Clean-Energy ETFs Volatile, but Hold Potential
Informative article from TheStreet.com on current state and potential of clean energy ETFs. The securities discussed are (PBW: 18.02 -0.21 -1.15%), (PBD: 25.85 -0.288 -1.10%) and (GEX: 48.25 +0.85 +1.79%). The article mirrors my position that clean energy stocks have had their share prices driven down from unrealistic valuation levels and that long term, they are good growth prospects.
Of the three ETFs discussed, my pick, PBD has fallen the least so far this year, down 25.3% according to the article. My calculations show the fund down 18.9% today, March 28. As I have discussed here before, I like PBD for its global exposure and balanced portfolio.
One item that caught my eye, the Market Vectors Global Alternative Energy ETF (GEX: 48.25 +0.85 +1.79%) has 23% of its assets in 2 securities: Vestas Wind Systems and First Solar (FSLR: 253.65 +5.81 +2.34%). The total portfolio is only 30 securities and I think being that top heavy reduces some of the risk distribution advantage of an ETF. The PowerShares Global Clean Energy Portfolio (PBD: 25.85 -0.288 -1.10%), on the other hand, has 86 securities with a max weighting of 2.09% (source: NEX fact sheet, 12/31/07).
The article also discusses the pros and cons of holding individual stocks in this sector, but I am definitely a fan of the ETF approach here. PBD is a component of this site’s 20 Stock Portfolio. This is a hypothetical portfolio I use to track stocks I am most interested in. All of my holdings are of Portfolio components, but I do not own all of the components of the Portfolio.
Note: I currently do not have a position in PBD.
Thornburg Mortgage sells its soul to stay afloat
According to the WSJ, Thornburg Mortgage has reached a agreement with 5 of its lenders to freeze margin calls at this time. From what I read the price is very high:
- The 5 lenders will receive warrants for up to 27% of the outstanding common stock at 1¢ per share.
- The dividend will be suspended for the remainder of 2008. If profitable the company can declare a dividend in December to be paid in January 2009.
- The repo parties will keep 100% of the principal repayments on the affected securities and 20% of the interest paid.
- TMA must still raise close to $1 billion in new capital in the next 7 days.
I hope they can make this fly and keep the company going. Beside being a shareholder, I have a mortgage through Thornburg, and they have quality service. I guess time will tell if this move is enough to save the company.
Note: I have a long position in TMA.
Silver Wheaton Acquires Life of Mine Silver Production
Silver Wheaton (SLW: 14.30 -0.57 -3.83%) has purchased the silver production from another mine. It looks like this mine could provide 600,000 oz. of silver per year for 25 years. Over the last couple of years SLW has significantly the amount of silver mine production they control. The goal is the purchase and resale of 25 million oz. per year. However, sales has been stagnant in the 15 million oz. per year range for the last 4-5 quarters. I really like the structure of this company, but earnings need to start keeping up with the valuation soon. First quarter earnings should come out around the end of April.
Silver Wheaton’s stock price has a tendency to run up in the month before earnings, then drop afterward. This chart show the earnings and comparison to the silver ETF (SLV: 180.0099 -2.1401 -1.17%) for the last year. Click on the chart for a larger view.
Companhia Paranaense de Energia - year end results
The company listed above, more commonly called COPEL (ELP: 19.86 +0.23 +1.17%) released 4th quarter and 2007 year end results yesterday. I have not seen anything yet on Yahoo Finance, so I went to the website and dug out the earnings report press release. Fortunately, they have an English version, unfortunately all results are in Brazilian Reals, so the only numbers that make a lot of sense are the percentage changes.
As background, COPEL is the power company for the Brazilian state of Parana, in the southern part of the country. The state government owns 58% of the common stock. This company is an infrastructure play on a growing area of Brazil. Past growth has been explosive, but the company seems to be settling into a more stable growth pattern.
Here are some of the figures I pulled from the earnings press release:
- Net operating revenue (total revenue minus a bunch of acronyms) was up 10.9% for the year. Q4, 2007 was up slightly over Q3.
- Total energy consumption for 2007 was up 6.8% over 2006, driven by an official 6.6% employment increase in the state.
- Net income for the year fell 10.9% due to a 16% increase in operating expenses, primarily due to a 13.3% increase in depreciation and a 26.4% increase in “financial compensation for the use of water resources and concession charges – Aneel grant.” ANEEL is the national electric energy agency.
- Net income in the 4th quarter was up 15.7% over Q3 and 0.6% higher than Q4, 2006.
- The net per share for the year was R$4.0, giving a trailing PE of 7.3 based on today’s Brazilian market price of R$29.50.
- The proposed dividend works out to 24% of net income, or 3.2% of the current share price. The dividend will be submitted to the shareholder in April 2008.
