Greentech’s made some modest strides the past week and is indicating some bullishness for the first time in three months. There’s still some work to be done to shake the bears loose, but we’re encouraged by recent action. We still believe the market is weighed down by a lack of progress on the proposed infrastructure and long-term spending bills. We’ve said a few times recent history shows clean energy doesn’t need Federal support to thrive, but the promise of still-murky regulatory action has investors wary of making commitments.
The current market is giving investors headaches, but it’s not unusual in Greentech to find savvy investors looking past the near-term economic fears and focusing on companies that are tapping into what promises to be terrific growth from de-carbonizing the economy.
This issue, we highlight a small cap stock with amazing engineering savvy at a minor, but essential, feature of electric vehicles. Management expects it can grow revenue about 50% every year through the rest of the decade as automaker customers begin to churn out EVs. It’s in the early stages of growth and is seeing strong fund buying as well as exceptional technicals.
We also highlight three ESG stocks showing the best technicals in the group, as part of our recurring ESG Three, give the current sector outlook indicated by our Greentech Timer, and provide a detailed rundown of the stocks in our current portfolios. We have some ratings changes and refreshed sell-stop recommendations for many of our holdings.
A continued mixed bag of signals from Greentech still yields some good stocks to profit with. We’ve been muddling through “two steps forward and one step back” kind of action, which means today’s market may seem bad, but the bigger picture keeps improving. The key is to continue to be diligent about avoiding weak stocks and search for good fundamental underpinnings to chart moves with the strong ones. The market is slowly laying the groundwork for the next leg of Greentech’s bull move.
This issue, we’re returning to a segment of Greentech that was red hot for a brief period before simple bad luck turned investors against it for years. The sector recently broke through long-held resistance. That’s a plus. Our featured stock has a monopoly on parts of its market. It’s nicely priced for its existing business already, but its shift into next-generation technology suggests huge opportunities ahead – that’s a big plus.
We also have newly recommended ratings, suggested buy ranges for a couple, and updated sell-stops for many of our current portfolio holdings. We also now have “sell” call on one holding which has broken through support.
Greentech peaked in February and bottomed in May. There are still headwinds – as there are for many growth stocks – but we’re seeing the sector build a base for a resumption of its long-term bull move. We’re also seeing more stocks that are setting up for long-term success and more predictable performance from our current holdings.
This issue, we examine one of the leading providers of an essential technology for residential solar systems, a fast-growing market. The last two quarters for home-based solar have been the best ever in the U.S. Our pick this week is gaining market share with a unique approach that makes systems more efficient and more reliable. It’s also expanding into segments that could quadruple sales in coming years.
We also have newly recommended ratings and sell-stops for many of our current portfolio holdings.
Moral imperatives don’t drive the stock market, but they do drive peoples’ attitudes, which in the long run will move the market. The sixth report of the Intergovernmental Panel on Climate Change came out last week and is a sobering reminder that the world must decarbonize. Global sea level rise is accelerating and is advancing at a higher rate than at any time in the past 3,000 years. There is a growing belief the Amazon rainforest, Arctic ice and Gulf Stream are at tipping points that will worsen the effects of global warming. The most unnerving thought for me reading it: scientists are conservative in public projections like the report.
Stock investing plays its small role in the needed change: by pursuing profits in Greentech we’re putting capital to use supporting publicly traded companies–at the least buying and selling volume help create viable markets for raising additional capital for businesses. For our modest mission this issue, we have one new buy, one intriguing new watch and some ratings and sell-stop shifts in our existing portfolio.
As always, contact me anytime with questions or comments at brendan@cabot.net. Thank you for joining me on the path of climate profits.
Building Up The $1 trillion infrastructure bill is now in the Senate’s hands, meaning Greentech faces a pivot point. Passage of the bill is a potential catalyst to get our sector out of its recent range-bound activity and back on bullish footing. Failure of the bill probably gives bears new life in the near term—investors pretty quickly get used to the idea of more money coming and, like the “taper tantrums” of the past decade, tend to express displeasure through their trading desks.
We’ve said before Greentech doesn’t need direct government support to succeed—renewable energy continued to take market share in recent years even under previously unsupportive federal leadership. This issue, we’re adding two stocks to our portfolio that show excellent strength due to macro trends and at least one of which will help catch any infrastructure bill momentum as well. We also make some shifts in our existing portfolio and watchlist as we adjust to market reactions to earnings.
A good opportunity to step out of the daily volatility of the market and get some perspective on the longer term would be to attend the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. My fellow analysts and I will present our look ahead and some of our best picks for the next year.
Contact me anytime with questions or comments at brendan@cabot.net. Thank you for joining me on the path to climate profits.
The Scale of the Problem How big is the energy transition the world needs to undergo? The decline of carbon dioxide emissions last year (a drop of 6.3%) was the sharpest decline since WWII. The world needs 30 more years of that magnitude in a row to constrain global warming to “just” 2 degrees Celsius.
