Alternative Energy and Cleantech Picks and Pans for 2013

Alternative Energy sources
Source: thinkstock
The alternative energy sector is supposed to be one of the great winners of the 2012 election outcome. After all, an Obama victory would indicate further government support for what are future power needs. The problem is that investors have lost so much money by investing in alternative energy in recent years that this sector has turned 401(k) retirement plans into 201(k) plans. Looking into 2013, that might not be the case universally.

24/7 Wall St. has decided to take a look into 2013 to see which cleantech and alternative energy players may be winners and losers ahead. Our review is not focused just on solar stocks. We have included some of the more well-known low-emission companies that are probably “less dirty” more than they are purely green or cleantech. Some of these stocks have had a rough 2012, while others actually have tried to find a bottom. The long and short is that some of these are likely to flourish in 2013 while others flounder.

It is important to consider what a recovery rally would look like if cleantech and green companies actually manage to start getting some good news again. Our message is simple: picking winners based solely on expectations of the past my prove to be lethal for your portfolio. 2013 brings risks of the fiscal cliff, new tariffs and duties being imposed on solar goods out of China, tax credit risks and maybe even risks of affordability means-testing down the road. Can SolarCity still manage to come public in an initial public offering?

In order to make this list for 2013, each company had to be well-known now or have a history. Companies have to have sales also, to avoid looking at only the most speculative possible shenanigans. Again, this is not just a list of stocks to buy. Some almost certainly are not buys at all. Another criteria is that investor interest has to be based on their alternative energy operations and efforts, or at least the cleaner and more efficient energy technologies. Each stock has to have an active following by Wall St. analysts as well. In order to avoid any grouping or dominance, we covered these in alphabetic order.

Capstone Turbine Corp. (NASDAQ: CPST) is the maker of the first commercially viable low-emission microturbine systems. Unfortunately, this one has been stuck as a low-priced stock for many years. Its share price actually peaked back in the first alternative energy wave in the early 2000s north of $80. Shares are currently just under $1.00, the 52-week trading range is $0.87 to $1.54, and the analysts who follow it have a price target of about $1.80. The company’s market cap is about $292 million, and it seems to have adequate funding, rising sales, rising margins and a record product backlog of $141 million. The upside seems large, but the caveat is that it is very thinly covered by analysts. Its fiscal (March) 2013 sales are expected to be up 21% to $132.5 million, followed by 31% growth to $174.5 million in 2014. Past dilution has kept a lid on this stock. If the company is truly at adequate funding, then we anticipate that the upside is more than the downside, if it can live up to its growth expectations.

Cree Inc. (NASDAQ: CREE) often is considered the leader of light-emittiing diode (LED) products. We consider this more of an energy efficiency player rather than an alternative energy leader, but the market (and cleantech funds) usually group these together. The LED stocks were battered and tattered, but now Cree is close to a year high after having solid earnings at its most recent report. With shares at $33.50, the 52-week range is $20.25 to $33.70 and its market cap is back up to about $3.9 billion. The consensus analyst target is right around the current price at $33.50, so either those targets will be raised into 2013 or downgrades on valuation will be issued. Cree talked up its LED market prospects, and investors are treating it as though the sector is about to come back on strong.

First Solar Inc. (NASDAQ: FSLR) is still the king of solar companies as far as U.S. investors are concerned. While many investors still have serious doubt here, since the day after the election this stock has risen by about 26% and have come back to challenge the $30 price handle again. That is serious money when you consider that First Solar has a $2.6 billion market cap. One word of caution: even though shares have now nearly tripled off the 52-week low of $11.43, the recent $29.90 share price is substantially higher than the consensus analyst price target of $22.63 now. Earnings are in decline here, and sales growth is all loaded to prior months and expected to be flat ahead. We still do not have any clear read on the management so far, and we expect margin declines to continue ahead. The DOE loans could be an issue as well. Our take is that the sell-side of the investment community is going to have to get more aggressive with higher optimism, or that valuation concerns are going to come back in a serious way.

