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

Whether you call it renewable energy, alternative energy, clean tech or another name, powering up the planet by means other than fossil fuels is becoming big business. Even the oil giants all admit in their long-term forecasts that energy sources such as wind, solar, turbine, biofuel and the like will grow exponentially in the coming decades.

24/7 Wall St. has highlighted the prospects for seven alternative energy and clean tech companies that may have been overlooked by investors. These are all speculative companies, but they all potentially have exponential upside in the years ahead.

In order to qualify for this list, each company has to have a significant opportunity ahead that remains exponentially larger than the tapped opportunity to date. All of these companies are based in the United States, but almost all of them have an international presence and are not solely reliant on U.S. Department of Energy handouts.

Another issue to consider is that these are all small cap stocks. We used $500 million market cap as a guide, though some of the screened companies may have exceeded that mark marginally. None of the companies were over $1 billion in market cap, so they are generally not as well known as the largest solar players. Lastly, almost all of these companies now are generating direct revenues from existing operations.

We also only took one company from each subcategory within clean tech, renewable energy and alternative energy. These range from wind power and distributed power, cleaner coal, turbine systems, fuel cells, pollution control, ocean power, solar, biofuels and renewable chemicals.

Several things are driving alternative energy all at once in 2014 — and this is not politics by any stretch. The latest U.S. and international reports on climate change were catalysts for a renewed interest in the sector. Still, the United States is already using more solar power. The latest EPA targets went even further against coal. Europe’s dependence on Vladimir Putin and Russia for natural gas will also act as a support for alternative energies. Another issue is the spike in oil from Middle East turmoil in Iraq. If you simply remove politics from the scenario, many investors have already decided to look at this sector objectively and include alternative energy in the same portfolio as oil and gas as a cost-effective future of energy.

As with most renewable and alternative energy stocks, some have run into their share or problems over the years. All these companies have been around for a while, and most of their shares have previously traded at much higher prices.

One last note is that all of these should be considered highly speculative. Some of the growth scenarios could reverse for a myriad of reasons, both longer term or almost immediately. None of these stocks would fit within a “widows and orphans” suitability test for investors and fiduciaries.

1. American Superconductor
> Segment: Wind and grid
> Share Price: $1.60
> 52-Week Range: $1.25 to $3.06
> Market Cap: $127 million

American Superconductor Corp. (NASDAQ: AMSC) has significant long-term opportunities in both its wind-related project opportunity (Windtec) and in its grid technology (Gridtec). This is also one of the more complicated companies in alternatives and renewables as it has two operations that do not generally have the same business trends each quarter or each year. That makes this the longest of the seven summaries here.

UPDATE on July 16, 2014: American Superconductor reached a major accord of nearly $60 million in revenue in a deal with Exelon’s ComEd in Chicago. Our take – this may be one of the larger deals, but it is also likely the first of many such deals. Shares were at $1.60 on our first report, but they were up almost 20% at $1.92 and hit a high of $2.10 on that day on more than 10-times normal trading volume.

American Superconductor fell from grace after significant issues arose in China. In 2011, the stock fell from $30 down to under $5 and it has struggled ever since. Still, this is about the opportunity in wind and in grid tech, rather than just the past. There is an ongoing possibility that its woes out of China will become good again, even if a base case should limit that expectation.

AMSC has restructured its U.S. operations and already has a presence in Asia, Australia and Europe. What makes this one less risky than its past may indicate is that it has nearly $50 million in cash as a cushion, and its market cap of $127 million is only about 15% above its tangible book value — with a cash burn rate slowing down to acceptable levels while it still has access to the capital markets for raising cash if needed. AMSC also just received a $40 million follow-on order from Inox Wind (India). Gridtec may be losing money and suffer from lower sales currently, but this represents a major opportunity in the United States and abroad in the years ahead.

The company’s Windtec Solutions is a host of electronic controls and systems as well as wind turbine designs and engineering services. The turbine maximization is already in use in thousands of wind turbines around the planet. AMSC’s Gridtec portfolio focuses on interconnection, helping to maximize the transmission of energy into the grid and to help act as surge protection for systems. It also has high-temperature superconductor wiring rather than traditional wiring, which aims for up to ten-times more power than conventional cables.

There is almost no analyst coverage on American Superconductor. Revenues have been sporadic in both units, but large opportunities are coming from military and defense, and the longer-term opportunities remain in China. India and Europe are ongoing, and the company could capitalize on the failing infrastructure inside the United States easily as well. With total 2013 revenue down more than $3 million to $84.1 million, the company has already forecast that revenue is likely to be slightly lower again for all of 2014. Still, the reality is that both wind and grid can act as significant opportunities ahead, both of which have the potential for exponential revenue growth in the coming years.

AMSC is based in Devens, Mass., and has been consolidating its U.S. operation from its Middleton, Wis., facility. It has also been moving its Suzhou, China, facility to a new manufacturing operation in Timisoara, Romania.

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.

