Energy Business

Seven Alternative Energy and Clean-Tech Stocks With Significant Long-Term Upside Potential

2. Capstone Turbine
> Segment: Microturbines for distributed power
> Share Price: $1.53
> 52-Week Range: $1.07 to $2.60
> Market Cap: $505 million

Capstone Turbine Corp. (NASDAQ: CPST) makes microturbine technology solutions for use in stationary distributed power generation applications worldwide. While some investors may consider this to be more of a “less dirty” technology than others, this company has been represented in clean energy indexes. The company’s power systems are used by remote oil and gas project operators onshore and offshore. Its earnings are still very sporadic, and the recent loss reported created a sell-off before the shares recovered.

Capstone Turbine has yet to make a meaningful move into profitability. Still, its accumulated losses since inception on its books of $770 million has slowed down to a crawl in recent years, and the capital markets keep giving Capstone new capital. The company just raised almost $30 million more, and it trades with a very high price-to-book ratio. The company claims a record backlog of more than $171 million, and it claims that gross margin (despite losses) was at a high of 16% this year.

Not everyone is full of optimism here. Zacks Investment Research recently slapped Capstone Turbine with a Strong Sell rating after it lost a penny per share and revenues fell 2% sequentially to $36.4 million last quarter. Still, revenues of $127.5 million in 2013 have doubled from 2010, and they are expected to rise to more than $200 million over the next two years.

Very few analysts cover Capstone, but one bull still has a formal $2.50 price target. Our take is that the revenue picture here has exponential growth ahead of it, but admittedly it has only lived up to our base case and the continual capital raising has prevented shares from truly reflecting its growth. Capstone Turbine is based in Chatsworth, Calif., and has sales and service centers in China, Mexico, Singapore, South America and the United Kingdom.

ALSO READ: J.P. Morgan’s Top Alternative Energy and Emerging Tech Picks

3. Enphase Energy
> Segment: Solar microinverters
> Share Price: $8.80
> 52-Week Range: $4.54 to $9.37
> Market Cap: $375 million

Enphase Energy Inc. (NASDAQ: ENPH) is unknown to most investors interested in solar. The company makes microinverter systems for the solar photovoltaic industry, and its related accessories convert direct current power to grid-compliant alternating current power. In short, the company is not on the solar panel side but puts the power generation from panels into use for the grid or other destinations.

UPDATE July 5, 2014: Enphase was listed in our Analyst Stocks Under $10 With Huge Upside Potential after Canaccord Genuity gave it a new Buy rating and an $11 price target.

Enphase has not quite moved into profitability, and it has accumulated losses of $159 million on the books. Sales of $66 million in 2010 grew to $216 million in 2012 and $232 million in 2013, and they are expected to be almost $350 million in 2015. While some profitable quarters may be seen in 2014, 2015 is the year that Enphase is expected to break into steady profits ($0.30 in earnings per share est.).

As solar installations keep rising, the opportunity (and the results) keep rising for Enphase. Still, the company came public in 2012, and its slowing of revenues from the 2012 to 2013 crimped the stock, sending it to almost $2 before a snap-back recovery. This one has only a few analysts who follow it, with a consensus price target above $9 and a top-bull call of $11. Had that 2012-13 slowing issue not come up, there would likely be a much more bullish sentiment.

Enphase sells mostly distributors, original equipment manufacturers and installers. On top of its U.S. presence and headquarters in Petaluma, Calif., Enphase has a presence in Australia, China, Canada, France, Italy and the United Kingdom.

ALSO READ: $48 Trillion Needed for the World’s Energy Demand

4. FuelCell Energy
> Segment: Fuel cell systems
> Share Price: $2.45
> 52-Week Range: $1.10 to $4.74
> Market Cap: $640 million

FuelCell Energy Inc. (NASDAQ: FCEL) is in the business of making stationary fuel cell power plants for distributed baseload power generation. The first thing to consider is that the subsector of fuel cells within alternative energy and clean tech has been extremely volatile in 2014. The Plug Power rally pulled this up, but Fuel Cell is the one we really look at as the leader of companies that claim to be in fuel cells.

Sales at FuelCell stuttered in the 2011-12 period around $120 million, but the 2010 sales of almost $70 million grew to $187 million in 2013. If analysts are correct, then the $193 million in sales in 2014 will grow to $245 million in 2015. Unfortunately, profitability is still a ways out, quarterly sales have dribbled off in the past two quarters, and there is a cumulative loss amount of almost $780 million (and rising). Another concern is a negative book value.

Zacks Investment Research recently was very cautious, saying of the companies in the subsector, “For now, it is a wait and see situation to find out whether fuel cell can offer a realistic solution to power generation and greenhouse gas emissions or whether its potential is only good on paper.”

Announced strategic alliances include POSCO, Enbridge, Fraunhofer Institute, NRG and Abengoa. The company is based in Danbury, Conn., but it also claims to operate plants in approximately 50 locations worldwide.

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