Fuel-Tech Inc. (NASDAQ: FTEK) was supposed to be one of the leaders in air pollution control systems for utilities, factories and other large operations. Despite all of the fighting against coal and other dirty power plants, this company is only worth $81 million now in market cap, and it has often been deemed to offer cost-prohibitive solutions. With shares around $3.70, the 52-week range is $3.45 to $7.01 and analysts have a consensus price target of about $5.80 on this stock. Our concern is that the price target seems out of date, and the stock is rather thinly followed now. The notion that shares were close to $40 at the peak during the energy bubble is ancient history, but the push toward less dirty output could still offer some upside as revenue growth is expected here: sales were $93.7 million in 2011, versus $82.8 million in 2010, with growth expected to be $98 million in 2012 and $113.5 million in 2013. The company is profitable now and expected to remain in the green. Does it help that the CEO bought about $200,000 worth of shares?

GT Advanced Technologies Inc. (NASDAQ: GTAT) is the former GT Solar, but it has seen its shares slide despite the name change and despite its focus being on the supply side of the equation to solar panel makers. It is one of the more recent restructurings, with 25% of its workforce being laid off. Shares are now down around $3.40, against a 52-week range of $3.00 to $9.89, and analysts still have a (supposed) consensus price target of about $5.70. Due to choppy sales and lower guidance of late, analysts have sort of left the company for dead. Earnings estimates have tanked and the company already has warned of a challenging 2013 in core markets with weak Asian customer metrics, even if its LED business is holding up. The good news: GT’s $400 million market cap is less than its cash balance of almost $480 million, and it trades at only two times its tangible book value. The bad news: investors hate “value” analysis in solar. With a big restructuring and with far lower sales right now, GT could be one that brings a huge upside surprise, or it could just flounder around and burn through a huge cash cushion.

Itron Inc. (NASDAQ: ITRI) is not exactly green, but it does help with the smart grid with its smart electric meters for homes and businesses. Valuations have come much more in-line with the market after years of trading at serious premiums. Here is the problem: 2011 revenues of $2.4 billion may have been the peak, as analysts expect only $2.13 billion in 2012 sales and $2.07 billion in 2013 sales. 2011 earnings of $4.29 per share is also expected to be followed by $3.69 EPS in 2012 and $3.70 EPS in 2013. At $44.50, Itron trades at 12-times expected earnings, and its 52-week range is $33.33 to $50.35. The consensus analyst target is almost $48 here, and the market cap is $1.75 billion. Our issue as 2013 is coming upon us is that the story is currently one that feels peaked and the company has to sell itself in some form of a value scenario since the peak in the good old days was more than $100 in the stock. Itron looks and feels like a range-bound stock story, and there is no reason to a buy a range-bound story when shares are in the upper two-thirds of a trading range.

MEMC Electronic Materials Inc. (NYSE: WFR) makes semiconductor wafers, but it is known best for its solar materials production during the solar boom. That was a different time under different valuations. Sales are expected to fall 13% in 2012 and about 1% in 2013, although normalized earnings are expected to flatten out this year, with improvement in 2013 with a forward value of about 16-times earnings. Shares are at $3.15 and have more than doubled from the 52-week low of $1.44 and could literally almost double before its 52-week high of $5.95 comes into play. MEMC’s SunEdison unit aims to develop and finance solar projects with little to no capital outlays from the customer upfront. This could be a huge win for MEMC. Even though this could rally about 30-fold and still not hit its old peak, its market cap is still about $720 million. Analysts also have a consensus price target of $4.31 and that has come down over time. The problem with endorsing MEMC is that it has been such a painful experience, tenured by earnings warnings and no clear picture. Being extremely selective is very important when it comes to MEMC.

Pacific Ethanol Inc. (NASDAQ: PEIX) was supposed to be the grand winner of the move into ethanol. With Bill Gates having taken a big stake of about 20% or so long ago, how could it have been a bad company? That is what investors have to be wondering now with this stock down at $0.32 and with a 52-week range of $0.27 to $1.69. It is almost hard to believe that the market cap here is a mere $46 million. With corn prices and a drought, ethanol is just not that popular outside of corn farmers. With the reports of added engine erosion continuing to dominate ethanol news, and with a delay on its delisting decision by Nasdaq, we have a hard time wondering how this company can come back in favor. The analyst pool is said to be at a consensus target of $0.96, but we would caution that no real analyst calls appear to have been made here in ages. If you adjust for a 1-for-7 reverse split in mid-2011, the old peak would be north of $200 in today’s share prices. We hold little ambition here other than some predatory buyer looking for assets potentially on the cheap.

