Jeff Siegel and Tom Konrad
June 4: Public Transit Ridership Rising Sharply
The American Public Transportation Association reported Monday that Americans took almost 125 million more rides on public transit in January, February and March than they did in the same period last year — an increase of 4.98 percent, the largest since the first quarter of 1999. The rise was due to a combination of high gas prices and economic growth. Good news for mass transit stocks, like New Flyer (NFYEF), which just unveiled a battery-electric bus prototype.
June 5: World Environment Day
§ Today is World Environment Day, a day for positive environmental action. This year’s theme is the Green Economy: Does it Include You? As alternative energy investors, it certainly includes us! Artists Project Earth launched the album Rhythms del Mundo Rio+20 featuring Bob Dylan, Jack Johnson, Sting, and a host of other great artists to commemorate the day.
§ LSB Industries (LXU) gained almost a dollar today when it detailed the status of its El Dorado chemical plant, which had been damaged on May 15th. The price increase is somewhat surprising, given that the damage was quite extensive, and my best guess is that LSB will be liable for it full insurance deductibles. In other words, the financial impact on LSB is as large as it could have been. But given that the stock sold off way too far (again, because of the insurance coverage) it perhaps should not be surprising that the stock is now overreacting on the upside.
§ New Flyer (NFYEF) completes an offering subordinated notes, the proceeds of which will be used to redeem the debentures which form a part of New Flyer’s old IDS structure. The new notes will be listed on the Toronto stock exchange, but not offered for sale in the US.
June 6: Solar Industry Unites to Avoid a Major Solar Trade War
JS: Here’s the latest solar trade conflict update from the Coalition for Affordable Solar Energy.
TK: Finavera Wind Energy (FNVRF) secured an $850K bridge loan, at 7% interest. This loan will be used to fund ongoing development, and should be enough to tide the company over until a development deal can be reached for Finavera’s Tumbler Ridge project.
June 7: Debate over RFS2 is creating uncertainty for investors
§ The hope for a new Renewable Fuel Standard (RFS2) was to provide stability that investors needed to invest in the biofuels industry. Now the political debate over RFS2 is doing just the opposite by “creating uncertainty in the minds of investors,”according to Terrabon CEO Gary Luce.
June 8: Exide (XIDE) surprises analysts with loss; stock rises.
TK: Exide (XIDE) missed analyst earnings expectations for their fiscal fourth quarter by 11 cents, reporting a loss per share of 3 cents against expectations of a 8 cent profit. The stock initially sold off to a low of $2.35, but rose as soon as the market digested the details, and is currently trading at $2.67. As I wrote last week, “It’s hard to see how even an earnings miss could send the stock down much from the current price of $2.31.” Still, the stock price jump is surprising. From listening to the conference call, I think the positive reaction is mostly due to progress in restructuring the business, and a large jump in cash flow from a cash flow loss of $73 million in the previous quarter, to positive $8.2 million this quarter.
|Three Things Goldman Sachs’ $40B Greentech Investment Means, and Two it Doesn’t|
Posted: 08 Jun 2012 06:41 AM PDT
Tom Konrad CFA
Goldman Sachs’ Investment in Green Tech
More than any other investment bank, Goldman Sachs (NYSE:GS) is famed for its skill at picking good investments. Last week, the bank announced it would invest another $40 billion in green technologies over the next 10 years (or an average of $4 billion a year.) While this is a drop from the $4.8 billion invested in 2011, the last time Goldman Sachs made a commitment to green tech was 2005. The $1 billion pledged then ended up as $4 billion in direct investments of Goldman’s own money, and another $24 billion of financing arranged by the bank.
What the Investment Means
We can draw several insights from Goldman’s announcement.
1. The announcement is public relations (PR)
Since the $4 billion per year pledged is less than what Goldman is already investing, this is not a new commitment, or a stretch goal. Rather than using the public forum as a way to bind its own hands, the bank is “committing” itself to something it’s already doing. Hence, the announcement is designed more to bring attention to Goldman’s greentech expertise, and get articles (such as this one) written about the bank.
2. The investments are more than PR
Since the investments are real, this is not greenwashing (trying to give something that’s not really green the appearance of green.) It’s not new, either. Goldman simply wants to be known for their green tech investment expertise.
3. Goldman thinks there are good investments to be made in greentech
Goldman’s track record of investing more than promised means that the investments are being made for non-PR reasons. Since they are not greenwashing, Goldman must be investing for some other reason. Goldman Sachs is known more for being hard-nosed than for dreaming of butterflies and unicorns, so it’s a safe bet that they’re investing because they expect to make good financial returns. A few PR points scored along the way are icing on the cake.
The head of Goldman’s clean technology and renewables investment banking group, Stuart Bernstein, says green tech is a “quite large” emerging investment opportunity, and compared it to investing in the BRICs (Brazil, Russia, India, and China) over the last decade.
What it Doesn’t Mean
1. Goldman Isn’t Buying Everything Green
Goldman’s investments since 2005 have been successful, or the bank would be unlikely to be coming back for more. Yet the leading clean energy ETF, the Powershares Wilderhill Clean Energy ETF (NYSE:PBW), has fallen 70% over the same period. Clearly, Goldman was not just passively investing in a basket of green stocks, as PBW does.
Going forward, Goldman will continue to choose green investments carefully, just as they choose their investments in the BRICs. Not every investment in Russia or China has been a good one, and not every green investment will be a good one going forward.
2. This is not an Endorsement of Green Stocks
A few weeks before Goldman announced the new commitment, the investment bank downgraded First Solar (NASD:FSLR) stock to Neutral, and slashed its price target. The $40 billion announcement was not some coded reversal. Goldman was saying that while First Solar may not be a great investment right now, there are plenty of very profitable opportunities in green tech. Many of those opportunities will be investments in renewable energy deployment: wind and solar farms, as opposed to wind and solar manufacturers.
It’s a mistake to assume that just because Goldman thinks there are many profitable opportunities in green tech, all opportunities in green tech will be profitable. Right now, I think the most profitable investments are likely to be investments in renewable energy and energy efficiency deployment: wind and solar farms, and upgrades to facilities to make them more energy efficient.
Green stock investors are likely to be best served by buying the companies that are acting like little green tech investment banks, and are buying up distressed assets in the sector. Companies like Alterra Power (TSX:AXY, OTC:MGMXF) and Western Wind Energy (TSXV:WND, OTC:WNDEF), which both announced deals to buy wind assets this month, or companies like Power REIT (AMEX:PW), which plans to use investment-bank style financial engineering to bridge the gap between REITs and renewable energy.
If we can’t invest like Goldman Sachs, we can at least invest in companies that can.
Disclosure: Long MGMXF, WNDEF, PW