Category Archives: Global X Renewable Energy Producers ETF (RNRG) – formerly YLCO

Pop Goes the Clean Energy Stock Bubble

by Tom Konrad, Ph.D., CFA

2020 ended with a massive spike in clean energy stock prices.  From the end of October, election euphoria drove Invesco WilderHill Clean Energy ETF (PBW) from $63.32 to $136 at the close on February 9th, a 114% gain in 100 days.  

Joe Biden is as strong a supporter of clean energy as Donald Trump was a supporter of big fossil fuel companies, but even with control of the presidency and both chambers of congress, there is a limit to what a president can do in a short time.  This is especially true when their top priority is (as it should be) dealing with a pandemic.

Acknowledgement of this reality seems to be setting in. as I write on March 5th, PBW is now down almost 35% from its high.  If the Dow Jones Industrial Average or S&P 500 had fallen 35%, this would be the depths of a bear market.  Clean energy stocks are generally much more volatile than the broad market, but, even so, a 35% decline should make investors sit up and take notice.

I focus on clean energy income stocks because they tend not to be subject to such wild swings.  The benchmark I use, the Global X Renewable Energy Producers ETF (RNRG – formerly YLCO) is also down significantly- 26% from its high of $20.20.

PBW
Year to date (3/5/21) chart for PBW and RNRG. Source: Yahoo! Finance

Pop! Goes the Bubble

With these large declines, it’s time to assess what’s next.  Large drops like this don’t happen without some panic among investors.  As always in a panic like this one, we need to assess:

  1. Has anything fundamentally changed which would justify the declines and possibly further declines.
  2. Is the panic approaching capitulation, when there is no one left to get scared and sell, or does the panic have farther to run?

Fundamentals

The biggest fundamental change is that interest rates are creeping up. This is in reaction to the expected spending in the Biden rescue package, and fears that we may see a surge of pent-up consumer spending as the vaccine allows the end of lock-down measures this summer.

These higher interest rates make stocks, especially income stocks like the ones I focus on, less attractive compared to bonds.  Higher interest rates also make it harder for companies to use debt to finance new investments, and so can reduce future earnings expectations.

While all these things are true, I expect their long term impact to be limited.  Most importantly, I do not expect interest rate increases to be large.  Interest rates have been historically low: It would take a much larger rise than I expect to bring them to a level that is not still low.  

There may also be some demand driven inflation in the summer, but I do not expect the demand or inflation surges to persist.

Similarly, the effect on future earnings from higher interest rates is also likely to be limited.  Most companies have been very active refinancing in the recent low interest rate environment, often bringing plans for future debt offerings forward.  This means that most will have the flexibility to reduce borrowing in the short to medium term if interest rates rise significantly.

Will Panic Lead To More Panic?

This is just a feeling based on having watched many market panics over the years, but I feel that the panic seems to be reaching its maximum.  I think the short term bottom will happen in the next couple weeks.  

I’m buying (actually selling slightly out of the money cash covered puts), especially clean energy infrastructure stocks like Yieldcos that I had been selling because of high valuations in December and January.  These include AY, NEP, AGR, and CWEN/A.  The amounts of each depend mostly on the size of my current positions- this is less a call about individual stock valuation and more one of market timing.

Conclusion

It’s time to bring much of that cash I’ve been telling people to keep on the sidelines for the last several months back into the game.

DISCLOSURE: Long positions all the stocks mentioned.

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.

The post Pop Goes the Clean Energy Stock Bubble appeared first on Alternative Energy Stocks.

January Performance: 10 Clean Energy Stocks for 2021

10 Clean Energy Stocks for 2021 January
US$ total returns. YLCO – Clean energy dividend stock benchmark; SDY – broad market income stock benchmark; GGEIP – my real money managed strategy; 10CES21 – the 10 Clean Energy Stocks for 2021 model portfolio.

You can find the original list here.  I’ll be doing commentary on individual stocks as there is news.  The first of these is on MiX Telematics (MIXT) earnings, first published for my Patreon subscribers on January 28th and copied below.  A note on Scorpio Bulkers (SALT) from February first will be published here tomorrow.

MiX Earnings

MiX Telematics (MIXT) reported earnings this morning [January 28th].  The numbers showed improvement over the previous quarter, but a decline over the previous year due to the covid crisis which was exacerbated by the strengthening dollar.

The results were pretty much what I expected when I added MiX to the 10 Clean Energy Stocks for 2021 list.

