Latest Posts

The Green Investor Update – February 17, 2011

On February 17, 2011, in Solar, TGI Updates, Wind, by Andreas Schreyer
0

In this update:

  • Spreading popular unrest
  • Rising inflation
  • U.S. stock market super strong
  • Shunning negawatts
  • The Green Portfolio update and recommendations

Spreading popular unrest
By far the dominant news item of late has been the growing instability spreading through most of North Africa and the Middle East. After a popular uprising toppled the long-time dictator of Tunisia, the idea was picked-up and adapted with rapid results in Egypt. Even before Egyptian president Mubarak stepped down and went into exile in the Sinai, the popular fever started to expand to other predominantly Muslim countries in the region including Algeria, Bahrain, Iraq, Iran, Libya, Syria and Yemen.

Western news media have been gorging on the events but what is widely labeled as a revolution of the people is just another man’s military coup. Despite the prevalent euphoria it is important to bear in mind that there is a long road from the current autocratic and repressive governments and societies to the democratic systems, the stability and economic opportunities the people demand.

We care about what’s unfolding half way across the world because of the implications, short and long-term, on world stock and energy markets. The potential impact on oil production and shipments from the region has yet to be determined but Wednesday’s sharp spike in crude oil prices on Israel’s warning of Iranian warships crossing the Suez canal (a rumor later denied by canal operators) gives us a glimpse at the possibilities…

Rising inflation

 

One of the under-reported aspects of the North African/Middle Eastern uprisings is not political or religious, it is economical. Many of these societies have very high unemployment and poverty rates, very large gaps between the haves and the have-nots, and recent steep rises in food prices triggered the demonstrations and helped fuel the unrest.

Rising food prices have become a problem in many emerging economies, including the populous nations of China, India and Indonesia, signaling inflation as surely as a canary spots gas in a coal mine. While food prices may have been negatively affected by bad weather in grain-producing regions, they are just an indication of what’s been happening across commodities from sugar to cotton, the grains, metals, with energy being the one notable exception, so far.

Asia Pacific economies have been aggressively fighting inflation by raising interest rates over the last few months, in stark contrast with the United States, Europe and Japan where central banks are still flooding markets with liquidity to keep rates low and stimulate struggling economies. U.S. Federal Reserve Chairman Bernanke maintains that inflation is not a problem despite its massive fiscal stimulation (QE2).

For now we will take the facts that gasoline pump prices just reached their highest levels in 28 months, that the U.S. dollar has lost 11.6% of its value since last June, and yesterday’s surging inflation warning by the Bank of England (consumer prices rose 4% in January versus a 2% target) as early indicators.

The upcoming March issue of The Green Investor includes a must-read guide to investing in inflationary times and reviews a number of green inflation hedges.

U.S. stock market super strong

 

Emerging markets have been weakening for a couple of months with inflationary pressures and the events in North Africa and the Middle East but so far the U.S. stock market appears to be shrugging these off and, if anything, is getting a boost as the primary recipient of the money escaping from emerging markets.

For nearly six months now, with the possible exception of a small glitch in November, the U.S. stock market has been on a near straight line headed for the top right corner of the charts. There is no telling how far this rise will go before investors take a breather and instead of attempting to time an upcoming correction we continue to position our investments with long-term trends.

Shunning negawatts

 

We never thought that stock market investors act rationally but it is somewhat ironic that, at a time when balancing budgets and cutting costs is gaining in importance, the cleanest and least expensive source of energy, negawatts, appear the least appreciated by investors. Negawatts are the energy which did not have to be generated because it was saved, or not wasted.

Negawatts are the proverbial low hanging fruit and energy efficiency solutions have allowed electric utilities to postpone building new power plants, yet energy efficiency and the smart grid are two of the weakest green sectors we track and invest in.

The recent fiasco involving our preferred demand response provider over how power cuts are accounted for and paid for by grid operators, is a perfect example of an industry in the formative stages. Despite the growing pains we believe the technology has great merit and the company’s services deliver real value to their customers. As the revenue growth begins to generate bottom line profits we trust the market will adjust the valuations of the leading companies in this emerging energy sector.

The Green Portfolio

update and recommendations
Alternative energy markets were mixed this month with resurgence in the wind sector more than making up for weakness in the energy efficiency and smart grid sectors. The Green Portfolio gained 1.17% since our last update, slightly lagging the large caps in the S&P 500 index which added 2.55% in the same four week span. The portfolio is now up an aggregate 40.38% since inception, an annualized gain of 24.69%, which compares with a 26.28% decline (-17.99% annualized) for the benchmark S&P Global Clean Energy index over the same period.

The wind energy group advance this month underlines once more the importance of selectivity when it comes to renewable energy stocks. While three of our holdings led the wind sector with double digit gains, not all wind stocks did as well, to wit, Broadwind Energy (BWEN) managed to lose 15.7%. The five wind energy stocks in The Green Portfolio, and BWEN is not one of them, gained 10.85% for the month.

The solar sector saw strong rebounds in the shares of most Chinese manufacturers but mixed performance for U.S. manufacturers. Our recent partial profit taking on our preferred maker of solar inverters Power-One (PWER), proved timely as the shares have been correcting sharply since then. On the flip side, our latest solar recommendation has been moving up and away from our target entry point. For the time being we will keep our recommendation unchanged.

