Roen Financial Report

Download Your Free Issue of the Roen Financial Report

admin — Wed, 01 Feb 2012 18:53:00 +0000

Click here for your free issue!

Harris Roen, Editor
Roen Financial Report
February 1, 2012

Free to Our Readers

As a thank-you to our readers, we have published a free copy of the latest edition of the Roen Financial Report. The February issue features an exciting debut, a new section on Alternative Energy Mutual Funds, along with other informative articles. Click here to download your free issue!

Newsletter Features

The new Alternative Energy Mutual Funds section ranks mutual funds that invest in the alternative energy industry. Two different types of funds are evaluated, open end mutual funds, and exchange traded funds (ETFs). Funds are rigorously examined using many measures, including past returns, expenses and valuations of underlying securities in the funds. Funds are then ranked so that subscribers can know which alternative energy funds are the best value today.

Other articles in the February issue include:

Shining a Light on Solar Stocks, a segment which examines what happened to solar stocks last year, and where the best opportunities are now.

A profile of EMC Corp. (EMC), a high-quality company in the business of data management that is set to profit with the build out of the smart grid.

Reporting on the surge in value of stocks in the Paradigm Portfolio since the start of 2012.

Thank you and we hope you enjoy your free issue of the Roen Financial Report.

Planning: Tough questions for the candidates

admin — Mon, 07 Nov 2011 14:51:54 +0000

Below is a reprint of an article in the Burlington Free Press where I ask Mayoral candidates environmental questions affecting Vermont’s beloved city.

Photo credit: JOEL BANNER BAIRD, Burlington Free Press

Burlington is full of dichotomies when it comes to environmental issues. Being the largest city in Vermont, there is not a lot of the natural world left to provide habitat for animals and respite for people.

It is also, however, on the shores of Lake Champlain, which is one of the most important aquatic resources in the Northeast. The Burlington waterfront offers a unique and precious location for locals and visitors to enjoy a world-class waterfront park experience.

Burlington is looked at as a growth center, and rightly so. It is wholly appropriate to focus residential and commercial development to maintain a vital downtown, which at the same time avoids the suburban sprawl that could occur from similar developments in other areas.

But living in this urban environment requires an adequate number of local parks, open spaces and natural areas, which are crucial to the quality of life we all enjoy here. Since Burlington is the urban core of Vermont, it is also critical for the city to try to reduce its environmental impact on the lake, ground and atmosphere. Burlington has done much in these regards, including creating a Climate Action Plan, passing a comprehensive stormwater ordinance and implementing efficiency programs through Burlington Electric.

There remains, however, much to be done.

For Burlington, as in many places, the goal is to strike a balance between growing the downtown, continuing to offer a high quality of life and reducing our carbon footprint.

I polled people active in the environmental community (particularly the Burlington Conservation Board) to help create a list of questions for the candidates to address in the current mayoral campaign:

• In an effort to reduce fossil-fuel consumption, what would your administration do to:

a) Encourage pedestrian and bicycle transportation?

b) Increase the use of public transportation?

• In a related question, what would you do to reduce the amount of cars on the road, which would not only decrease pollution but would ease traffic congestion and reduce parking needs? Specifically, how would you address:

a) Reduction of single occupancy vehicles?

b) Establishment and utilization of park and rides and/or capture lots?

• Burlington has a fantastic park system managed by a hardworking staff. Some questions, though, remain:

a) How would you work to ensure that adequate land for parks, trails and natural areas will be provided for as Burlington grows?

b) How would you balance budgeting for a high-cost skate park with the other park priorities that need to be met?

c) In general, what would you do to create a better input and oversight process for large-ticket capital improvement is our parks?

d) Burlington City Arts is creating a new master plan for the future of City Hall Park. What is your vision for this important urban park? Would you like to see it become more of a public square, with lots of events and activities, or create more of a green oasis as a respite for the bustle of downtown?

• Considering the current Downtown & Waterfront Plan that is being written, what is the right level of density (housing and related businesses) that should be built in downtown Burlington in order to reduce transportation costs and curtail sprawl in other areas?

• Considering this plan, what is your vision of the Burlington waterfront?

a) Do you believe preserving the park-like character is desirable for the waterfront area, or would you like to see it more developed?

b) What would you do to create a process to determine future uses of the waterfront? How would you include key players in the community in this discussion, including park users, nearby residents, city departments, boaters and others?

c) Considering the expected increase of development on the waterfront due to the Moran Plant redevelopment, are you willing start to start a dialog of uses for the “North 40?”