In that article, I wrote:  “[C]ovid has led many businesses to take a new look at what parts of their operations can be handled online and remotely.  This should provide a lasting boost to the vehicle telematics industry in general.”

Stefan Joselowitz, Chief Executive Officer of MiX Telematics was quoted in the press release saying, “As we look ahead, we are very encouraged by the strategic conversations we are having with large fleet operators on the greater role telematics will play in their future operations. This gives us confidence MiX is well positioned to return to attractive subscription revenue growth rates once the economy normalizes.”

I take that as confirmation of my thesis.

DISCLOSURE: Long MIXT and all other stocks in the list.

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.

The post January Performance: 10 Clean Energy Stocks for 2021 appeared first on Alternative Energy Stocks.

Year in Review: 10 Clean Energy Stocks for 2020

by Tom Konrad, Ph.D., CFA

Looking Back

At the end of 2019, I was worried about overvaluation.  

I wrote that my main goal for the 10 Clean Energy Stocks for 2020 list was “to find stocks which will be resilient in the event of a US bear market.”  We certainly had a bear market in 2020, although it was nothing like the kind of bear market I had been anticipating.  The bear market was precipitated by the coronavirus pandemic, rather than overvaluation.

While I can claim to have anticipated the 2020 bear market, if not its nature, I was surprised by two other market events driving stock prices.  One was the sudden reversal of the bear market, which led to gains in most indices for the year.  The second was the rapid growth of the fossil fuel divestment movement, leading to rising interest in clean energy stocks.  

Both of these surprises helped pull the 10 Clean Energy Stocks model portfolio to a 7.8 percent total return for the year, but my defensive posture at the start of the year, my failure to anticipate the nature of the bear market, and my policy of trying to minimize trading meant that the model portfolio did not see as much upside as my clean energy income stock benchmark, the Yieldco ETF (YLCO), or the real money strategy I manage, the Green Global Equity Income Portfolio (GGEIP).  These were up 29.7 percent and 28.1 percent, respectively.

Model portfolio v benchmarks

My broad market income stock benchmark did not see any benefit from the new interest in clean energy stocks, so ended the year up only 4.1 percent.

Looking Forward

With valuations even higher than they were at the start of 2020, and the economy in a continued pandemic tailspin, I would not be surprised if another bear market were to start in 2021.  I don’t think the stock market has ever seen back-to-back bear markets like this, but one vocabulary lesson of 2020 was that “unprecedented” and “unlikely” can mean radically different things.

And despite current stratospheric valuations of most clean energy stocks, I would not be surprised if the boom has a lot further to run.  Even if the rest of the stock market collapses, the rush of money out of fossil fuels and into clean energy could continue to send the sector skyward. 

It’s a market truism that, “In the short-run, the market Is a voting machine, but in the long-run, it is a weighing machine.”  Right now, the market is voting for clean energy.  The pandemic has caused many to take stock of how their actions affect the world around them.  

Just as masks help stop the spread of covid-19, people are realizing that clean energy stocks can help stop the spread of climate change.  That has started a clean energy stock boom, and stock market booms often gather a momentum of their own, with past gains leading to expectations of future gains, and new investors rushing in because of the fear of missing out.

This clean energy boom is starting to look like a bubble, but stock market bubbles can expand for years before they pop.

2021

individual stock performance
Portfolio breakdown- click for full size

My new 10 Clean Energy Stocks for 2021 list tries to take advantage of the boom in clean energy stocks, while also keeping a defensive posture.  Since the pandemic response has been so much worse in the United States than most of Europe, I included many European names, and tried to focus on clean energy companies that could benefit from increased spending by other clean energy companies.  I looked at stocks that could leverage their high stock prices to increase their future growth rates, while trying to diversify beyond the obvious solar, wind, and electric vehicle sectors.

Will this new list return to its historical outperformance compared to its benchmark? I have no idea.  I have trouble believing just how good my own track record is, given how often it feels like I am wrong about where the stock market is going.  

Annual returns

Although I find myself without any confidence in my stock market predictions for 2021, I console myself with two facts:

  1. Overconfidence is a danger for investors, not a boon.
  2. Some things are more important than making money in the stock market.  

We’re going to have a new President in 2021.  As long as I’m not wrong about that, I can handle being wrong about the market.

DISCLOSURE: Long positions all the stocks in the model portfolio.  

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.

The post Year in Review: 10 Clean Energy Stocks for 2020 appeared first on Alternative Energy Stocks.