Any long-term investor knows that the success of achieving an alpha portfolio consists of bright portfolio diversification. One place where to look for growth potential over the next decades is the Green-Energy and Eco-Friendly Sectors.
We will focus today over the electric vehicles car manufacturers and their related electric car-charging infrastructure in the U.S. Over the last years, many of the global players' car manufacturers have started to focus a significant part of their R&D, production and distribution facilities to providing U.S. customers with electric vehicles.
The U.S. is hosting currently the largest fleet of plug-in electric vehicles in the world. Starting from 2010 through September 2012, more than 50,000 highway plug-in electric cars have been sold solely in the U.S. The sales leaders are Chevrolet Volt Plug-in Hybrid, followed by Nissan Leaf all-electric car and Toyota Prius Plug-in Hybrid. Among other plug-in electric motor vehicles available for sale in the U.S., one can include BMW ActiveE, Mitsubishi i, Wheego Whip, RAV4 EV, Smart ED, Coda Sedan, Ford Focus Electric, Tesla Model S, Fisker Karma, Honda Fit EV and so forth.
It should be noted a major plus of these Green-Energy and Eco-Friendly Sectors from the macro-economic perspective, since they are enjoying a strong Governmental endorsement in U.S. by way of several legislative initiatives. The Energy Improvement and Extension Act of 2008 and The American Clean Energy and Security Act of 2009, by which tax credits are granted for new qualified plug-in electric vehicles. The American Recovery and Reinvestment Act of 2009 had authorized, as well, federal tax credits for converted plug-ins cars.
Furthermore, the U.S. Government has pledged US$ 2.4 billion in federal grants meant to support the development of next-generation electric vehicles and batteries, and US$ 115 million dedicated for the installation of electric car charging infrastructure in 16 different U.S. metropolitan areas, aiming at bringing on the roads 1 million plug-in electric vehicles by 2015.
Consequently, this has lead to the development of downstream companies involved in setting up the electric car-charging infrastructure nationwide. Here, one can find quite a few micro-caps, small-caps and mid-caps NRG Energy, Inc. (NYSE:NRG), ECOTALITY INC (ECTY), Car Charging Group (OTCPK:CCGI) competing in a fast growing multi-billion market, challenging to establish extensive electric car-charging infrastructures around the country.
Each of them is coming with a different market approach: ECOtality is both a manufacturer and servicer of car charging machines; Energy is focusing on the deployment and commercialization of potential disruptive technologies like electric vehicles; while Car Charging Group provides electric charging services for the electric vehicle automobile market by delivering access for drivers to refuel their automobiles through installing electric charging services wherever their owners are likely to live, commute and shop.
ECOTALITY INC (ECTY) and Car Charging Group (OTCPK:CCGI) are both micro-caps with their share prices trading at about US$ 0.50 and US$ 1.50 respectively on light trading volumes. However, their growth potential, as long-term investment portfolio diversification candidates, is coming from their present undervalued stock prices. Taking into account the enormous potential of future development of electric cars coming into several millions pieces on the roads in the next decade, there is a significant potential for the development of related electric car-charging infrastructure nationwide. This will generate for these companies a consistent stream of cash-flows allowing them an organic growth over the next few years.