Will the Military Liberate Us from Foreign Oil?

admin — Fri, 21 Oct 2011 19:39:40 +0000

As unlikely as it sounds, the U.S. military may be the group that turns the tide on America’s dependence on foreign oil. Military planners are realizing that traditional fossil fuel based operations increase on-the-ground risks, while at the same time benefiting economies that are not necessarily friendly to U.S. interests. Because of the military’s huge purchasing power, alternative fuel producers would have an enormous market to supply. According to Navy Secretary Ray Mabus:

“America’s long-term national security depends upon a commercially viable domestic biofuels market that will benefit taxpayers while simultaneously giving Sailors and Marines tactical and strategic advantages.”

Military strategists may not be out to save the planet, though that would be a lovely side effect.

The Navy spends $4 billion a year on petroleum based fuels. The Air Force spends $8 billion. Total petroleum expenditures for the entire Department of Defense are between $16 and $18 billion. That’s more money than Maine, New Hampshire and Vermont spend on oil combined! With an oil bill that big, the military needs options. The Air Force, for example, will have all its aircraft certified to use biofuels in just two years. The trick, then, will be to help advance market forces until biofuels are cost competitive with fossil fuels. This is not easy, since biofuels refineries can cost hundreds of millions of dollars to get up and running.

To address this, President Obama recently announced that the Navy, the Department of Agriculture and the Department of Energy will invest over half a billion dollars over the next three years to help such an effort. The goal is to construct new biofuel plants, or retrofit older refineries to become biofuel producers.

As highlighted in the October issue of the Roen Financial Report, Honeywell International (HON) is a leader in alternative fuel research and development. Honeywell has plans to license its refining technique to Valero Energy Corporation (VLO) and Darling International Inc. (DAR), who are building a $368 million biofuels plant in Louisiana (Honeywell is one of the Paradigm Portfolio companies of the Roen Financial Report).

Biofuels are not the only form of renewable energy being aggressively pursued by the military. Anything that can reduce the number of fuel convoys—and the real risks associated with transporting them—is a plus for field operations. Having biofuels be the focus of military planners, however, could be the leverage needed to tip the scales and make biofuels more cost competitive with oil.

Investments in Alternative Energy Companies Rise Dramatically

admin — Wed, 12 Oct 2011 20:18:38 +0000

Despite fears of a recession and an economic slowdown, investment activity in alternative energy companies is on the rise.

A recent report from the Cleantech Group confirms that venture capital investments in renewable energy for the third quarter of 2011 were up 12% from this previous three months. Total investments were $1.98 billion, which was fully 23% higher than that of the same quarter last year.

North America had by far the largest representation, making up over three quarters of the venture capital invested. The Asia/Pacific region invested 14%, and Europe/Israel accounted for 10%.

What I find most interesting is that Solar was displaced as the largest area of alternative energy investment. Instead, Energy Storage topped the list of investment sectors, garnering $514 million, or 42% of venture capital spent (see chart below).

42% of venture capital investment was in Energy Storage.

This is a significant change, pointing to a broader interest in development of the smart grid and electric vehicles. Readers of the Roen Financial Report can find good opportunities for publicly traded stocks in these areas, including General Electric (GE) and Fuel Systems Solutions Inc (FSYS).

You can read a more detailed analysis of venture capital investment by alternative energy companies in the Cleantech press release.

Offshore Wind Set to Sail

admin — Tue, 04 Oct 2011 22:00:57 +0000

I get very excited when I picture the clean-energy contribution of offshore wind. According to the U.S. Department of Energy, the generating potential of offshore wind equals the entire generating capacity of the current U.S. electric system! And that’s just in areas with less than 100 feet of water. If you include all of the potential offshore wind capacity, it increases to four times the current U.S. electrical generation!.

Offshore wind turbines of the shores of Denmark

The upside of offshore wind is that it has a much smaller environmental footprint, so it is hard for locals to justify opposition to these projects. The downside offshore wind is it is more expensive to develop than onshore. But if it’s possible to build offshore oil rigs that drill in a mile of water, then surely technologies for offshore wind will continue to improve.

It is no wonder, then, that in September the U.S. Department of Energy awarded $43 million to stimulate development offshore wind development. It funded 41 projects in 20 states in areas that will advance offshore wind technologies and remove market barriers. For example, $6.7 million is going toward improving modeling and analysis tools specific to marine environments in order to improve design and cost estimates.

I also read with interest about the sale of a privately held German company, BARD Holding. BARD is one of the biggest players in offshore wind. This could be a huge addition to any company’s portfolio, as there is no doubt that offshore wind will be a growth industry. Bloomberg reports that General Electric (GE) may be interested in BARD, or another large buyer in Asia or Europe.

Either way, offshore wind offers an exciting growth opportunity in alternative energy.