** Stop guessing. Get immediate access to all Green Portfolio positions and recommendations with a no-risk 30-day trial. You’ll love our green stock picks! **

 

The Green Investor Update – January 19, 2011

On January 19, 2011, in Geothermal, TGI Updates, by Andreas Schreyer
0

In this update:

  • As goes January…
  • Earnings season is upon us
  • Milestone marks a low for U.S. wind market
  • The Green Portfolio update and recommendations
  • Another green stock pays for itself

As goes January…
Global stock markets hardly skipped a beat as the New Year started, with the bulls leading the parade and the sideline crowd increasingly joining in. As we have seen since September of last year, investor optimism has been slowly but steadily building, with the weekly inflows into stock mutual funds exceeding outflows for the first time in a long time.

Considering that the S&P 500 index has gained over 90% since the bear market bottom in 2008, the “dead cat bounce” theory is finding fewer supporters every day, and the ever shrinking bond yields are gradually giving investors the courage to seek the higher returns of equities. Recent value declines in various government bond funds is also eroding the “safe haven” luster of fixed income investments many took for granted. The net effect is that the massive amounts of cash sitting on the sidelines are slowly but surely pouring back into the stock market.

We do not attempt to time the market based on historic statistics, but many see the “January effect” as one of the most reliable seasonal indicators. The theory, which states that as goes January, so goes the year, has been correct over ninety percent of the time in the last 60 years. Well, the first week of 2011 was a good one for stocks with the S&P 500 adding 1.1% and our Green Portfolio gaining 2.0%.

The logic behind the phenomenon is that investors sell their losing positions late in the year to take tax losses and reinvest that money during the first week of January. This time around, the market is telling us that stocks should see another double digit year in 2011, and our alternative energy sector should return to form and beat the broad market indexes.

Earnings season is upon us
The first earnings season of the year is getting started in earnest this week and early indications are positive. Because so many companies have fiscal years which match the calendar year, these are arguably the most important reports, when many companies offer guidance for the year ahead.

The last couple of quarters have delivered some outstanding reports from most of the companies we own, and we expect the majority to beat analyst expectations again this time around. As always, the last quarterly results tend to be less important than the future outlook, and how it is perceived by investors.

With the stock market up nearly 5% in the month since our last update, as measured by the S&P 500 index, and most analysts expecting good earnings reports, investors are increasingly worried about a pull back. Everyone knows that we’ve had pull back at the beginning of the last three years in a row. But then again, it would be just like the stock market to keep rallying only because too many investors are convinced that a correction is imminent…

As always, we’ll ignore the short-term noise and fluctuations to concentrate on positioning ourselves for what the trends tell us should be a good year for stocks, a better year for energy stocks, and a great year for select alternative energy stocks.

Milestone marks a low for U.S. wind market
By now it is clear that 2010 was a horrendous year for the U.S. wind energy market as a whole. Not only did the new installed capacity decline for the first time in many years, some say as much as 40% lower than in 2009, but to add insult to injury, China dethroned the U.S. with the world’s largest installed wind capacity (about 43 gigawatts versus 41 for the U.S.) More importantly, for all the reasons we outlined in the alternative energy sector outlook section of the January issue of The Green Investor, we believe 2010 marked a low for the U.S. wind energy sector.

As measured by the ISE Global Wind Energy index, the sector slumped over 30% during 2010, but not all companies involved in the wind sector suffered. While it might not be evident yet by looking at European and U.S. wind turbine manufacturers, there has been growing evidence that the market is picking up. The business at several of the wind sector holdings in The Green Portfolio has been brisk, and they are the upstream parts suppliers to the wind industry, and a reliable early indicator of increasing demand. One of them, one of our preferred suppliers of electrical control systems to the wind industry, is rapidly approaching a double since we recommended it, and in our analysis still has plenty of upside left.

The Green Portfolio update and recommendations
A noticeable momentum shift is taking place in the alternative energy sector which has turned from laggard to leader over the last few weeks. Our portfolio’s 5.86% advance so far this year, over 8% since our last update a month ago, is a reflection of the investor repositioning taking place when compared to the S&P 500 returns of 2.97% and 4.84% for the same periods. Not to mention our stock picking prowess…

Solar stocks came out of the box with a bang but not as strongly as our energy efficiency stocks which, as a group, gained 16% in the last month led by our December pick which has already gained 27.82%. Energy efficiency might as well be the sector classification of the geothermal energy stock, which outperformed all the others for the month by gaining 30.33%, which made it the latest of our holdings to double our initial investment.

Another green stock pays for itself
As we often do, we take partial profit when a stock doubles. This time it is our long-term geothermal heat pump leader, LSB Industries, Inc. (LXU), which reaches the milestone

LSB Industries, Inc. Recommendation Update: Take partial profit when the stock reaches a 100% gain from your entry point. We will sell half of the LXU shares in our model portfolio at $29.78 or above. We remain bullish on LXU and believe the shares have higher to go. We like to let winners run and this is why we keep the same dollar amount invested as we started with. The way we look at it is that, by cashing in on our initial investment, the shares of LXU we keep are like free money for a no-risk exposure to a great company.