From the Fundamental Analysis perspective:
The Pros of Fundamental Analysis in the case of Energy, Inc. (NRG) are:
- LONG-TERM EPS GROWTH: EPS growth over a ten-years period is of 191.3% (Minimum EPS required is 30%)
- PRICE/BOOK RATIO: Price/Book ratio is 0.67, the P/E ratio is 0.00 (Price/Book multiplied by P/E cannot be greater than 22)
- PRICE/SALES RATIO: Price/Sales ratio is 0.57, based on trailing 12 month sales (Price/Sales ratio should be below 1.5 - it is a growth stock that is still cheap to buy)
- THREE YEAR AVERAGE NET PROFIT MARGIN: Three-year net profit margin averages to 6.03% (Minimum average net profit margin is 5% over a three-year period)
The Pros of Fundamental Analysis in the case of ECOTALITY INC (ECTY)
- LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: Long-term debt is $5.1 million, while net current assets are $5.8 million (Long-term debt must not exceed net current assets)
- PRICE/BOOK RATIO: Price/Book ratio is 0.55, P/E ratio is 0.00 (Price/Book multiplied by P/E cannot be greater than 22)
- QUARTERLY EPS CHANGE: EPS growth for this quarter relative to the same quarter a year earlier is 60% (Minimum is 18%, which means it is a good growth company)
- EARNINGS CONSISTENCY: Annual EPS before extraordinary items for the last 5 years were -7.40, -3.85, -8.16, -1.78, -1.20 (Each year's EPS numbers should be better than the previous year's)
- DECREASING LONG-TERM DEBT/EQUITY: Debt/Equity ratio is 0.25% (Debt/Equity ratio must be less than 2)
- PRICE/SALES RATIO: Price/Sales ratio is 0.25, based on trailing 12 month sales (Price/Sales ratio should be below 1.5 - it is a growth stock that is still cheap to buy)
- PRICE/BOOK (P/B) VALUE: P/B is currently 0.55 (P/B value of a company should be in the bottom 20% of the overall market)
- PRICE/SALES RATIO: P/S ratio is 0.25 based on trailing 12 month sales (Cyclical companies with Price/Sales ratios below or equal to 0.4 have significant growth values potential)
The Pros of Fundamental Analysis in the case of Car Charging Group (OTCPK:CCGI)
- CURRENT RATIO: Current ratio is 2.23 (Current ratio must be greater than or equal to 2)
- LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: Long-term debt is $0.1 million, while net current assets are $0.6 million (Long-term debt must not exceed net current assets)
- PRICE/BOOK RATIO: Price/Book ratio is 40.22, P/E ratio is 0.00 (Price/Book multiplied by P/E cannot be greater than 22)
- EARNINGS TREND: EPS for the past 2 quarters is -0.04, -0.02 (A company should present a rising trend in reported earnings for the most recent quarters)
- CURRENT RATIO: Current ratio is 2.23 (A candidate company must have a strong Current Ratio greater than or equal to the average of its industry or greater than 2)
- TOTAL DEBT/EQUITY: Total Debt/Equity is 3.82% (Company must have a low Debt/Equity ratio, which indicates a strong balance sheet, should not be greater than 20%)
- QUARTERLY EPS CHANGE: EPS growth for this quarter relative to the same quarter a year earlier is 33.33% (Minimum is 18%, which means it is a good growth company)
- LONG TERM DEBT/EQUITY RATIO: Trailing twelve-month Debt/Equity ratio is 3.10% (did not have a need to borrow money in order to grow, it has borrowed very little which is OK)
From the Technical Analysis perspective over the last 3 years:
From the Market Analysis perspective over the last 12 months, we would need to look at the Relative Strength ratios of each company compared to S&P 500 Index (NYSEARCA:SPY) along with their respective Relative Strength ratios compared to both markets sectors from which these companies are part of, namely, Consumer Discretionary Sector (NYSEARCA:XLY) and Consumer Staples Sector (NYSEARCA:XLP).
From the Inter-Company Analysis perspective over the last 12 months, we would need to take a look at the Relative Strength ratios of each company compared to the others.
Based on all these insights so far considered, it looks like the better candidates to consider for a portfolio diversification through Eco-Friendly corporations are Energy, Inc. (NRG) and Car Charging Group (OTCPK:CCGI).
However, there is a big difference among these two companies from market capitalization perspective: while Energy, Inc. (NRG) is a mid-cap corporation with a market capitalization of about US$ 4.9B and a share price trading at about US$ 21.50; Car Charging Group (OTCPK:CCGI) is a micro-cap corporation with a market capitalization of about US$ 63.4M and a share price trading at about US$ 1.50.
This leads us to some pros and cons when opting for the right candidate to invest in. If you prefer stronger companies, (less operational risks but capped growth perspectives), you should select Energy, Inc. (NRG) to invest in. On the other hand, if you are looking for a more bold approach (riskier micro-cap investments with an ample growth perspective), Car Charging Group (OTCPK:CCGI) is the right investment for you.