A Technical Look at First Solar (FSLR)

admin — Wed, 28 Sep 2011 13:21:08 +0000

First Solar FSLR is one of the biggest pure-play alternative energy companies. This solar powerhouse had $2.5 billion in sales in the last 4 quarters, and has a market cap over $6 billion, making it by far the largest U.S. solar manufacturer. So it is no wonder that investors in solar are disappointed in the 53% drop that First Solar has had in the last 6 months.

But where is the stock likely to go in the future? It is certainly possible that there may be further bad news about First Solar which will drive down the stock price, like the recent hit the stock took over missed loan guarantees. On the other hand, a technical look at First Solar’s price chart shows why I believe a long-term bottom has been reached.

Click for larger image

Stocks commonly move in three waves, both on the up side and the down side. This price chart shows three well developed down waves that started in February 2011. The first leg down is the “worry” phase, where investors start to get antsy but then breathe a sigh of relief when prices recover. The second phase reflects “panic.” Confusion reigns – some people are selling stock, some are buying, but no one really knows what to do. The last phase is “capitulation” where investors are screaming at their brokers “get me out at any price!” Why do I think capitulation has occurred? A look at the next chart is very telling.

Click for larger image

This graph shows the same price chart as before, with trading volume included (blue bars at bottom). During the most recent leg down, or “capitulation” phase, there have been three drops on steep volume – at the end of June, the end of August, and the end of September. The white line in the volume part of the chart shows the 5-day moving average. This line went higher and higher with each consecutive price drop, so in each sell-off volume was increasing. The last steep drop was on very high volume, a true capitulation event.

My conclusion is that this selloff is overdone, and First Solar will bounce back up from here. Using an average of forward and trailing earnings, I calculate the stock to be undervalued up to $100/share, and at fair value at around $127/share. The long-term investor should be rewarded accumulating First Solar at these prices.

Solar Prices Down, Solar Projects Up

admin — Thu, 15 Sep 2011 19:50:15 +0000

Many have predicted that the current glut in solar cells will affect the price of photovoltaic panels. In order to move their inventories, factories are indeed dropping prices. According to Ernst & Young, prices for installing a solar panel have dropped from $2.00/unit of generating capacity in 2009 to $1.50 today. It is expected that the drop will increase to $1.00 by 2013. This trend is verified by Solarbuzz®, which is graphed on the chart below.

Click for larger chart

The black line shows the price of the photovoltaic (PV) component that goes into making a solar panel. The blue lines illustrate the entire cost of a solar system (inverters, batteries, etc). These prices do not include installation costs. The chart shows the monthly change in price, so a falling line reveals an acceleration in the rate of price reductions. This drop in pricing has hurt manufacturers, none worse than Solyndra, Inc., which will be filing for bankruptcy.

Solar developers, however, have benefited greatly from the drop in prices. In the U.S. alone, Solarbuzz® reports that in just 2 months utility-scale solar projects have increased 41% to 24 gigawatts. In addition to these U.S. projects, there have been numerous large-scale developments announced abroad, including projects in Bangladesh, China, Italy, Germany and Peru.

So while solar manufacturers have been negatively affected in the short term, the solar industry as a whole is taking advantage of these price drops to move the project pipeline forward. This trend, which is likely to continue through this decade, bodes well for long-term investors in alternative energy companies.

Remembering the Market Impacts of 9/11

admin — Tue, 13 Sep 2011 13:03:14 +0000

This weekend was a difficult and poignant time of remembering a day that changed the world. The horrific events that unfolded on that day 10 years ago hit me in the gut all over again. I hope the memorial ceremonies in New York and around the country helped further the healing process for families and friends directly affected by these tragedies.

We all know now, 10 years later, that New York has come back stronger than ever; but what happened to the stock market during the ensuing days after 9/11? It is instructive to look at how the market behaved after this tragedy.

Click for larger chart

For the financial professionals of the day, the initial shock quickly transformed to confusion and worry. This event came off the heels of the burst in the Tech bubble, which had already caused the S&P 500 to drop 29% from its peak in March of 2000.

The market had formed a bottom in April 2001, so there was hope that the tech sector had corrected and the worst of the tech wreck was over. Before the attack, investor sentiment had not fully shifted away from the jubilant days of the ever climbing stock market of the late 1990’s. After the attack, no one knew what to expect.

A tragedy of this magnitude had never happened in the financial center of the world. How long would the New York Stock Exchange (NYSE) trading floor be closed? Would the financial center of gravity drift away from New York City and relocate in another part of the global? What would happen to the stock market when it finally reopened?