** Stop guessing. Get immediate access to all Green Portfolio positions and recommendations with a no-risk 30-day trial. You’ll love our green stock picks! **

 

The Green Investor Update – December 17, 2010

On December 17, 2010, in Market Trends, Solar, TGI Updates, by Andreas Schreyer
0

In this update:

  • An unexpected green stocking stuffer
  • Oil prices ready to pop
  • Long bond price collapse
  • The Green Portfolio update and recommendations
  • 2011 outlook: great time to invest in green stocks

An unexpected green stocking stuffer
After failing to make any substantial progress towards a national energy policy by dropping the climate and energy bill, our leaders in Washington have partially redeemed themselves at the last minute. The $858 billion tax deal initially negotiated between the White House and Senate Republicans, approved by the U.S. Congress, and signed into law this afternoon by the President, is in fact much more than a tax bill.

Unbeknownst to most, in addition to extensions of tax relief and unemployment insurance, the bill also contains extensions of “certain expiring provisions”, Section 707 of the bill. There are goodies for just about everyone in there, including for coal/gas/oil supporters. The ones that interest us more are items such as incentives for biodiesel and renewable diesel, the energy efficient home and appliance credits, and in particular the extension of grants for specified energy property in lieu of tax credits. Under the cash grant program, developers of renewable energy plants can opt to take a cash grant in lieu of a 30% tax credit for the cost of the investment in the plant. This has been a major incentive for investors in solar and wind projects and we are pleased to see it extended, even if only for one year.

Oil prices ready to pop
With the Continuous Commodity Index (CCI) up over 23% so far this year and flirting with its all-time high, commodities will be one of the best investments of 2010. Energy, which figures for about 18% in the CCI, has so far not participated in the festivities. Natural gas prices are still languishing at about a third of the highs they reached before the 2008 crash. Oil has recovered better but is still some 40% below the pre-crash highs. Oil prices spent the second half of 2010 recovering the 20% plus losses experienced during the month of May, and in December they have rallied to set new recovery highs. Light crude oil briefly reached above $90 per barrel, a price not seen in well over two years. The technical picture has decidedly turned bullish.

While crude oil prices will end 2010 with a gain of about 10%, many analysts are predicting that they will do much better next year as energy catches up to other commodities. This in turn will help add some wind to our sails.

Long bond price collapse
Bonds are not generally an asset class we comment on because we specialize in equities, but sometimes sea changes can be detected which are precursors of things to come in our markets. The Fed’s most recent round of quantitative easing, massive buying of Treasuries, has so far resulted in the opposite effect on interest rates. Rather than staying at record low levels, rates across all maturities, but especially long ones, have seen a sharp rise. The rate on 30-year Treasuries soared 25% in less than three months. With the ballooning deficit (we just added $858 billion to it today) and a melting U.S. dollar, it appears that bond investors are starting to want higher compensation in the form of higher rates for them to take on the increasingly risky debt paper.

Interest rates have been on the decline for over twenty years and if that mega trend was to come to an end, as many analysts expect, the implications are enormous. It is the best early warning that we are entering an inflationary phase in which bond prices decline with rising interest rates. While the implications of rising rates on some sectors such as housing could be dire, commodities, energy, precious metals and stocks stand to benefit.

The Green Portfolio update and recommendations
We will spare you the details of the news induced market gyrations and focus on the bottom line. The broad stock market finished November on a down note but more than made up for it so far in December. For the 30-day period since our last update the S&P 500 index gained 3.13%. Oil prices surged 8.98% but the S&P Global Clean Energy Index kept going its own way, down 3.78%. Once again, the Green Portfolio bucked the clean energy index to gain 1.48%.

A couple of our positions suffered double digit losses following analyst downgrades, but we feel they are just as promising as before the reports and they are now much more affordable. Solar power has been one of the worst industry segments over the last month, with the Chinese solar subset the absolute worst, yet our solar holdings as a group were up a solid 3.51%. A lot of that performance can be attributed to our preferred solar inverter manufacturer, Power-One (PWER), which is up 20.41% for the month. This stock is both a profit taking candidate for early subscribers who have seen the share price more than triple and a long-term buy recommendation for new subscribers just starting a green portfolio.

2011 outlook: great time to invest in green stocks
We are putting the finishing touches on the 2011 Outlook feature report for the January issue of the newsletter, and next year promises to be a banner year for green investors, especially in selected sub-segments and in selected stocks. With the first signs of inflation promising to send energy prices higher, we review which industries and which geographies are benefitting from investment growth.

For newcomers to the alternative energy sector we will provide a guide to getting started with green investing right now and introduce you to a handful of great companies, keepers, stocks which should form the core of any green portfolio.

Our best wishes for a Wonderful Holiday Season and a Happy and Prosperous New Year!

 

RINO Resumes Trading

On December 9, 2010, in Alternative Energy Stocks, Green Stocks, by Andreas Schreyer
0

After having been suspended and delisted from the Nasdaq stock exchange, the shares of Rino International Corp. have resumed trading on the Over-The-Counter Pink Sheets under the ticker RINO.PK. Investors not familiar with the Rino situation can find a short backgrounder below.

