by Tom Konrad Ph.D., CFA
Since I have not had much time to write for AltEnegyStocks, I thought I’d share with readers some notes I wrote for investors in the JPS Green Economy Fund, a hedge fund for which I’m director of Research, regarding our holdings in the third quarter:
In the third quarter, we took advantage of the general decline of clean energy “YieldCos” to add two of these owners of wind and solar farms to our portfolio at attractive yields. Pattern Energy Group (PEGI) is an owner of wind farms having long term power purchase agreements with utilities and large companies like Amazon Web Services. Abengoa Yield (ABY) has a diversified portfolio of 18 long term contracted assets spread across the globe. Two-thirds of its assets are renewable generation, with the balance in electricity transmission, natural gas, and water infrastructure. The general Yieldco decline and turmoil at ABY’s parent company, Abengoa (ABGB) has caused ABY to fall to a very attractive valuation, even though we believe that ABY’s quality assets protect it from the problems at ABGB.
In July, Proctor and Gamble canceled its supplier agreement for a bleach activator (NOBS) with holding Future Fuel (FF), which produces biodiesel as well as specialty chemicals. This move was not a surprise, since it was the result of a long term decline in NOBS volume, but the market reacted very negatively, dropping the stock from around $14 to $10. We continued to hold because we expected the contract to be renegotiated. We saw that we were in good company, since FutureFuel’s insiders were buying the stock, not fleeing like other investors. Our patience was rewarded after the end of the quarter: A renegotiated contract was announced and the stock has recovered.
Aspen Aerogels (ASPN) started reporting increasing revenues in the second quarter after a year of flat sales. We expected this increase (and expect it to continue) because the previous lack of growth was due to Aspen’s limited production capacity, not lack of demand for its high performance insulating aerogel blankets. The increase is due to a new production line which will be ramping up over the course of the year, and we expect the market to continue to react favorably to the continued growth in revenue and profit.
Hope that’s useful. I’ve wanted to write an in-depth article about Aspen for some time, but other projects have taken priority. Although the stock seems to have bottomed in July, I think it remains a compelling value at the current $8.50.
Disclosure: Long PEGI, ABY, FF, and ASPN.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
