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.
Read through for more details.
Centrus Energy Corp.
Overview
Nuclear energy hasn’t gotten much attention the past decade from investors. Here is the monthly chart of the lifetime of the Van Eck Vectors Uranium and Nuclear Energy ETF (NLR). As you can see, the 2008-2009 financial crisis sent the sector to lows in tandem with the cratering of oil prices which removed the primary narrative at the time – Peak Oil and very high fossil fuel prices – for investing in alternative energy. The sector rebounded strongly afterward on an emerging global consensus that nuclear would be a necessary component of combating global warming. That ended abruptly in March 2011, when a tsunami hit the coast of Japan, including the nuclear power facility at Fukushima.
Nuclear remains a vital part of zero-emission energy, however. It generates 10% of the world’s power today. The U.S. generates the most nuclear power overall, 20% of the country’s energy mix, while France, the third-largest nuclear generator overall, gets more than 70% of its power from fission. China, Russia and South Korea are other large generators. In recent years, post-Fukushima moves to suspend and reduce nuclear power generation have been reversed in France and Japan (Germany remains committed to eliminating nuclear and replacing with other renewables). In short, most of the world is embracing nuclear power again. At the same time, the industry is moving toward using a more enriched uranium as the fuel for reactors. This high-assay low-enriched uranium, (HALEU) allows for smaller and more efficient reactors and is seen as the future of the industry, both for new reactors and for extending the life of existing reactors. Centrus Energy Corp (LEU) is the only company in the U.S. approved to produce HALEU.
Source: U.S. Department of Energy
Business Model
Centrus is an Ohio-based company that began its life as a division of the federal government, then privatized with an IPO in 1998 as USEC Inc. The company has been a mainstay in the Megatons to Megawatts program, which continues to buy old Soviet Union nuclear weapons and downblends them to low-enriched uranium (LEU) for use in U.S. nuclear reactors. After Fukushima caused the collapse of the uranium market, as we saw in the earlier chart, USEC declared Chapter 11 and reorganized as Centrus in 2014.
Since then, Centrus has become a supplier of LEU to power generators in the U.S., Europe and Asia. Its product is measured in SWUs – Separative Work Units – which represent the effort needed to enrich uranium. Uranium 235, the portion of uranium ore used for nuclear power, occurs in just 0.7% concentration and has to be enriched up to LEU, HALEU and HEU, the last being the most concentrated uranium used to power U.S. Navy vessels. HALEU, therefore, is more SWU than LEU. The world supplies about 50 million SWU a year, with Centrus providing less than 5%. Four foreign competitors, all state-controlled entities in Russia, China, France and a joint Dutch-U.K. business, produce 95% of the world’s SWU.
Sales of the lesser-enriched uranium, LEU, is the revenue generator for Centrus right now. The company sold $247.2 million of uranium in 2020, up 18%, and turning a profit of 57 cents a share after deep losses of $2.79 for 2019 and $12.15 in 2018. The reversal from those losses came from a 2019 reworking of long-term contracts with a French customer about the time the uranium market hit a long-term price bottom. 2020 sales were bolstered by a one-time $32.4 million collection from another, bankrupt, customer. This year, Centrus should sell about $219 million of LEU to about three dozen utility customers in the U.S., Japan and Europe. The LEU business has a good bit of clarity for the company, with contracted business of $1 billion set through the end of the decade. Major customers are Exelon (EXC), Dominion Energy (D) and NextEra Energy (NEE).
SWU uranium is a commodity, and does have price variation that affects Centrus, which has some contracts priced at a discount to spot SWU. Right now, spot SWU is about $55, up from $49.50 a year-ago, according to UxC, an industry publication. Prices for SWU are seen improving in the next five years, from a range of the low $60 area by 2026 to over $100, depending on how much nuclear is added to the world’s capacity to counter global warming. Nuclear generation is projected to increase under any reasonable scenario, based on existing plans, but forecasts vary from 8% higher to more than doubling – a lot depends on the willingness to combat global warming worldwide.
Business Outlook
The real growth potential is in HALEU. The higher enriched fuel means nuclear reactors can be loaded up just once every 20 years, as opposed to every 18 to 24 months in existing LEU designs. That increases grid reliability. It also allows for a smaller, less capital-intensive reactor designs and less waste. Research facilities that use the very enriched HEU uranium, can switch to HALEU as well, reducing security issues around proliferation of weaponizable uranium. That’s a transitioned advocated by the U.S. government.