Solazyme Inc. (NASDAQ: SZYM) makes oil and biofuels from algae and low-cost plant sugars for sectors such as fuel, chemicals, nutrition and health sciences. The company is still expanding globally and has key deals with Bunge Ltd. (NYSE: BG), Archer Daniels Midland Co. (NYSE: ADM), Dow Chemical Co. (NYSE: DOW) and others. Even though this one came public in mid-2011, its shares have slid until only recently. The stock traded north of $25 at its post-IPO peak. Now the stock is down to about $7.50, against a 52-week range of $6.45 to $16.31, and the market cap is only now about $450 million. Despite an expectation that revenue will almost double to about $86 million in 2013, earnings losses are expected to continue. What is interesting is that analysts have a consensus price target above $16 on this stock. Our assumption going into 2013 is that all of the analysts who have buy ratings will at least bring down their price target expectations ahead.

SunPower Corp. (NASDAQ: SPWR) was a semiacquisition, or so believed some on Wall St. When Total S.A. (NYSE: TOT) took a 60% stake in the company, many investors expected that ultimately SunPower was going to be acquired. The company also had government loan guarantees. The problem is that Total was originally paying over $20.00 per share, but then it agreed to buy even more of the company at $8.80 per share and it now owns about 66% of the company. SunPower’s stock sits close to $5.00 and it has a 52-week range of $3.71 to $9.54. Its entire market value is now just under $600 million, and the consensus price target is only $5.03. We cannot help but wonder whether Total might consider tripling-down after doubling-down.

Suntech Power Holdings Co. Ltd. (NYSE: STP) is now under $1.00 per share and worth a mere $154 million. Shares are around $0.86 and the 52-week range is $0.71 to $4.40. With this being based in China, the risks of duties and tariffs will be present even if the company can manage to mitigate the risks by focusing elsewhere in other markets. The other issue here is all the accounting woes and fraud, which went back to 2010. When we first heard the news, we wondered if Suntech even had a future, and those fears are even more compounded after a NYSE potential delisting notice. Analysts still supposedly have a price target north of $2.00, but we would make the note that this may have not been updated properly. History has taught us that when woes are this big, investors lose far less money by being patient rather than trying to pick any massive bottoms.

Tesla Motors Inc. (NASDAQ: TSLA) is hard to consider a classic alternative energy player, but the company does make and sell high-end electric sports cars and sedans. With a $3.9 billion market cap, this Elon Musk company has even committed to raising its car prices in 2013. Shares are close to $34.50, the 52-week trading range is $22.64 to $39.95, and analysts have a consensus price target of almost $37.00. Morgan Stanley (NYSE: MS) is very optimistic here and even expects that shares could be worth $50 over the next year or so. It almost seems hard to believe that this stock is holding up so well, and we wonder if any potential tax credit changes and a slowing economy will act as a drag on orders ahead when it is expecting to hike prices.

So, here you have seen the good, the bad and the ugly. Consensus price targets and earnings or sales estimates are from Thomson Reuters. The market capitalization rates and price data come from Yahoo! Finance. Again, this is not a list solely of stocks to buy. Some of these alternative energy companies or cleantech companies could have serious challenges ahead in 2013 and beyond.

For those investors seeking to diversify their green or cleantech investing via ETFs or funds, there are the PowerShares WilderHill Clean Energy (NYSEMKT: PBW) and the Guggenheim Solar (NYSEMKT: TAN) products. The latter is solar-focused, and the former includes companies that are more diversified in alternative energy within and from outside of the United States. Then there is also the wind ETF via the First Trust Global Wind Energy (NYSEMKT: FAN), but we would caution that its largest holdings appear to be foreign companies.


Take This Retirement Quiz To Get Matched With An Advisor Now (Sponsored)

Are you ready for retirement? Planning for retirement can be overwhelming, that’s why it could be a good idea to speak to a fiduciary financial advisor about your goals today.

Start by taking this retirement quiz right here from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes. Smart Asset is now matching over 50,000 people a month.

Click here now to get started.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.