolarCity's earnings results were mixed, showing steady revenues, but also a net loss for the first quarter of 2013 (chart above). It's disconcerting that net income has been negative for the past four quarters, and on a per share basis, the most recent losses were 28% greater than analyst expectations. Revenues, on the other hand, came in ahead of analyst estimates, but just barely.

If SolarCity is to make it as a company, it needs to successfully implement a business plan that grows its customer base in a big way. It therefore makes sense to look at data relating to its clients. The chart below shows data for each of the past four years, and compares it to the most recent quarter.

(click to enlarge)

Customer growth remains robust for the first quarter of 2013. 2012 was off the charts, with SolarCity adding on 30,950 new clients. The first three months of 2013 added close to a quarter of that number, which is good news for FY 2013 projections.

Total revenue per customer is declining steadily, but that is to be expected as the number of customers dramatically increases. What is occurring though (and what we want to see) is that the net loss per customer is steadily decreasing. It has changed from a low of around $5,000 in 2010 and 2011, to about $500 in the most recent quarter. If SolarCity can keep that trend going then the company will soon be in the black again. Another important metric is the acquisition cost per customer, which has remained steady at 2012 levels.

(click to enlarge)

I also find it encouraging that SolarCity's debt levels remain reasonable, just about the same as 2012 levels. It is important to understand that in many ways SolarCity is a financial company, crafting and offering creative finance options to allow clients to get solar done with minimal up-front costs. As with other financial firms, debt is a big part of SolarCity's business, so it must be analyzed under that spotlight.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company are very compelling. For example, SolarCity recently announced its biggest project to date-a 24 megawatt, 6,500 Homes in Project at Navy and Marine Bases in Hawaii. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded in the long term.

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

A solar stock and an environmental company have been added to the Roen Financial Report Paradigm Portfolio this month. One recycling company is being removed.

SunPower Corporation (SPWR) is being added as a result of its strong price momentum and upwards earnings estimate revisions. SPWR is a vertically integrated California-based solar company involved in the manufacture, installation and service of photovoltaics. Its stock has more than tripled in price on large volume since its December lows, up 260%! Sales have been strong, and the stock price is still below levels of around two years ago. We still see upside potential from here. It should be noted, however, that the Roen Financial Report considers SPWR a speculative investment since it has high volatility, and is still in negative earnings territory.

(click to enlarge)

CLARCOR Inc. (CLC) provides air and water filtration products worldwide. This sizeable company has over $1 billion in sales, and over 5,000 employees. It has high quality financials with growing dividends, steady earnings and low debt. CLC is being added this month because it is reasonably priced, trading in the mid-range of what the Roen Financial Report calculates to be fair value.

(click to enlarge)

Kadant Inc. (KAI), a small cap company that supplies equipment for the papermaking and paper recycling industries, is being dropped from the Paradigm Portfolio this month. We still consider this a high-quality company, but it looks overpriced at these levels. We will continue to track KAI for reentry into the portfolio if its price becomes more attractive.

The objective of the Paradigm Portfolio is to pick the highest quality companies that are considered best positioned to benefit from the economic paradigm shift away from foreign oil and polluting coal and towards cleaner energy alternatives. These are leadership companies that play an important role in redefining our energy future.

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