Centrus is building the only U.S. facility that will be licensed to produce the high-assay uranium (it is, in fact the only enricher of any kind of uranium domestically). The federal government is paying the bulk of the cost of the initial facility under a contract, which later can be expanded modularly by Centrus to meet demand.
The first market for HALEU will be micro-reactors for the military. We’ve mentioned before in these pages how the U.S. military is seeking to remove domestic bases from the electrical grid as part of its climate-change-related plans to keep bases operational under increased extreme weather events. A Defense Department prototype reactor, Pele, should be available by 2024. Perhaps 130 reactors will be deployed. By rule, the American military needs to find a domestic producer of HALEU – right now, that’s Centrus.
By mid-decade, utility owned micro-reactors for remote locations – interior Alaska, various U.S. islands – are possible, generating perhaps 10MW with a one-time upfront fueling to last 20 years. Advanced, utility-scale reactors are possible by the end of the decade. Centrus has non-binding agreements to produce HALEU for reactors planned by private businesses for the end of the decade.
How much HALEU will be needed? The Department of Energy is supporting 10 advanced reactor designs to provide the product base for future reactors. Nine of the 10 require HALEU. Political winds can change, but both recent Republican-led administrations and the Biden administration call HALEU an issue of national energy security. The government is also suggesting a strategic uranium supply. A 30-day comment period on the proposal just closed. Based on a survey the Nuclear Energy Institute conducted of U.S. advanced reactor developers, it is possible the market for HALEU could be worth $1.2 billion annually by 2030 and $5.6 billion by 2035, based on the low-end price of HALEU (in Europe) today.
Expressed by weight, rather than SWU, the country could need 25 metric tons of HALEU by 2030 for new reactors, with the possibility of as much as another 500 metric tons to supply existing reactors. Right now, the country uses about 2,000 metric tons of LEU for the reactor fleet. Centrus is on target to start production of HALEU in its Piketon, Ohio, plant in early 2022.
Strictly as an LEU fuel provider, Centrus is still an attractive buy. At 15 times 2022 earnings, even after a recent run-up, shares are on par with the P/E of the Van Eck Uranium and Nuclear Energy ETF, to use that as an industry proxy. At about 2 times price-to-trailing sales, Centrus is valued well below the renewable energy P/S of 4.5, by way of peer comparison. The HALEU option – while still of uncertain long-term financial impact – makes this an exciting growth play. There is only one Wall Street analyst following the stock, which adds to our belief Centrus is a story that has yet to be fully recognized by the market.
Issues to Consider:
- SWU prices are trending higher on an annual basis. That’s bullish for Centrus, as nuclear demand picks up worldwide and buyers are becoming more eager to lock in prices.
- The DOE contract for HALEU – to assist Centrus in building its plant – expires this year. Right now, there are no firm HALEU-related deals for Centrus.
- Centrus has no net debt. It has one debt tranche that will cost $105 million to pay off and cash of $176 million.
- The business has $900 million in losses to write off against future profits.
- LEU is a small cap, at $520 million market cap.
- Centrus last week received $43.5 million from the Department of Energy to settle unfunded pension claims from operations Centrus now owns. It goes straight to the pension fund, not the corporate coffers.
- Shares can be volatile. Funds own 23% of the business but the number of funds has nearly tripled since March, according to MarketSmith data.
Technical Analysis
Shares recently broke through 25, a ceiling that had held from November to August. They quickly gained 10 points on the move and are overbought. By a few measures, shares probably need to let off some steam either by pausing or stepping back. Support looks very good at the 200-day moving average, at 24, as well as the 40-day at 28.40. Chart-wise, expect buyers to come in if shares slip to 30. Long term, shares are above any real chart resistance – past highs on charts in the 50s and higher are the result of a reverse stock split in 2014 – real trades never occurred above levels we have now.
What to Do Now
LEU ran away from us as we spotted it, so quick profits are likely off the table. However, charts and good buying volume suggest we’re in a new range and should be able to post gains, if at a lesser pace than shares have enjoyed the past week. We’re going to recommend entering Centrus at a price below current levels – on an intraday basis – as shares should pull back toward support. BUY 29-33
Centrus Energy (LEU)
Revenue (trailing 12 months): $244.5 million
Earnings per share (TTM): $17.79
All-time high (intraday): 39.12
Market cap: $520 million
Recommendation: Buy between 29 and 33.
