Posts Tagged ‘Green Technology’

Solar stocks bounce……for now at least.

Thursday, June 17th, 2010

Over the past few months we’ve spent a fair amount of time determining what value this blog could add to its readers.  We’ve essentially boiled down our conclusions to the point where we could identify with many outstanding financial blogs that espoused old school investing in regards to value, balance sheets and growth, we could not find any that merged with the ideals of socially responsible or green investing.  That is when the light bulb turned on as this is the type of analysis performed daily.

Being an investment adviser in the Boulder Colorado area would seem ideal since the area is chock full of alternative energy companies but with 20 years in the industry we also are very aware that the vast majority of these firms will not exist in their current form in just 3 or 5 years from now.   As a rule of thumb the strength of their balance sheet in light of sales or a weak economy (and weak fossil fuel prices) will determine their inevitable success or failure, not sales, hype or even great technology.

Case in point regarding solar stocks:  Reuters is reporting that a parliamentary mediation solution in Germany may reduce the amount of subsidy cuts in solar.  Solar has been weak across the board with the expected cuts coming from Europe due to their financial crisis.  Hence, why we’ve been avoiding the sector for over a year with the understanding that if a company cannot generate its own revenues without subsidies despite the lofty projections for worldwide revenue estimates, then the investment will likely be a loser.

In the interim we’re assembling a list of solar stocks and searching for those falling to extreme values (Price to Net current asset value) where risk should be minimal.

Ultimately, we think that the European mess will get worse and the domino effect of proposed subsidy cuts are inevitable hence solar stocks with significant European exposure are trades not investments at this juncture.

Markets are quite overbought in the short term and we don’t believe now is a good time to be adding new money to equities as the window of opportunity appears closed for the near term.   The ideal time would have been a couple of weeks ago when fear approached extreme levels not seen since last March.

On the bright side, the weak Philly Fed data would have poleaxed the markets had it been released 2-3 weeks ago, whereas today it only creates mild selling.  This leads me to suggest that a slowing economy is now baked in the cake.

Wednesday musings

Wednesday, June 16th, 2010

Yesterdays rally confirmed our more constructive intermediate term outlook as the S&P 500 pushed above the 200 day moving average on a 90% up day. We have not seen a cluster of 90% up days since 2009 during the strongest points of the rally. Bears will comment that it was a fake rally due to high frequency trading, but as the coach of the New England Patriots Bill Belichick would drolly would say: “It is what it is”.

Yesterday while driving home I remembered a conversation from the mid 1990′s with a major SRI fund manager who insisted upon owning a major oil company despite their environmental screening policies. His rationale was that this particular company was the best of the lot, the most progressive within the space. Care to guess what that company was? Hint: my initials.

Being that I’m somewhat of a financial geek I get excited when our model identifies companies that are also identified as promising by other proven investment models. Case in point is IDT Corp. which also ranks very high on the esteemed

Piotroski model

as well as our own. We don’t own the stock for clients at present but will begin to look closely at it.

Also, will be breaking down a host of Green Tech firms looking for revenue acceleration. Stories about this morning about the promise of Green Tech but unless revenues start to move higher its only a trade and not an investment.

All the best,
BP

The Advantages Of Being Small

Wednesday, September 2nd, 2009

We’re a small private investment manager of the traditional variety.  By saying we’re Traditional I mean that we don’t use shift the responsibility of investment management to mutual funds or other third party investment management firms, which add on extra layers of fees.  By Traditional we mean  that we actually do our own security analysis and portfolio trading and allocation with Charles Schwab as our primary custodian of client assets, we don’t take custody of assets.  This was how most investment managers practiced when I first broke into the business in 1982 but with the emergence of Financial Planning and Mutual Funds the layers of fees and responsibilities created greater distance from the manager to the portfolio.

We have a deliberate bias for looking at small cap and micro cap investments for three primary reasons:

1. Small companies are more likely to be mispriced or undervalued relative to large cap peers.   For example, Apple has at present 34 brokerage firm analysts following the company.  Every bit of data produced by the firm is analyzed, frequently to the extreme.  Its extremely difficult to maintain an edge under that type of scrutiny.  However for the Small Cap companies we follow and invest in its not uncommon to have zero to 1 analyst following the firm.  By following companies well below the analyst radar screens the scarcity of information can create opportunities we hope to exploit for our clients.

This is hardly a knock against investing in Large Cap companies as it is our desire to have some sort of advantage when investing.  While Apple may continue to provide significant gains for its shareholders, the stock does sell at 29 times current earnings and the opportunity to have a competitive advantage over our peers is minimized by valuation and intense coverage.

2. The advantage of being small:  Being that RMHI is a small investment management firm I deliberately decided to use our small size to our advantage.   As investment firms get larger over time they’re forced to move up the scale with investments they consider.  A firm that focused on Small Caps during their early years is forced to consider Mid to Large Caps as their assets expand over time.

Simply put, we can consider investment stakes in companies that larger firms cannot consider.  This is especially important for the Socially Responsible Investor since many terrific Green Technology companies are $50 million to $200 million in capitalization, too small for most managers.  Secondly, our small size allows us to still invest in Healthcare through benign service providers without resorting to Healtcare investments within the S&P 500 Index.

Our identification of RINO Intl. (RINO) before it even gained admission to NASDAQ while it was selling at just 4x 2009 earnings is a classic example.  At the time of our spotting the stock at $4 a share the capitalization was just approximately $100 million and thus too small for most managers or even many mutual funds to consider.