The market is bearish right now, with a widespread lack of support seen in some areas. One of our holdings, Onsemi (ON), is an example: There is an “alarming” shortage of semiconductors in the U.S., as yesterday’s New York Times quotes Commerce Secretary Gina Raimondo. Yet Onsemi, a semiconductor maker with a large New York foundry (it also has operations in Malaysia), has shed about 25% of its value this month.
Generally, we’re big proponents of capital preservation. Our primary portfolio, the Real Money Portfolio, is constructed around absorbing losses to cycle into longer-term winners. With the S&P 500, Nasdaq Composite, NYSE Composite and Greentech all below their 200-day moving averages, we now want to be heavily in cash. Experience shows this approach of shifting to cash sidesteps the worst market losses and as a result powers returns when we enter the next upturn. Already some Greentech stocks are approaching value levels. We have some sell and some hold recommendations this week, below, and will need to tolerate big drawdowns in our Excelsior Portfolio for now.
Our next issue of SX Greentech Advisor is Wednesday, February 2. We’re watching how the market handles the next few days. If the market continues to be bearish, we’ll be offering some suggestions that have capital preservation characteristics with potentially risk-free plays to the upside.
Real Money Portfolio
Advanced Drainage Systems (WMS)
The maker of drainage pipes from recycled material broke our sell-stop of ‘near 111’ yesterday, closing at 107.41. We really try to be disciplined around stops to preserve capital, but – as the portfolio name reflects – I’m investing in this with you. Since Real Money is designed to hold 12 full-sized positions at its most bullish, we’re just a quarter invested (as we take remaining profits on Onsemi, below). The design is to make sure losses in positions aren’t a significant part of the overall portfolio and therefore avoid the risk of ruin.
Economic activity remains strong. Seasonally adjusted housing starts for November and December are up strongly, which directly benefits Advanced Drainage, and general business activity, as noted by the Equipment Leasing and Financing Association’s monthly report out this morning, remains robust. Advanced Drainage’s business is growing 30% a year, it makes money (P/E is 41, compared to 34 for S&P industrials) and pays a dividend. At the least, we want to hold through Q3 earnings, which come next Thursday before the market opens. EPS estimates are 84 cents to $1.10 among four brokerage analysts (consensus 94 cents). All of that means we’re removing the stop-loss and holding WMS. Doing so exposes us to a lot more downside risk on the position, however. That means if you have sold, or want to, it is a prudent option. HOLD
Aptiv (APTV)
We recommended selling Aptiv in last week’s Greentech issue. The portfolio booked the sale at 148.55, the mid-point of the day’s high and low. That’s a loss of 16% from our buy price. Shares have fallen another 7% since. HOLD
Archaea Energy (LFG)
The landfill gas producer shares have been pleasingly resilient in the market turmoil, considering it is a SPAC-derived listing, which tend to be far more volatile. We’re going to loosen the sell-stop on shares from ‘under 16’ to ‘near 13,’ the top of a chart gap and the low of the ticker’s price history while associated with Archaea. Little news for Archaea, but natural gas prices have strengthened over a dip in December, which should benefit the pricing matrix for renewable gas. HOLD
Chara Solutions (CHRA)
The coal ash remediator has retreated to support, between 5 and 4.80. We want to see how the shares react to being at support, and potentially enter around the Golden Cross setting up on the charts. The company announced it is taking ownership of the Cheswick generating station in Pennsylvania, a coal plant that will stop operating in April. The deal is part of Chara’s nascent business to remove projects from the books of clients. The company is winding up a prior project in Texas, saying it has sold most of the land around Gibbons Creek. In each deal, terms haven’t been disclosed yet. We will research property records to try and gain insight ahead of the corporate disclosure. WATCH
Heritage-Crystal Clean (HCCI)
HCCI broke beneath long-term support Friday. Shares don’t look terrible, but a breach of support means we should see how shares advance from here. No news and earnings won’t come until the end of February. WATCH