The ESG Three
The ESG Three are three technically strong stocks selected from the 200 most-held stocks in environmental, social and governance focused mutual funds and ETFs. We screen further to eliminate widely held companies we believe have clear ESG problems. ESG fund holdings tend to be weighted toward blue-chip companies drawn from every industry which are rated highly in social and governance aspects. These aren’t formal stock picks but suggestions for those looking to explore additional stocks beyond the Greentech portfolio.
Moderna (MRNA)
What is it?
A drug manufacturer with a COVID-19 vaccine and a newly introduced flu-COVID combo vaccine.
Why is it ESG?
No product recalls or formal safety issues with its flagship vaccine. The business has the potential for ESG issues given its fast growth and the tendency for employee and governance issues to get out of hand in such environments – but none have happened yet. ESG funds own $61 million of shares.
Why now?
Moderna continues to be one of the strongest stocks in the market – and strong stocks tend to stay strong. Shares have pulled back toward support, providing a good entry point. A lot of COVID-19 vaccine is still needed throughout the world.
Cloudflare Inc (NET)
What is it?
A provider of content delivery services (CDS) – essentially a backbone services provider for Internet sites.
Why is it ESG?
Detailed anti-corruption policies and an independent lead director help with governance. Employee practices are fine, though mainly around retaining better performers than talent as a whole. ESG funds hold only about $7 million of shares.
Why now?
Compounded annual growth of more than 50% and gross margins above 75% suggest Cloudflare will one day hit scale that generates large profits. It loses money right now, but investors have supported shares to recent all-time highs.
MongoDB (MDB)
What is it?
A database platform used in a wide variety of applications, including cloud.
Why is it ESG?
Excellent employee retention efforts and extensive training company-wide on privacy and security issues. ESG funds own $9 million of shares.
Why now?
MongoDB’s flexible – or general use – database systems are keeping its product in high demand as tech efforts proliferate. The business bested consensus revenue and earnings in the quarter reported at the start of the month. A huge gap higher on earnings is holding, suggested shares have a new base to work higher from eventually.
Our Greentech Timer
Apparently, the market is going to crash this week. At least, that’s the message from prognosticators including TV talking head Jim Cramer, columnists at Barron’s and a slew of market pundits. By this apparent common sentiment, we’re due for a 10% or more plunge this week. I’ve seen more than one person confidently peg Friday as the very day.
Now, the market may very well crash (so it’s a good thing to stay on top of our stop-loss levels!) but the ease of predicting big bearish market moves belies a couple of realities. 1) It is very hard to predict what the market is going to do, especially predictions of crashes, which run quite opposite to the market’s tendency to go higher. 2) Signs of bearishness are one of the very features of bull markets – it’s usually only when there is consensus around bullishness that one really needs to get worried. 3) From our own experience, I find many market watchers make dire predictions a lot – they never mention the ones that don’t come true ever again, but will remind you of how their dart hit near enough to the target ‘til kingdom come.
All that said, the market right now is testing support levels. Greentech itself is sitting on a crucial level of support – the 20-day and 40-day moving averages – that we want to see held. And right now, the signals suggest things are skewed more bearish than bullish. But bears seem to lack conviction, at least to start this week – volumes and follow-though to the downside is lacking. We continue to see action as more range bound than exhibiting true bullishness or bearishness. A non-trending market is a difficult place to be, as the mixed performance of our portfolio holdings attest. In the long-run, the market tends to go higher and Greentech specifically is still well positioned in the macro uptrend. We’re getting there.
Our Greentech Timer is fully bullish when the index is above the 20-day and 40-day moving average and those averages are upward trending (ideally, the index is also above an upward trending 200-day moving average too, but not essential). Right now, the Timer suggests caution.
Current Portfolio
We have a number of ratings changes this week. We’re not jumping into new buys right now, but have preferred ranges for entering Aemetis as well as Centrus, featured this issue. We’re also watching for trades breaking down to make sure we cut our losses. We have one sell – Enphase. Sometimes, a trade just goes underwater from the start when probabilities tell you
the opposite should happen. We’re quicker to sell here given the current market environment to preserve our capital – severe losses are how even the best traders get washed out of the market. We want to preserve what we can to profit from the return of the uptrend when it comes.
