Being green is not all about wind turbines and solar panels. In fact, it's usually greener to be smarter about using what we have than to replace it with something new, no matter how green. My panel of professional green money managers understands this. When I asked them each for their top three green stock picks for 2014, there were as many picks focused on smarter resource use as there were solar stocks.
I recently gave you their three green income stocks here, and I'll write about their three solar picks in a future article. Here are three companies that help us use resources more efficiently by applying information technology to better target the resources we have already.
Garvin Jabusch of Green Alpha Advisors
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Shelton Green Alpha Fund (NEXTX), and the Sierra Club Green Alpha Portfolio. His "smart" pick for 2014 is Digi International (NASD:DGII).
Digi is an interesting firm in the machine-to-machine (M2M) Internet space, and, as a smaller firm at only $300 million in market cap, I feel like it's a little below the mainstream radar, and has yet to have its growth prospects (including takeover potential) be fully appreciated. The growth potential of M2M communications itself is appreciated though, with estimates that up to seven billion devices will be connected to the Internet by the end of next year, and that this "Internet of things" has realistic potential to transform most economic sectors by adding real-time efficiencies to almost any operation. In this sense, that we as a society can thus squeeze ever more economic output out of fewer economic inputs, M2M technology is also a key, innovative, driver of sustainability. M2M is beginning to bring efficiency gains to dozens of applications including connected cars, smart energy metering, building automation and smart cities, microgrid infrastructure, energy transmission efficiency, security, traffic management, inventory management, food production and many more. Looking forward, additional applications of M2M technology may encompass nearly every aspect of a modern economy. That macroeconomic picture is compelling.
Almost limitless applications means great growth potential. We've been aware of the potential of M2M for a while now, but this is the first year we've become confident enough to start expecting more robust growth as the underlying technology becomes more mainstream and ultimately indispensable. The two main drivers are the rise of cloud computing and the gains in both coverage and speed of the mobile internet, both cell network and satellite enabled.
On the value side, DGII is trading at slightly under three times cash and at (or just below) its book value. With no debt and EPS positive and guided to grow 61% in 2014 and 36% in 2015, DGII looks like a good intersection of growth and value.
Rafael Coven of The Cleantech Group
Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE: PZD). Coven picked two companies that use information technology to make our economy smarter and more efficient, but he did not have much to say about them. He told me that he had to be careful about what he says in the lead up to rebalancing the Cleantech Index on December 24th.
MiX describes itself as "a leading global provider of fleet and mobile asset management solutions delivered as software as a service to customers in 112 countries. The company's products and services provide enterprise fleets, small fleets and consumers with solutions for safety, efficiency and security." The company is green in that the information collected from vehicles helps drivers reduce fuel use, as well as increasing safety. While it's obviously green to save fuel, avoiding traffic accidents may be even greener, since the damage requires resources which we'd rather use elsewhere.
Trimble describes itself as "a leading provider of advanced location-based solutions that maximize productivity and enhance profitability. The Company integrates its positioning expertise in GPS, laser, optical and inertial technologies with application software, wireless communications, and services to provide complete commercial solutions." Trimble serves agriculture, engineering and construction, transportation, and wireless communication industries. By using location based technologies, all of these industries (and many others) can deliver material more precisely, reducing both waste and mistakes. Trimble just announced the acquisition of a private agricultural information firm C3, which will allow the company to integrate more detailed and precise soil data into the solutions it provides to farmers and related industries.
Of all the picks I got from my panel, these three are the ones I'm most interested in adding to my own portfolio. Reducing waste has long been a central theme of my own green stock portfolios, and these companies seem to be trading at fairly reasonable multiples of earnings.
Don't be surprised if one or two appear in my own annual list of ten picks for 2014.
Disclosure: No positions
Disclaimer: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.