There are gamblers who are buying the company at this level in the hope that the sell-off is overdone and that the share price will rise, but we are not in that camp. In fact, we along with The Green Investor subscribers sold the RINO position when our recommended stop-loss orders were triggered at $11.18 on November 11. Investors who did not set stops and are still holding shares in the company now have the opportunity to sell their shares to recover some of their losses and, depending on their specific circumstances, there are a couple of options to do that:

  • If in a taxable account, you could sell the shares before the end of the calendar year and use the loss realized to offset any capital gains you may have.
  • You could wait and hope to exploit the tax selling effect which frequently affects small cap stocks that are in the red for the year. The theory suggests that tax-related sellers depress the price in December, and the price will rebound early the next year to let you sell higher.

Backgrounder on the Rino situation.

Rino International is a Chinese small cap company involved in waste water treatment which has been traded on the NasdaqGS exchange since 2007.

On November 10, 2010, a two-person Hong-Kong-based analyst outfit called Muddy Waters Research published a very detailed report essentially alleging that Rino International is a complete fraud, grossly overstating revenue, claiming non-existent customer relationships and contracts. The report, if true, is damaging to the extreme, and investors started dumping the shares.

On November 11, 2010, The Green Investor subscribers sold the stock after the shares hit our recommended stop-loss orders at $11.18.

On November 17, RINO trading is suspended on the Nasdaq at a last trade price of $6.07.

On November 18, RINO cancelled their quarterly conference call and filed an 8-k form with the SEC in which they disclosed that the company did not enter into two contracts for which it reported revenue during their 2008 and 2009 fiscal years and that the board concluded that previously issued audited financial statements should no longer be relied on.

On December 8 the shares were delisted by the Nasdaq and began trading on the Over-The-Counter markets under the symbol RINO.PK (Open price $2).

The Green Investor subscribers can find more details in the December 2010 newsletter articles entitled “What Happened To RINO?” and “Investor’s Corner: Was It An Organized Short Attack?”.

Tagged with:
 

The Green Investor Update – November 19, 2010

On November 19, 2010, in Market Trends, TGI Updates, by Andreas Schreyer
0

In this update:

  • Pullback underway
  • Gored by RINO
  • A small victory
  • Portfolio Management
  • The Green Portfolio update and recommendations

Pullback underway
Was it that the Fed’s quantitative easing was becoming reality, or that the electoral sweep swiped the markets? Regardless of the reasons, the last month has been a tale of two halves as, after climbing to new bull market highs in early November, the stock market took a serious nose dive which erased recent gains.

After weeks of investor bullishness, risk aversion sentiment returned as the focus turned once again to overseas issues such as inflationary worries in Asia and renewed debt fears in Europe. The net effect was that most markets sold off, from stocks to commodities, to energy. About the only things higher over the last couple of weeks are the U.S. dollar and interest rates. The financial media is screaming but to keep matters in perspective, the drop from the rally highs is still in the single digits and therefore only qualifies as a mere pullback. For the month since our last update, the broad stock market is essentially flat with the S&P 500 index up 1.10%.

Still, after the strong and uninterrupted run up since early September the market was in need of a rest and despite Thursday’s strong rebound it would not be surprising to see the current pullback last a while longer or even develop into a correction. In the context of a still intact bull market uptrend, we view any weakness as great buying opportunities.

Gored by RINO
You can read about many winning stocks from investment newsletters, but seldom about the ones that did not go according to plan. We take this opportunity to present a lesson in risk management with our most recent speculation gone bad: Rino International (RINO), the very high flyer we highlighted in our last update for having gained the most!

We are pleased to quote from our original recommendation “For all the stated risk elements, and the fact that the bears may prove to be right after all, we are classifying this stock as speculative and, accordingly, we recommend placing a protective stop loss. Instead of the traditional 30% from entry price, we will set the stop at $11.18, the June low, as below this level our RINO investment thesis would clearly be invalidated.”

The short version of what happened next is that after being up encouragingly RINO shares got savaged by a damning analyst report. We got stopped out at our preset $11.18 level limiting our loss to some 26%. Not so bad, considering that the shares continued to drop to finally be halted at $6.07 as of this writing.

All the facts about RINO are not yet clear as the author of the report has himself come under criticism of fraud and class action law suits being filed for stockholders. From the safety of cash we will watch what unfolds and, if noteworthy, update you on the subject.

A small victory
The republican sweep of the midterm elections dominated the news and set the tone in the markets, yet one bit of rejoicing news, not just for green investors but for all humankind, went almost unreported: the defeat of proposition 23 in California. This was an ill-conceived initiative sponsored by big oil companies aimed at suspending the landmark Global Warming Solutions Act (aka AB32) and its massive defeat by California voters is a clear vote in favor of clean and renewable energy.

The impact, not only to California’s renewable energy markets but to the movement nationwide and internationally cannot be understated. This decision literally saves over half a million jobs and tens of billions in private investment in California’s clean energy industry. With California’s traditional leadership status in clean-air regulation and renewable energy, the bigger impact is the growing public support for climate change regulation and sound and sustainable energy policies.

Portfolio management
With the end of the year fast approaching we are reminded that great benefits can be gained from sound portfolio management techniques. In particular, we want to identify any positions which have delivered solid long-term capital gains for profit taking in a lower tax bracket, and conversely seek any loss leaders for tax-loss harvesting. Be sure to read this feature article in the December issue of the newsletter which applies these simple portfolio management techniques to rebalance the Green Portfolio.

