Alternative Energy and Cleantech Picks and Pans for 2013

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.

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