About the portfolios
Our primary portfolio is the Greentech Real Money Portfolio – we invest alongside subscribers in the picks we make. That portfolio is designed to be fully invested at 12 stocks of equally sized initial investments. This gets us enough opportunities to capitalize on Greentech’s advances without risking too much money in any one position.
Sell-stops are essential to long-term success to our approach. We prefer to execute sell-stops on daily closes at or below our sell-stop mark, rather than intraday lows, because closing prices are far more important than dips during mid-session. However, if you prefer to have a standing sell order on intraday violations of the level, in the long run our experience says it really shouldn’t affect performance too badly and certainly not as badly as not having sell-stops at all.
The special opportunities portfolio is named Excelsior, which is managed without consideration to the Real Money Portfolio. The current Excelsior portfolio is an evenly divided basket of SPAC warrants. We have no firm sell-stops; use your discretion.
SX Greentech Advisor Real Money Portfolio
| Stock | Buy Date | Buy Price | Price on 9/15/21 | Sell-Stop | Gain/Loss | Rating |
| Aemetis, Inc. (AMTX) | — | — | 14.21 | — | — | Watch |
| Ameresco (AMRC) | — | — | 69.89 | low 66 area | — | Buy |
| Aptiv plc (APTV) | 8/11/21 | 164.39 | 151.6 | near 145 | -7.78% | Hold |
| Chipotle Mexican Grill (CMG) | 7/22/21 | 1,773.91 | 1862.28 | around 1,825 | 4.98% | Buy |
| Enphase Energy (ENPH) | 9/1/21 | — | 154.77 | — | — | Sell |
| First Trust ISE Water Index ETF (FIW) | 8/3/21 | 87.99 | 88.97 | near 86.50 | 1.11% | Hold |
| KraneShares MSCI China Clean Technology ETF (KGRN) | 8/19/21 | 44.18 | 45.56 | around 43.25 | 3.14% | Hold |
| Onsemi (ON) | 8/3/21 | 44.63 | 48.01 | around 39-40 | 7.57% | Buy |
| Steel Dynamics (STLD) | 5/19/21 | 61.13 | 64.21 | around 66 | 8.17% | Sold |
| Trex (TREX) | 5/5/21 | 107.44 | 106.79 | around 102 | -0.60% | Hold |
Portfolio notes: STLD paid a 26-cents a share dividend to holders of record as of June 30, included in the Gain/Loss column.
SX Greentech Advisor Excelsior Portfolio
| Security | Buy Date | Buy Price | Price on 9/14/21 | Gain/Loss | Rating | Note |
| Live Oak Acquisition Corp. II (LOKB) Warrant | 6/16/21 | 2.57 | 1.37 | -46.59% | Buy | Navitas Semi |
| Origin Materials (ORGN) Warrant | 6/16/21 | 2.43 | 1.65 | -31.96% | Buy | |
| Li-Cycle (LICY) Warrant | 6/16/21 | 2.42 | 1.86 | -23.14% | Buy | |
| ReNew Power (RNW) Warrant | 6/16/21 | 1.81 | 1.55 | -14.36% | Buy | |
| Volta (VLTA) Warrant | 6/16/21 | 2.21 | 2.52 | 14.03% | Buy | |
| Ree (REE) Warrant | 6/16/21 | 1.1 | 1.03 | -6.36% | Buy |
Real Money Portfolio
Aemetis (AMTX)
Shares didn’t back down to near 11, where we wanted to enter last week. AMTX is set up to have a Golden Cross in about two weeks. That’s a bullish signal where the medium-term moving average (we use the 40-day because it gives quicker signals than the 50-day, with little loss of reliability. Most use the 50-day) crosses a longer-term moving average to the upside. Aemetis is a riskier stock – much depends on its execution of its renewable natural gas project and, further out for 2023, its renewable jet fuel project. However, the demand for renewable fuels is rising and Aemetis is following through. We’re going to seek to add a position as shares back off toward support – we’re still looking a couple of points below shares right now. We’ll send a special alert when it’s time to buy. WATCH
Ameresco (AMRC)
We bought AMRC with last week’s update. The portfolio price is 71.28. We’re below that now, but well within normal fluctuations. Our sell-stop is in the low 66 area, and support should come in around 67. BUY
Aptiv (APTV)
We never hit our sell stop of “near 145” (on a closing basis) even though Aptiv tested it in the past week. The company is seeing worse supply chain issues from the pandemic in Malaysia, where it sources semiconductors. That’s putting pressure on shares. Support is at 146 and is holding. We’re maintain our sell-stop near 145. HOLD
Chipotle Mexican Grill (CMG)
Shares are testing initial support at 1,858. Overall, shares continue to look quite bullish. Our sell-stop is “around 1,825,” about 3% over our portfolio buy price. BUY
Enphase Energy (ENPH)
Enphase has broken below our sell-stop and below its 200-day moving average. One of the goals of sell-stops is to get out of trades going to wrong way quickly and redeploy our capital to better near-term opportunities. SELL