The Green Portfolio update and recommendations
It must have been fate that made us write “Keeping short-term gains/losses in perspective” last time as some of these gains have now turned to losses… With a flat broad stock market over the last month, the Green Portfolio is down 4.04% and the S&P Global Clean Energy Index dropped 7.75%.

Since inception a little over a year ago, the Green Portfolio returned an aggregate 27.22% versus a loss of 30.13% for the S&P Global Clean Energy Index.

A big part of the recent losses can be attributed to the RINO debacle but there have been major hits to other holdings. In fact, the volatile solar sector was the big loser over the period with an average loss of 13.15%. Other notable losers included Vestas Wind Systems (VWDRY.PK) which continued to frustrate investors with another 19.91% drop.

On the flip side, in order to keep the portfolio’s loss to only 4%, there were some very solid performers as well and we will feature one in particular, our preferred Asian play on efficient transportation. The company has been quietly executing their plan and is delivering growth in key Asian markets like India and China, and the shares are appreciating nicely, 10.83% this month.

 

The Green Investor Update – October 19, 2010

On October 19, 2010, in Market Trends, Solar, TGI Updates, by Andreas Schreyer
0

In this update:

  • Climbing the wall of worry
  • Record attendance at solar power show
  • U.S. solar market poised to double this year
  • Keeping short-term gains/losses in perspective
  • The Green Portfolio update and recommendations

Climbing the wall of worry
As we regularly report in our newsletter and updates, not a week goes by without some major economic calamity, here or overseas. The latest doomsday news ahead of Halloween is foreclosure-gate which began earlier this month with an avalanche of lawsuits filed against major banks alleging fraud and malfeasance in their foreclosure process. Mortgage lenders like Bank of America, Citigroup and GMAC have frozen their foreclosure activities briefly but seem intent on resuming them rapidly. With 49 state Attorney Generals announcing a joint investigation in the matter, it is becoming clear that until courts and regulators address the fundamental issues in the industry, the plague of mortgage-backed securities is far from having run its course.

Adding this new scenario to the existing job-less and growth-less recovery, expanding budget and trade gaps, exploding deficits and shrinking manufacturing just to name a few issues, many wonder why most asset classes are rallying, with many setting record highs. Stocks, bonds, currencies, commodities and precious metals are just some of the recent winners. The proverbial wall of worry is probably the simplest explanation for the paradox, but a more direct cause is the Federal Reserve and what their past and promised actions are doing to interest rates (staying at record lows) and the U.S. dollar (going to record lows). The old admonition “Don’t fight the Fed” still appears the best course of action for now.

Record attendance at solar power show
The largest U.S. solar expo and conference took place in Los Angeles last week, and judging from the record attendance and buzz surrounding the event, the industry appears to be thriving despite the slow recovery. While industry tradeshows tend to be upbeat occasions, there was no mistaking the uptick in activity and optimism at this year’s Solar Power International. There were plenty of company announcements during the event but few with the potential industry impact of the solar expansion plans revealed by 3M, DuPont and GE. We will take a fresh look at the future of photovoltaic technology in our upcoming November issue, and explore new investment opportunities.

U.S. solar market poised to double this year
A new U.S. Solar Market Insight report released jointly by GTM Research and the SEIA (Solar Energy Industries Association) helped the upbeat mood at the solar conference by projecting a doubling of new solar capacity installed in the U.S. during 2010. Their baseline forecast is for 944 MW of new solar electric capacity, including both photovoltaic (866 MW) and Concentrating Solar Power (79 MW).

This good news about the U.S. solar market came on a backdrop of firming forecasts for the European market which remains the largest solar market in the world. A number of manufacturers have been heard stating that demand for the first half of 2011 exceeded their entire capacity, and that the second half of the year is looking better by the day. Time will tell, but the tone is markedly improved from analysts projecting over-capacity and a likely price war just a few months ago.

Keeping short-term gains/losses in perspective
This is as good a time as any to remind our readers not to get overly emotional about short-term paper gains, or losses. Yes, our green stock picks have been doing great for the most part, but unlike some traders we follow a long-term approach based mostly on fundamentals. Paying too close attention to the hourly, daily and weekly market action can be counter-productive and dangerous for your health. Too much excitement about short-term gains can lead to disappointment and panic when the inevitable pullback or correction comes along. No stock or market goes straight up, or down, and humility and patience are an investor’s most valuable virtues.

The Green Portfolio update and recommendations
With the broad stock market rally since our mid-September update, it is not surprising to see our portfolio surge with a gain of 11.29% which compares favorably with the S&P 500 and S&P Global Clean Energy Index returns of 5.25% and 8.54% respectively. These 1-month returns are from the close on September 17 to the close yesterday on October 18, 2010.

From an industry sector perspective, it is good to see a rebound of the battered wind stocks which, as a group, advanced 12.98% for the month. Wind even managed to outpace our solar stocks (up 10.60%), a rare occurrence in the recent past, but it was not our leading segment. That distinction went to the water sector which jumped 32.56% to outpace strong gains in energy storage stocks (20.68%) and efficient transportation (19.83%).