5. Fuel Tech
> Segment: Clean coal and air pollution control
> Share Price: $5.94
> 52-Week Range: $3.55 to $9.63
> Market Cap: $135 million

Fuel Tech Inc. (NASDAQ: FTEK) is in the business of cleaning up the messy process of coal-fired power plants and catering to utility, industrial and municipal solid waste customers. The company also has recently just acquired PECO-FGC, expanding its offerings to include particulate control solutions. The anti-coal policies of late have not helped, but these same regulations perhaps offer Fuel Tech a huge potential down the road. In short, this company helps dirty energy be less dirty.

One issue that always got in the way during the 2007 to 2008 clean-tech boom was that the power plants either would not pay up or the systems were too expensive. Fuel Tech now touts that it enables its customers to operate efficiently in a cost-effective and environmentally sustainable manner.

The company’s revenues have not grown anywhere near as fast as we might have hoped, rising to $109 million in 2013 from $82 million in 2010. Still, the company has run itself with profitability for at least the past four years, and the handful of analysts covering it expect profits in 2014 and 2015. Sales are expected to dip in 2014, only to rise to almost $116 million in 2015. It still has $45 million in accumulated losses that can offset future earnings.

Fuel Tech’s air pollution control technologies are installed worldwide on more than 900 combustion units. The company was founded back in 1987 and is based in Warrenville, Ill., and has two more U.S. locations, with its international offices in China and Italy. With so many emerging markets using coal-powered plants, the next three decades could focus internationally rather than the United States.

ALSO READ: The Most Reliable Hybrid Electric Cars

6. Ocean Power Technologies
> Segment: Oceanic Wave Energy
> Share Price: $1.64
> 52-week Range: $1.50 to $7.01
> Market Cap: $21 million

Ocean Power Technologies Inc. (NASDAQ: OPTT) makes proprietary systems called PowerBuoys, which generate electricity by harnessing the energy of ocean waves. Before getting too excited here about this renewable energy subsector, Ocean Power Tech is by far the most speculative of those we have featured here. It has very fresh corporate governance issues after firing its CEO for claims tied to a project. We must also warn that law firms have been loading up class action suits due to serious investor losses sustained at the start of June.

UPDATE July 15, 2014: The fears of Ocean Power’s risks have grown, and the pact announced in Australia has been cancelled. Shares were at $1.20, and this company’s prospects look to be dwindling with more word of class action suits.

All caveats aside, Ocean Power has perhaps one of the most interesting stories for the years ahead, even if that “story” remains future rather than history. The company claims that no anticipated financial restatements are likely, but we do leave this as an open-ended possibility and consider it a risk.

This company came public in 2007 and briefly traded above $15, but a lack of revenue and the alternative energy peak in 2008 kept the stock from ever taking off. It is too small for most analysts, but one boutique in May of 2013 gave this a Strong Buy rating and $5 price target, based mostly on it being under its implied value, noting that its technology, intellectual property and knowledge could be worth $50 million, even if the rest was worth almost zero.

Sales are negligible at this time, but the partnerships and projects are underway to the point that revenues will start coming, as long as the corporate governance woes are not worse. The company’s $21 million market cap is not that much higher than the $16 million book value and cash value, but that is before the class action suits come into play. It also has almost $150 million in cumulative losses since inception.

Again, Ocean Power Tech is the most speculative of all these renewable and alternative energy companies we are featuring. Partners include the U.S. Navy, Mitsui and Lockheed. Ocean Power is based in Pennington, N.J., but it has projects in Hawaii, Scotland, Australia, Japan and elsewhere.

ALSO READ: NRG’s $2.5 Billion Wind Acquisition

7. Renewable Energy Group
> Segment: Biofuels and renewable chemicals
> Share Price: $10.98
> 52-Week Range: $8.51 to $16.50
> Market Cap: $426 million

Renewable Energy Group Inc. (NASDAQ: REGI) is into biofuels and renewable chemicals, and this is by and large focused on the U.S. markets. This is not just a tax play for ethanol and other mandated chemicals. The company converts natural fats, oils and greases into advanced biofuels and converts diverse feedstocks into renewable chemicals. The company has recently celebrated the 1 billion gallon milestone for its biofuels production. It even recently completed two acquisitions: Dynamic Fuels and Syntroleum (via Tyson Foods).

This company came public in early 2012 and fell from $10 to $5, but then rose to over $15 before settling down into a trading range of $10 to $12 from late 2013 up through the first half of 2014. REG had liquid assets from cash, cash equivalents and securities of $136.1 million, but it has since raised $125 million from a convertible preferred offering with a $13.26 conversion price, with $100 million or so used to replace a letter of credit after two acquisitions.

Renewable Energy also has only a few analysts that cover the stock. With shares close to $11 as is, the lowest analyst price target is $11 and the highest is $16. Sales were $216 million in 2010, growing to $824 million in 2011, and they were $1.49 billion in 2013. Before thinking that this one is a massive growth engine, the company’s volume is up but lower sales prices are hurting revenues. The company even said its first-quarter results reflect a very challenging quarter coming off an outstanding 2013 — revenue decreased by 17% and adjusted EBITDA decreased by 91%. Still, the company has accumulated $236 million retained earnings over its life.

Renewable Energy group has run into a bump in the road on realized prices, but higher fossil fuels pricing may help that along. The company is based in Ames, Iowa. It has four other regional offices, 10 refining operations around the country and more than 25 terminal locations.

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