The attacks of 9/11 happened early on a Tuesday, and virtually all commercial activity in lower Manhattan shut down. After heroic cleanup and logistical efforts, the NYSE opened the following Monday, September 17^th. The S&P 500 dropped about 5% that Monday, then and kept falling the whole week for a devastating loss of 11.6%. It was the eighth largest five-day percentage drop the market had seen in 50 years!

Investors eventually realized that it wasn’t the end of the world, so the overreaction quickly corrected itself and the market rebounded almost as quickly as it fell. A “V” shaped bottom was formed and the S&P 500 rose back to pre 9/11 levels in just one month. The overall downtrend that started in 2000, however, was not broken and the stock market continued to drop as the U.S. entered into a recession (shown by the light grey bar).

Looking at the “V” nature of the drop after 9/11, it is doubtful that this event contributed significantly to the oncoming recession. As significant as damages were, according to Bloomberg Businessweek losses from 9/11 were about a third of what was inflicted by Hurricane Katrina, and only one-tenth of the recent tsunami in Japan.

After the stock market hit bottom at the end of the recession, the S&P 500 rose quickly and surpassed pre-9/11 levels in December 2003. A significant bull market continued for the next four years. To me this is yet another lesson of resiliency that can be achieved in the wake of tragedy.

Wind Cost Competitive With Natural Gas

admin — Wed, 07 Sep 2011 13:24:48 +0000

Exciting news for the alternative energy industry has recently emerged from South America’s largest country, Brazil. Brazil is developing its economy at a rapid pace, lifting many of its citizens out of poverty and into a fast growing middle class. To provide electricity to what is expected to be a 60% growth in power consumption in the next 10 years, the Brazilian government held an auction to gather bids to supply electrical power to its utilities. Bids were accepted from traditional natural gas providers, as well as wind, hydro and biomass developers. Due to the falling cost of wind turbines, a collective of 44 wind projects came in with a bid at a lower cost than the natural gas power plants could provide.

The wind farms won over a third of the total electric capacity that was contracted, offering a price of 99.58 Brazilian Reals (about $60 US dollars) per megawatt hour. This beat out the price for natural gas projects, which came in at 103 Brazilian Reals per megawatt hour. The President of Brazil’s Energy Research Company (EPE) affirmed the importance of this landmark for renewable electric generation:

That wind power plants have been contracted at two digit prices, below R$ 100/MWh, showcases the energy market competition through auctions. That wind power could reach these lows vs. natural gas was unimaginable until recently.” – Mauricio Tolmasquim

Alternative energy companies that are involved in the wind projects include General Electric GE, Siemens and Vestas. Of these, GE and Seimens are both components of the Roen Financial Report’s Paradigm Portfolio. Though both of these companies are major players in supplying wind turbine components and services, they are large conglomerates with wind being only a small part of their overall business. Still, both companies have done well since their addition to the portfolio in May 2009 (click here for a sample company report). Also, it is evident that both clearly see a future in alternative energy.

As the price of building wind turbine projects continues to drop, we should be seeing more good news like this in the future.

Is Solar Hitting the Skids?

admin — Wed, 17 Aug 2011 14:30:32 +0000

It has been a good news/bad news situation in the solar industry as of late. The widely watched Ardour Solar Energy Index (SOLRX) is up almost 20% from its low earlier in August, but is still down 26% from a year ago. News from solar market monitor Solarbuzz shows record inventories at photovoltaic factories have caused a price collapse in the photovoltaic market. Production is scheduled to be reduced so that warehouses can be cleared out. These cheaper prices, however, have been feeding an increased demand. The U.S., for example, is projected to grow from purchasing just 5% of the global market now, to purchasing 12% in 4 years.

More good news resides in China. According to IHS, the Chinese government announced plans for new feed-in-tariffs (FIT) in order to boost demand for photovoltaic panels in a big way. These tariffs create a mechanism to guarantee that utilities will buy excess solar capacity at a certain price. This is a proven method that has been used successfully to promote the build-out of solar in Germany and other places. It could increase Chinese solar installations by 50% or more, raising the amount of installed solar in China to a substantial 2.4 gigawatts. This is good news for Chinese solar companies like LDK Solar, Trina Solar and ReneSola. It should also help Arizona based First Solar, which has broken into the Chinese market (see Roen Financial Report Vol. 3 Iss. 6.).

Click for larger image

Given this mixed news, how are solar stocks priced compared to where they should be valued? Several solar companies tracked by the Roen Financial Report are listed above, sorted by annual sales. I have calculated each stock’s fair price range on the high end and the low end. This estimate of fair price is based on the combined average of both past earnings and projected earnings.

A wide range of price points are apparent, with 4 out of the 9 companies overvalued and the rest are below fair value or undervalued. The high quality companies that are in the low range of their fair value, such as TSL, FLSR and STP are where I would be looking for great buy opportunities.