The term sector might be somewhat of a stretch for water in our portfolio since it currently consists of one single holding: our preferred Chinese waste water treatment stock. The company continues to benefit from the Chinese government’s more stringent anti-pollution rules in general and its industrial waste treatment standards in particular. We expect the company to outperform in the months and years ahead as it continues to gain market share and grow its profit margins as it exploits the synergy between its water treatment and flue gas desulphurization systems, as well as an expansion into the municipal sludge treatment segment.

As a small cap Chinese stock, we place the company in our speculative risk class, which means we expect high volatility, both up and down, and we recommend keeping our original stop loss orders. As always, we will be sure to alert our subscribers, should anything change in the company’s outlook.

The Green Portfolio is now up an aggregate 34.55% since inception some 15 months ago versus 18.16% for the S&P 500 and a loss of 24.26% for the more representative S&P Global Clean Energy Index.

 

Dollar Proofing Your Portfolio

On October 11, 2010, in Currencies, Market Trends, Precious metals, by Andreas Schreyer
0

The U.S. dollar has resumed its long-term downtrend and is setting new record lows against traditional stores of values like gold and the Swiss Franc. In view of atrocious fundamentals and technicals, read “The U.S. Dollar Completes Bearish Head and Shoulders”, we believe that the U.S. dollar is poised to continue its slide over the months and years ahead.

The reason we care is that, while a weak dollar is friendly to equities in the short to mid-term, the value of our dollar denominated assets is being eroded by the ongoing currency devaluation. This article focuses on some of the steps we all should consider taking to protect our wealth.

Stocks are the main investments we recommend, and we’ll get to that portion of our portfolios shortly, but most of us have some of our capital in more liquid instruments which are the most vulnerable to dollar devaluation. The first action to take is to protect these liquid assets, starting with any cash we have sitting in low-yielding savings accounts or money market funds. Assets in dollar denominated bonds such as U.S. Treasuries are even more at risk, because they could suffer the double blow of currency devaluation and lower bond prices should interest rates start moving up from the current historically low levels.

There are many options to dollar proof your liquid assets and we’ll concentrate here on a few convenient ETFs (Exchange Traded Funds) frequently used for currency hedging:

  • Dollar bearish funds. The main choice here is the PowerShares DB US Dollar Bearish Fund (UDN) which is designed to replicate the performance of being short the U.S. dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian dollar, Swedish Krona and Swiss Franc
  • Hard currencies funds. While hard currencies are not what they used to be, there are a number of them which should continue to hold up well against the U.S. dollar, such as the Australian dollar (FXA), the Canadian dollar (FXC), the Brazilian Real (BZF) and the Swiss Franc (FXF)
  • Precious metals funds. The primary choices are GLD and IAU for gold, PGM for platinum and SLV for silver

When it comes to the stock portion of our portfolios, the first rule is to only invest in market sectors with the growth potential to overcome currency valuation erosion, and for us here at the Green Investor it primarily means the selected green stocks which are most benefitting from the alternative energy megatrend.

Besides targeting industry sectors with superior growth, we have long been in favor of international diversification. The first reason is that we forecast that many foreign markets will continue to do better than their U.S. counterparts, emerging countries in particular. The second reason is that many of these countries also have strong currencies.
 
What few investors realize is that by investing in foreign stocks here in the U.S., with U.S. dollars, through an American Depository Receipt (ADR) or an ETF, your return is influenced by the return of the stock(s) AND any change in the exchange rate. The overall return of a foreign stock/ETF can be expressed by the formula (which intentionally omits the fund’s expenses and a few other minor details):

Foreign stock/ETF Return = Return of foreign stock(s) X Return of foreign currency

We’ll use Brazil as a perfect present-day example to illustrate the performance impact of exchange rates. In the chart below we see that since the beginning of 2009 the Brazilian stock market advanced an impressive 80% as measured by the Bovespa index (blue line), but because the Brazilian Real (red line) also appreciated significantly against the U.S. dollar during the same period (about 35%), the actual return for the EWZ Brazil fund is close to 120%! As long as the U.S. dollar loses ground to the Brazilian Real, the Brazilian positions in our Green Portfolio will benefit accordingly.

Exchange rate contribution to foreign stock investments

Exchange rate contribution to foreign stock investments
We do not have a crystal ball, but looking at all the evidence of increasing U.S. dollar weakness, we will continue our strategy of international diversification with a bias towards strong stock markets and strong currencies.

Tagged with: • • • • • • • • •
 

The U.S. Dollar Completes Bearish Head and Shoulders

On October 7, 2010, in Currencies, by Andreas Schreyer
0

After a strong rally through the first half of the year, the U.S. Dollar has since taken a nosedive which has many people worried, and most politicians secretly rejoicing.

The truth is that under the cover of strong U.S. Dollar rhetoric, our leaders in Washington have for the best part of 40 years, with a few notable exceptions like the 1993 to 2001 resurgence, promoted a weak dollar policy.

According to many of the nation’s and the world’s top economic and monetary authorities, after more than half a century as dominant global reference currency, the U.S. Dollar is well on its way to losing its dominant status. As investors, this is the stuff we should really know about and understand, even if it is not popular. Our future wealth depends on it!