The European Union wants to do its part. It announced a stricter carbon program, aiming to slash emissions by 55% by the end of the decade and to more than double E.U. renewable use, with the expectation it may do away with carbon altogether after 2030. It also plans a carbon-adjusted border tax for goods, based on home country emissions. Domestically, we’re still waiting for an infrastructure bill, but are heartened by the creation of a federal platform for instant solar permits. The Solar Automated Permit Processing program integrates local and federal databases to streamline approvals of rooftop solar projects, which can eliminate a large pain point of time and money. Can these programs keep the growth going? Renewable energy use globally rose 14% in 2020. It needs much more of the same.
The more immediate problem for us is the market, which is suffering from delta variant worries. Yet a choppy market (we’re not in a bear market, yet) sows the seeds of the next rally. This issue we look at three stocks – Ameresco (AMRC), Chipotle Mexican Grill (CMG) and General Motors (GM). They each have a combination that makes future leaders – real sales, profits and a clear growth trajectory.
You’ll see for this issue of SX Greentech Advisor that we’ve tweaked our format to make information more accessible – shorter stock write-ups with bite-sized sections and more charts. It’s part of our aim to be nimbler. Please let me know if you have any feedback on the format, or any other questions or comments, at brendan@cabot.net. There is still time too to join me and my fellow Cabot Wealth analysts for our 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19, where we will present our look ahead and some of our best picks for the next year.
Electric Delivery The first half of 2021 ended up being a needed retracement of the first leg of the new bull market that started in March 2020. The bear move from February to mid-May pushed the Greentech sector into a loss for the six months, anywhere from 1% to 10% depending on your benchmark. Yet we’re still in a long-term uptrend and investors continue to pour money into Greentech: the three largest environmental stock funds saw inflows equal to 33% of their assets under management this year, through June, easily the best six-months ever for Greentech investor inflows.
In this issue of SX Greentech Advisor, we present two businesses, one a recently public prime-mover in utility-scale energy storage and analytics; the other a long-time auto parts supplier that sees big growth ahead in the redesign of electrical systems for EVs. Also inside, our recurring look at the top three technically strong ESG stocks, our Greentech Timer, and a review of our portfolios.
“It is undoubtedly the greatest economic opportunity of our lifetime. The winning companies won’t be worth billions or tens of billions. They’ll be worth hundreds of billions or trillions if we can pull off that goal.” Ben Kortlang, founding partner of venture capital firm G2 Investors, on the U.S. carbon reduction goal of 50% cut by 2030.
SPACs – special purpose acquisition companies – had their moment. For about six months until this spring, they were the hottest thing in the market – hotter even than meme stocks. That ended, though, thanks to a combination of a few poor deals that made institutional investors pull back from supporting SPACs and regulatory crackdowns that have dramatically slowed new blank-check creation. In the Greentech space, however, that retreat means there are some opportunities to be found amid the market detritus. That’s our focus this issue. We sorted through the more than 850 active SPACs in the market, identifying 71 that are ESG focused and then whittling our selections down from there.
These mark our first additions to the Excelsior (“ever upward”) portfolio. Excelsior is our special opportunities portfolio for occasional dips into equities that don’t fit into our regular Real Money Portfolio approach and strategy. The Real Money Portfolio is meant to be fully invested at 12 holdings of equal starting size, a design allowing us to seek market-beating results while containing long-term risk. Our approach in the Real Money Portfolio for each selection is largely the same too – a collection of chart and technical screens bolstered by fundamental evaluations. Excelsior will tend to be riskier: we don’t have a recommended position size among its recommendations (that is, don’t anchor buying to the Real Money Portfolio sizing) and selections often don’t have the trading history to be vetted deeply by technical analysis–as is the case with our SPAC choices. Still, we see SPACs as a type of late-stage venture capital opportunity and there are some very exciting businesses coming to market in solar, EVs and materials. We also discuss ways to grab quick, easy profits in any SPAC. Enjoy!
No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day. -Larry Fink, CEO of BlackRock, the world’s largest asset manager in his annual letter to CEOs.
A 19th Century Japanese print of Ben Franklin’s electrical experiment
Carbon Two Ways Much has been made of two climate-activist backed outsiders being elected to the board of Exxon Mobil Corp (XOM) last week. We’re probably less optimistic than most that this will do much to change Exxon’s stripes since, as the descendant of industry creator Standard Oil, its identity is woven with burning carbon.
More important, in our view, to focus on is the fact that the three largest U.S. investment managers–BlackRock, Vanguard and State Street–and America’s three largest pension funds backed the new directors. Is the motivation from institutional investors climate concern or simply profit related? At this stage of the development of Greentech, it probably doesn’t matter–they’re both means to the same end. This chart below is hard to read in reduced form, but seeing the difference between the blue and red line is all you need to know. In the past 2,000 trading days (that is, since early 2013), the total return for clean energy equities–the blue line–is 270%. The total return for the red line, traditional oil and gas stocks: negative 60%.