KraneShares China Green Energy (KGRN)
Shares have been accelerating their downward move this past week and we have the ominously named Death Cross occurring (where the 40-day moving average crosses down below the lower 200-day). We’re going to want to hold exposure to China in the Greentech portfolio, it’s just a question of determining the bottom. Chart-wise, with shares near 40, we expect a move toward support at 37. WATCH
Lithium Americas (LAC)
Our Buy recommendation last week, the portfolio added LAC at 27.60, the mid-point of the high and low Thursday. The company closed its purchase of Millennial Lithium this week, which brings with it a 24,000 tons per annum (tpa) project in Argentina, the Pastos Grande mine. We should be seeing good support below shares’ current price of 26, at 23 to 21, where a couple of chart supports converge. Technicals indicate there may be a push to test that support. LAC is a long-term play on lithium demand and we’re maintaining our recommendation here as Buy, provided shares remain over their 200-day average, currently at 21.54. BUY
Onsemi (ON)
Last Thursday we issued a special bulletin to sell half of Onsemi on its violation of the first of our two-tiered stop-loss levels. The portfolio booked the sale at 57.60, the mid-point of the high and low prices from 30 minutes after subscribers received the bulletin that day. That’s a gain of 29% on that portion. Today we recommend selling the balance on the violation of our second sell-stop yesterday at ‘under 54’ – shares settled at 53.32. Why sell ON while holding WMS? Historically, Onsemi has traded at a discount to chip peers on the view that its business is more commoditized. That was true, but largely isn’t any longer. Nevertheless, we’re opting to take profits on the expectation the market is less likely to treat Onsemi as a premium stock than other chipmakers. Shares are up nicely this morning, providing us a positive exit. SELL REMAINING HALF
Excelsior Portfolio
ADS-Tec Energy (ADSEW)
The German ultrafast EV charger maker is seeing a lot of weakness in the warrants we hold, now under a dollar, an arbitrary price seen by SPAC traders as an indication of market belief in a business. We’re not concerned about prices here, and would consider adding to the position if we see steeper declines. HOLD
FuelCell Energy (FCEL)
Our half-sized equity position in the fuel cell maker is a long-term bet, so we are committed to weathering drawdowns and will consider adding to the position to full-size at these or lower prices once the sector gives signs of turning. For now, Hold. HOLD
Navitas Semiconductor (NVTSW)
Warrants at 2.55 today have us at about break-even for the quarter of a position we still hold. We sold three-quarters in mid-November at 6.68, booking 160% profit on that portion. Should warrants rally back to 6.50, we recommend selling. In current market conditions that looks a ways off, so we’ll switch our recommendation to Hold. The company will report earnings February 15. HOLD
Origin Materials (ORGNW)
Warrants continue to weaken, to about 1.06 today. There is general weakness in the stock market around eco-friendlier plastic producers, like Origin. We have 4.5 years for the warrants to pay off (or a move of shares to 18, when the company can call for redemption). Shares are in the 5.30 region of late. Origin has an order book of $4.2 billion for its carbon negative plastics, which it will start producing by year’s end. HOLD
Ree Automotive (REEAW)
Shares of the EV chassis maker are seeing good buying volume and weaker selling volume of late, which is a positive. That said, momentum from a New Year’s spate of buying enthusiasm has evaporated from both shares and our warrants, which are down to 75 cents today. HOLD
ReNew Energy Global (RNWWW)
ReNew has formed a 50/50 joint venture with Fluence (FLNC) to form an energy storage company in India. ReNew is India’s largest renewable energy producer, Fluence is an energy storage business. ReNew will be the joint venture’s first customer, at one of its power plants. Warrants are around 1.08 today. HOLD
Volta Inc (VLTA.WS)
There’s weakness throughout EV charging stocks this week, making Volta’s drift to 1.20 in the warrants normal sector action (shares are around 4.70). HOLD
Thank you for being a subscriber. Our next SX Greentech Advisor issue will be published Wednesday, February 2. Please send along your comments and questions anytime to me at brendan@cabot.net.