The beauty about historic data is that it does not lie. You can debate how strong or weak the dollar is, has been or is going to be, and who is to blame, but the facts lay it all out very clearly:

  • Since 1971, when the Dollar’s gold peg was broken by President Richard Nixon, the U.S. Dollar has lost over two thirds of its value against “hard” currencies like the Swiss Franc
  • Since the beginning of 2002, almost 9 years ago, the U.S. Dollar Index has lost over 35% of its value against a basket of foreign currencies (the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc)
  • Just yesterday, the U.S. Dollar marked new major lows against gold, which has been the best long-term store of value for millennia, and a new all-time low against the Swiss Franc

The chart below shows how various currencies – and gold is increasingly acting like one – have fared against the U.S. Dollar since the beginning of 2009 (the U.S. Dollar being the 0% horizontal line.)

Most currencies gaining against the U.S. Dollar

Currencies gaining against US dollar

Gold is up nearly 50% in dollar terms since the beginning of 2009, and it is not alone. Precious metals as a group are way up, silver gaining almost 90%, and so are commodities from copper to corn. The strength in hard assets is also reflected in resource-based currencies like the Brazilian Real and the Canadian and Australian Dollars. All of which points to an inflationary trend. But it’s difficult to find a currency that has lost ground against the U.S. Dollar, even the Euro which had been declared dead during the recent sovereign debt crisis has managed to stay about even.

Just last week, the U.S. House of Representatives took one step closer to an all-out trade war with China by voting in favor of legislation that would allow the U.S. to impose tariffs on Chinese goods. The bill is intended to pressure China to stop manipulating the Yuan and to let it rise faster against the U.S. Dollar. As they say, “you don’t throw stones if you live in a glass house”. Yes, the Chinese are currency manipulators as they have actively pegged the Yuan to the U.S. Dollar since July 2008, but there are no bigger currency manipulators than the United States themselves. What’s more, the U.S. depends on foreigners to keep buying our Treasuries, including China who has become the biggest foreign holder of U.S. debt paper.

The weak Dollar policy is calculated and intentional, although there will ultimately be unintended consequences. Washington wants a low Dollar to favor what export industry is left, and a high Yuan to make Chinese products more expensive here to curb imports. But the more important reason is that the policy not only fuels liquidity creation and deficit spending, but the dirty little secret is that currency devaluation is the chosen path for dealing with the ballooning debt (borrow now and pay it back later in cheaper dollars).

The U.S. Dollar fundamentals look very bad. The fiscal and monetary policies of the U.S. Government have been leading to enormous triple deficits (Trade, Budget, and Current Account). At their most recent meeting the Federal Reserve worried about “uncomfortably low inflation” and pretty much promised more quantitative easing (creating more Dollars to buy Treasury bonds and other debt instruments) to help the economy.

Technically speaking, the U.S. Dollar looks as bad as it does on fundamental merit. Its failure to break through overhead resistance near the 2009 high earlier this year signaled it was headed lower, and it has since lost over 12%. What’s a lot more damaging for the Dollar’s future prospects is that by breaking below 80 the U.S. Dollar Index (see the chart below) has completed one of the most reliable trend reversal patterns in technical analysis: the “head and shoulder”.

U.S. Dollar completes bearish head and shoulder pattern

US Dollar completes bearish head and shoulder pattern

The topping formation we have seen developing for the better part of this year is confirmed by the completion of the “right shoulder”, which just happened when support was broken at the neckline. Another feature of the head and shoulder pattern is to provide a potential target using the measured move technique. The theory is that once completed, the bearish formation should lead to a downward move of at least the distance travelled from the top of the head to the neckline. In our current U.S. Dollar Index scenario, the rule gives us a target of 72 in the not too distant future, and a retest of the all-time low.

Technical analysis and head and shoulder indicators offer no guarantees, but when coupled with overwhelmingly poor fundamentals, they are warnings well worth heeding.

To keep the size of this post manageable we split out the second part as our next post “Dollar Proofing your Portfolio.”

Tagged with: • • • •
 

The Green Investor Update – September 20, 2010

On September 20, 2010, in Market Trends, TGI Updates, by Andreas Schreyer
0

In this update:

  • Great recession officially over
  • Deflation or inflation?
  • 50 years of OPEC
  • The rise of green protectionism
  • The Green Portfolio update and recommendations

Great recession officially over
The average American and the millions of unemployed might not have noticed, but the worst and longest recession since World War II is officially over as of June of 2009! The National Bureau of Economic Research, the independent group of economists charged with dating economic cycles, announced the findings today. While these economists provided a rearview mirror snapshot, we are much more interested in what is happening now and in the future, and the stock market is known as one of the best leading indicators for the economy.

If the stock market looks for signs of what’s in store down the road, what it sees must clearly be confusing. So far, the month of September continues the pattern exhibited by the stock market since June, which is one of alternating up and down months. The September gains have already more than erased the August losses and markets are at the top of their trading range and close to a break out, near 1140 on the S&P 500 index. Since the last couple of market reversals were directly attributed to Federal Reserve pronouncements, the FOMC meeting scheduled for later this week is causing a lot of nail biting on Wall Street.