COPEL is happy to point out in the news release that the share price increased 29.5% (NYSE) for 2007. I believe this is a steady way to partake in any growth in the Brazilian economy.
Note: I currently do not have a position in ELP.
Future looks positive for VeraSun Energy
VeraSun Energy (VSE: 4.21 -0.25 -5.61%) has released 4th quarter and year end results and the verdict is mixed. Results were better than estimates with the company coming out with a positive 4¢ per share vs. the estimated loss of -2¢. It is too the company’s credit that they can stay profitable in this difficult market, but as revenues grow, earnings per share need to turn upwards soon. Revenue growth remains strong, 2007 revenues were 52% higher than 2006 and ethanol shipped increased 57% to 353 million gallons. The management’s philosophy is to become the largest, low cost producer of ethanol in the country, giving them the ability to ride out tight markets profitably. So far they are doing that.
Of course, as investors we want to know what the future will bring. During the conference call management highlighted some interesting facts. Here are a few, shorter term and long term:
Short term:
- For Q1, 2008 (which is almost over, so the numbers should be accurate), their average corn price is about $4.50, 90¢ higher than Q4, 2007 and the average received for a gallon of ethanol about 50¢ higher. Since you get about 2.8 gallons per bushel of corn, the spread will be improved. Also, the company will ship 35 million gallons more product in this quarter, so I see net profits increasing.
- The merger with U.S. BioEnergy (USBE: 0.00 N/A N/A) should close in the second quarter. This will give the company over 1.6 billion gallons of annual production by the end of 2008.
- For 2007, sales of VeraSun’s own branded VE85 grew at a 62% rate, showing growing acceptance.
Longer term:
- Construction of new ethanol plants basically ends at the end of 2008, early 2009. Production will level off at around 13.5 million gallons per year.
- Ethanol production is now about 4% of gasoline use. If most of the country adopts the E10 standard (and it appears they will) the production increase from todays 7.5 million gallon capacity will handily be absorbed.
- Corn production is projected to increase 2.5 billion bushels in 2008. Ethanol production will only take 1 billion bushels of the increase. The pressure on corn prices should ease. Future (10-15 years) increases in corn yields will more than exceed the increase required by ethanol production.
- VSE will start producing corn oil, to become biodiesel, at some of their plants this year. The corn oil will ad about 10-15¢ EBITA to each gallon of ethanol.
- VeraSun is actively investigating ethanol from cellulose technology. They will add that technology when it becomes economically feasible. Who do you think will do a better job: A company with years of ethanol production experience or a startup without a record?
The bottom line for me is, the company has a long term plan to reduce expenses and increase production. As the low cost producer, VSE will stay profitable even in tight times. Longer term looks positive for increased profitability and hopefully share prices. When that will be is the question. I think it is a good time to think about acquiring a position in VSE.
Note: I currently do not have a position in VSE.
Still lots of growth for Gigamedia
Yesterday the market took off, Gigamedia, Ltd. (GIGM: 10.71 +0.15 +1.42%) released earnings slightly above estimates and the stock was hammered down over 6%. It is always interesting to see the short term reactions to a single number. The bad number was that year over year quarterly earnings were up only 8%, even though the 19¢ per share earnings beat the estimate by 2¢.
The main reason Q4 earnings were only sightly up on Q4,2006 was that the company spent 45% of revenue on advertising vs. the usual 30%. The extra ads should pump up Q1, 2008 revenues. On an annual basis the company grew revenues and profits at a 60% rate. I expect even stronger growth in the next few years for the following reasons:
- The company’s core business, Everest Poker, remained strong and the company has several initiatives in the works to boost revenues. Gigamedia has signed a multi-year marketing agreement with the World Series of Poker and is planning to add more gambling options to the Everest Poker experience.
- Asian games and gaming is still in the ramp up stage. Beta downloads of Pachinko and other games are taking off. GIGM has 60 million registered users in Asia and expects that to quadruple. Recent agreements and investments with game companies such as Electronic Arts will give Gigamedia the latest games to offer in the Asian market.
- GIGM will offer sports betting with in the year. They are looking for a partner to bring sport’s wagering to their customers. This is a huge market and should bring significant revenues to the company.
- Finally, and this is a long shot, the company is preparing for the return of legal online poker in the U.S. Online gambling was outlawed in 2006, but the huge popularity of Poker in the U.S. plus broad TV coverage of poker tournaments could lead to legalization again. If/when this happens, GIGM plans to be an early applicant. As the only U.S. listed, public company they think they have an inside track on obtaining a license.
I believe revenues and earnings will accelerate for GIGM over the coming quarters and years. With the PE now below 25, the stock value is attractive. I am very tempted to add to my position as the price falls.
Note: I have a long position in GIGM.
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