Bank of America Merrill Lynch has a report out to start this week with a longer-term outlook for cleantech and alternative energy. The firm has a view of several key winners, although the report also indicates that alternative energy does not have much of edge in the short-term as it is expensive. Improvement rates are at rates shy of Moore’s Law (where semiconductor tech doubles every two years). The report from Steven Milunovich and Peter Christiansen even notes that the lack of differentiation compared to fossil fuels puts cleantech still at an early stage of development and notes that significant outperformance is unlikely now. The report also noted that nine of its thirteen picks currently have broken stock charts.
In the mix, there are at least some growth and opportunity catalysts ahead where the new emerging leaders are trumping the old industry giants in innovation. Cree Inc. (NASDAQ: CREE) is inventing new LEDs over General Electric Co. (NYSE: GE). First Solar Inc. (NASDAQ: FSLR) is leading solar rather than BP plc (NYSE: BP). Amyris, Inc. (NASDAQ: AMRS) and Gevo, Inc. (NASDAQ: GEVO) are listed as the biofuels leaders rather than Exxon Mobil Corporation (NYSE: XOM), and Tesla Motors, Inc. (NASDAQ: TSLA) is leading General Motors Corporation (NYSE: GM) in electric vehicle innovation.
In the green space, BofA/ML sees First Solar Inc. (NASDAQ: FSLR) as the cost leader and the $175 price target compares to $153.50 today. SunPower Corporation (NASDAQ: SPWRA) is still just a Neutral despite an opportunity for contrarians, but the $21.00 BofA target compares to a share price of $16.75 today.
EnerNOC, Inc. (NASDAQ: ENOC) was listed as one it overestimated in 2011 to 2012 but notes that there could still be substantial upside. The $23 price target compares to $19.30 today. Cree Inc. (NASDAQ: CREE) is one where BofA has less conviction than it said it would like and its $48 price target implies less than 10% upside.
A123 Systems, Inc. (NASDAQ: AONE) and Ener1, Inc. (NASDAQ: HEV) may now have better upside in grid storage so the winner will be the one which can best sell to utilities. A123 was given a $12 target, implying more than 50% upside to the $7.80 share price today. Ener1, Inc. (NASDAQ: HEV) was given a $5.00 price target, implying more than 60% upside to the $2.97 share price.
Clean Energy Fuels Corp. (NASDAQ: CLNE) is the one which can best win in LNG conversion for trucks rather than diesel. The T. Boone Pickens company was given a $15 price target, which implies little upside based on a $14.50 share price today.
The overall tone is still rather positive here on many sector leaders for the long-term. The difference is that the old expectations for exponential investment return opportunities is just not as telegraphed here in this message.
24/7 Wall St.’s Paul Ausick recently highlighted the low valuation multiples found in many of the key solar names. Some are far cheaper than established utilities. That being said, is it fair to ask if we are already entering the part of the business cycle for alternative energy that these have to be evaluated as future utility operators rather than high-growth stocks?
JON C. OGG