Deflation or inflation?
This favorite debate amongst economists and politicians will likely continue for a long time, but clear signs are emerging about which will ultimately prevail. The story has mostly been that because of a weak economy, there is little threat of inflation. Government reports keep pointing to “relatively flat prices”, excluding energy and food. All this will be changing in the coming months because the price of raw materials and commodities have already started to rise substantially. Energy costs are increasing, wheat, corn, copper, aluminum are all going higher.

Inflation is already a reality in many of the developing countries which have been providing us with cheap goods and services for decades, such as China and India. The inflation figures coming from the countries we import so much from and the rising cost of raw materials are trends investors need to understand.

50 years of OPEC
A few days ago on September 14, the 50th anniversary of the founding of the Organization of the Petroleum Exporting Countries (OPEC) came and went, marking one of the darkest and most damaging developments in modern history. The majority of the twelve nations making up the cartel are not a friendly bunch (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.) Their stated objective has been to control and manipulate the oil markets, and it comes as a surprise to many that the United States and other developed nations have stood by idly for so long with a foreign cartel controlling important parts of their economy and national security. Despite the chokehold OPEC has on our energy supply and the enormous clout the oil and gas industry still wields in Washington, as we point out in “Peak Oil: Myth Or Reality?” in the September issue of The Green Investor, the good news is that they are on their way out and the next 50 years will be nothing like the last 50.

The rise of green protectionism
As we approach the mid-term elections, there have been increasing actions and rhetoric aimed at China. Last Thursday, the United States brought two cases to the World Trade Organization. China is being labeled publicly as a currency manipulator. This follows the United Steelworkers complaint about Chinese producers of wind and solar equipment receiving improper subsidies. The same union recently forced the Chinese vendor for the largest wind farm in the world to use U.S. made steel. Trade wars are never won.

The Green Portfolio update and recommendations
For the month since our mid-August update our portfolio gained 3.75% versus 3.03% for the S&P 500. As relative strength rotates from one industry sector to another, the stocks in our energy efficiency category came out ahead this time with a combined gain of 9.98%. The wind sector was last again with a combined loss of 5.60% which is almost entirely attributable to continued weakness in bellwether Vestas Wind Systems (VWDRY.PK). This is more fallout of the poor Q2 results and guidance we discussed in our last update, and we believe the sell-off is even more overdone at the current depressed prices.

Another stock under selling pressure we must discuss here is our solar power conversion winner. One week ago, the world’s largest maker of solar inverters, Germany’s SMA Solar, warned about a possible market slowdown and lower margins in 2011. This news prompted investors to dump SMA stock and the entire solar power electronics segment in sympathy, including our high-flyer which lost some 25% over the last few days. SMA has a long history of issuing ultra conservative outlooks which they consistently exceed. They also failed to mention that a big reason for their sales and margin softness can be directly attributed to the inroads made by our pick which has gained market share to now rank second, from eighth just 2 years ago. With most of the leading photovoltaic companies increasing guidance for 2011, SMA’s view that the market could drop as much as 15% next year seems farfetched.

In any case, we did not wait for bad news to lighten up on our position as we alerted our subscribers to take partial profit (221%) late last year. Having sold our initial dollar investment then, our remaining shares are now “free money” and we intend to let them ride what promises to be a much longer run of growth and profitability.

The Green Portfolio is now up an aggregate 20.35% since inception a little over a year ago versus 12.26% for the S&P 500.

 

Revenue Growth Bullish for Green Stocks

On August 24, 2010, in Alternative Energy Stocks, Green Stocks, Solar, The Green Portfolio, Wind, by Andreas Schreyer
0

With the bulk of the companies in the S&P 500 having reported their Q2 results, about three quarters of them have beaten analyst earnings expectations and they have done so with an impressive average year-over-year earnings growth of 38%. Improving earnings by itself is not necessarily a good business indicator, as during bad times companies can achieve profitability goals with aggressive cost cuts, e.g. layoffs. What is encouraging this time around is the fact that these earnings come from expansion of sales, with most companies in the large cap index achieving revenue well over the year-ago quarter, and over 60% of them above analyst revenue expectations.

Of even more interest to us is the renewable energy sector which did even better, with 80% of the companies in the Green Portfolio beating earnings and revenue consensus estimates, with a good number of them raising guidance for the second half of the year, a positive indicator for the health of their business.

A prime example of solid revenue growth came this morning from one of our recommended photovoltaic stocks, Trina Solar (TSL), which beat expectations handily with sales up 147.2% year-over-year (read the TSL earnings report summary.) This great green stock has returned a cool 72.78% in one year (compared to 4.02% for the S&P 500), and nearly as much (70.81%) since we recommended it in September 2009. The primary reason we liked Trina back then, and still like the company today, is because of their leadership in cutting cost/watt for their silicon solar panels faster than anyone else in the industry (read Picking Solar Energy Winners.). Their relentless cell efficiency enhancements coupled with manufacturing cost optimizations has led them to increase their gross margin (to 32.1%), instead of the profit squeeze many pundits had been predicting.

While some alternative energy sectors have been weak this year, such as wind energy which even saw a major earnings and revenue miss by bellwether Vestas Wind Systems (VWDRY.PK), the vast majority of the sectors represented in our Green Portfolio are growing significantly above market average, which should lead to continued outperformance from our green stocks.

Tagged with: •
 
« Previous Entries Next Entries »