First Trust Water ETF (FIW)
Water stocks have done their first test of their 40-day moving average support in two months. Our sell-stop is “near 88.” Technically, shares should start turning upward again soon unless the uptrend breaks. HOLD
KraneShares China Clean Tech ETF (KGRN)
The China clean tech fund is suffering from central government pronouncements this week that it wants to see consolidation in the EV sector in the country to cut back on too many projects consuming attention and capital. The whipsaw powers of Communist bureaucrats is a prime example of why we prefer the basket approach of an ETF rather than individual Chinese stocks in anything less than a bullish environment. Good support should come in at 44.50. We’re keeping our stop-loss around 43.25. HOLD
Onsemi (ON)
Shares are looking good, having broken over 46 last week, suggesting a new range for shares and further cementing the support of a gap higher at the start of August. Ramaxel, a server maker in China, has selected Onsemi’s chips for its next generation of servers. Our sell-stop “around 39-40” remains. BUY
Steel Dynamics (STLD)
We took profits in STLD. We recommended selling STLD in a special update September 9, after shares fell below our stop loss of 66. The portfolio sold at 65.86, giving us a total profit of 8.2% after including a 26 cents per share dividend we collected. Shares have slid to 62 since. SOLD
Trex (TREX)
Trex shares dropped dramatically Tuesday on no news, losing as much as 5 points from Monday’s close at 111. That’s not an unusual move when viewed through some technical price range indicators – we like using three times the Average True Range as the field of normal price moves. ATR was 2.75 coming into today, so the 4.37 point move isn’t terrible. Volume picked up into the close after being very light all day, which is a cause for more concern. Initial support is now in the 105 area. We’re maintaining our sell-stop of “around 102.” HOLD
Excelsior Portfolio
Our special opportunities portfolio right now consists of warrants in six companies that have gone public by SPAC. Our horizon here is longer term, as it needs to be with SPACs, since the companies suffer from cycles of investors exiting – IPO investors exit on the deal announcement, investors at the deal announcement who provide PIPE financing often exit at the close of the merger, and then shares need some time to find their feet as new, longer-term investors come in. Our rating remains BUY on the six as a basket. We have no sell-stops.
Li-Cycle (LICY warrant)
Li-Cycle announced it will open an Alabama recycling facility to take advantage of proximity to automakers in the state. The lithium recycler reported $1.7 million in revenue in the quarter – it’s just getting started. Shares and our warrants are stronger this week as investors are heartened by plans.
Navitas Semiconductor / Live Oak II SPAC (LOKB warrant)
Little change this week as we wait for the SPAC merger to take place. Paperwork has been filed last week, but no date has been set.
Origin Materials (ORGN warrant)
Also little change in prices this week. Goldman Sachs has started coverage of the carbon-negative plastics maker, with a neutral rating.
Ree Automotive (REE warrant)
A negative reaction to shares this week as Morgan Stanley initiated coverage on the EV chassis maker with an underweight rating. Warrants are little changed week over week.
ReNew Power (RNW warrant)
The company started operating a 250MW solar project in the Indian state of Rajasthan. The remaining 50MW of the previously announced project will go online by the end of the month. Warrants are a little stronger this week; shares basically unchanged.
Volta Charging (VLTA warrant)
Strong follow-through in Volta this week, seemingly spurred by the EV charger maker’s light-on-details announcement it will put chargers at Six Flags amusement parks. Warrants are up about 33%, or 60 cents, since last week. Underlying shares have gained 2, from 9.50 to 11.50.
Thank you for being a subscriber. Contact me anytime with questions or comments at brendan@cabot.net. The next issue of SX Greentech Advisor is out Wednesday October 6. Our regularly scheduled update comes next week, September 22. Extraordinary alerts will go out if needed.
The next Sector Xpress Greentech Advisor issue will be published on October 6, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
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