In this issue of the Greentech Advisor, we add two carbon-related stocks, at either end of the value creation spectrum. Enjoy!
“When companies don’t listen, shareholders will take action” -Andrew Behar, CEO of As You Sow, a corporate accountability non-profit, on climate activist electing two board members to Exxon Mobil
Bear paw prints on the dam of a West Virginia coal sludge pond, 1995, by Lyntha Scott Eiler. Source: Library of Congress
The Material World The S&P 500 is not even two weeks from reaching an all-time high, but there’s turmoil underneath the surface of the market. In particular the relative strength and momentum indicators show that some sectors like tech and consumer discretionary are suffering and will need some time before leading the market again. But in a normal market, which we’re in, when some sectors are down, others are up. In particular, materials is the strongest of the traditional 12 S&P sectors. Materials show signs of rising price momentum and relative strength, meaning, for now, the best bets are being placed there. As we build our portfolio in Greentech, this issue we turn toward two large cap companies that produce materials the world needs both to support the economy and to expand into renewable energy.
The heart of Greentech – solar, wind, EVs and other growth businesses driven by technological advances – remain in a retracement with their broader tech brethren. Interestingly, a report by Credit Suisse floated the notion that partly affecting prices at the moment is that as investor interest surges, portfolio managers who used to focus solely on fossil fuel companies have been shifted to manage renewables – and are applying their commodity and cash-flow-focused models inappropriately to Greentech stocks, which are better viewed as, well, tech stocks. Probably a bigger issue right now: the lack of advancement on an infrastructure bill.
“We are approaching a decisive moment for international efforts to tackle the climate crisis – a great challenge of our times.” -Fatih Birol, International Energy Executive Director, writing in the May report Net Zero by 2050
Workers tying up copper wire in Montana, 1942. Source: Library of Congress
Big Bang The world needs to invest $110 trillion dollars to transition to a low carbon future by 2050, according to the International Renewable Energy Association. We’ve all known of the world’s necessity for getting to net-zero and then net-negative-carbon emissions for some time now. Even so, the clean energy movement has only showed up in the market in fits and starts.
Until now.
Finally, the shift to Greentech is taking hold. Even as oil and gas prices have stayed low, a situation that used to dampen renewable energy demand, we’re seeing renewables take market share. In the U.S. alone, Greentech grew 7% in 2020, even as overall energy demand declined 5%. Solar is now the cheapest electricity in history, according to the mainstream International Energy Agency. A decade ago, it was the most expensive, on a utility scale. The great shift is on.
There are 235 U.S.-listed cleantech stocks in the SX Greentech Advisor universe, plus we also track the 50 most-held ESG (Environmental, Social and Corporate Governance) stocks in mutual funds and ETFs, with some of our own exclusions. We aim to be fully invested with 12 equally sized positions. This debut issue, we start building our portfolio with a growing desalination equipment maker and a market-leading maker of alternative building products.
Enjoy!
“Our emissions, it seems, are no longer a problem we are willing to kick down the road.” -Bill Gates, writing in his book How To Avoid A Climate Disaster
Since May, Greentech has traded in a 20-point range, between 70 and 90 in the benchmark we look to for sentiment, the Wilderhill Clean Energy Index. On Monday, we saw a break below support to 68, enough to cause concern we could be in store for an extended correction.
The long-awaited infrastructure bill is putting more wind in our sails and, after eight months of working through a bear market turned range-bound slog, we’re enjoying a bull market in Greentech once more.
Rumblings are that Congress is getting closer to approving spending plans that lately indicate $500 billion would be directed toward Greentech projects.
Greentech held the support levels this past week we wanted and, yesterday and today, have rallied back over the sector’s 40-day moving average, a bullish sign.
It’s been a volatile week so far, with Monday an excellent day for risk stocks and yesterday a tough day for tech as inflation fears circulated in the market.
Monday’s market tumble to two-month lows, which was the first gap lower that also pushed the broad market beneath its 40-day moving average since mid-summer, triggered a number of our sell-stops.
The broad market making new highs this week gives us a bullish framework to work within. For the sectors that comprise most of Greentech, it’s a mixed bag, however.
Geothermal energy producer Ormat Technologies(ORA) closed Friday at 86.54, above our target for a breakout. We are shifting the stock from ‘Watch’ to ‘Buy’ for Monday.
We’re going to take profits on Archaea Energy (LFG) today, after shares tripped our stop-loss of ‘under 20’ with a close at 19.80 Monday. We should book a profit of around 8%. There is more support for LFG below here, particularly at 18.70, but with sectors broadly breaking support levels yesterday, we prefer to get out with a profit now.
