The market is under pressure but it’s not clear the bears are back in charge yet. The market is still digesting how significant the latest round of climate funding will be, and we expect sentiment will improve in the coming weeks despite the weakness we’re seeing at the moment. Until proven otherwise, we’re still working higher off the bottom hit in May.
In this issue we feature a company that is at the heart of half the solar projects in the country and just launched a new product line to take advantage of the projected boom in EV chargers. We also take the measure of our portfolios, with no new rating changes this issue. A new ESG Three and our market outlook are also inside.
Cabot SX Greentech Issue: September 7, 2022
Greentech’s Outlook
Commentary on current investing conditions and the Greentech Timer
The market’s uptrend is intact, but it’s under pressure. The Wilderhill Clean Energy Index, which we use as a proxy for the whole Greentech sector, spent its first time this year over its 200-day moving average in August – reflecting long-term sentiment – as improving buying in July and the first half of August rallied shares. The index fell below the 200-day on August 26 and is now testing support at the 50-day line. Should that support fail, we may still see some downward pressure in Greentech from current levels but, based on buying volumes, support should halt any further drop about 10% beneath current levels. Other indexes that aren’t as broad-based as the Wilderhill show Greentech in a better spot, suggesting leading sector stocks are holding up better. The Clean Edge Green Energy Index, which has about 60 stocks (compared to close to 90 for the Wilderhill) and is more heavily weighted on its large-cap stocks, is still bullish, sitting on a band of support. That, combined with the Greentech Advance-Decline line and its big reversal from mid-August, suggests smaller Greentech names are the ones suffering the brunt of the past two weeks’ action, which is driven by fears of higher interest rates.
Greentech Timer
The Greentech Timer is mostly bearish this week. Our timer is bullish when the index is above the 20-day and 40-day moving average and those averages are upward trending (ideally, the index is also above an upward trending 200-day moving average too, but not essential). As you can see from the chart, we’re now below the 20-day and 200-day lines, which will act as resistance now. The index is working to keep around the 40-day line around 55. We expect good support to come in around 50, where we saw good volumes before.
As far as subsectors, everything is showing recent weakness, but solar and nuclear remain largely bullish, while wind and water are bearish. EV makers without product rolling off the assembly line continue to be poor performers, among the worst in our coverage universe. Chinese EV makers, too, are weak of late, as poor mid-summer sales from pandemic troubles and the trimming of a position in BYD Co. (BYD) by Berkshire Hathaway have eroded near-term sentiment.
Taken altogether, we still believe the recovery is intact, up from the two-year lows Greentech was testing this spring and summer. Keep holding winners, look to cut back on riskier names and consider unloading unprofitable trades ahead of a potential break of stock market support.
A note on our publication: I’ve gotten some feedback that people would like issues to not be as wordy – being verbose is admittedly a weakness of mine. So, we’ve trimmed back a bit on our discussions in the issue but none of the research and analysis that goes into our featured stocks and the management of our portfolios. As a subscriber, you always have access to me for further detail or clarification by email, at brendan@cabotwealth.com.
Featured Stock: Shoals Technologies Group (SHLS)
Overview
One of the weights on U.S. solar power in recent years has been the phasedown of investment tax credits (ITC) and production tax credits (PTC). Both were getting phased out – projects started after 2016 received increasingly reduced PTCs while the ITC was slated to start being phased down in 2023. The recently passed Inflation Reduction Act now removes the phase downs (but not for projects already started) and extends them out. That brings a lot of certainty and cost benefits to solar projects. For instance, a 30% PTC for rooftop home solar is now in place for the next decade, rather than at risk for an annual Congressional renewal vote. That should result in a lot of U.S. solar growth.
Business Model
Shoals Technologies Group (SHLS) is the dominant provider of Electrical Balance of Systems (EBOS). EBOS makes the components that are needed to gather, regulate and transfer electricity from photovoltaic panels work. These include transition boxes, inline fuses, cable assembles and wireless monitoring products among about nine components that comprise EBOS. Half of solar installed in the U.S. uses Shoals EBOS.
Shoals’ advantage is that it is designed to reduce installation labor compared to other EBOS systems. Cutting labor cuts installation time, saving money, and also reduces the more expensive, higher-skilled contractors needed for installation, which also saves money. That is, the systems are plug-and-play, built to be installed by regular labor, not licensed electricians. Shoals says its system requires 43% lower labor costs than other EBOS systems. As an example, a 100MW solar project will need 18,000 wire runs and 100,000 connections, all done by a licensed electrician. Shoals’ prefab components slash wire runs by two-thirds and connection points by 83% and eliminate the need for underground wire installation. Those also mean maintenance is easier and cheaper.
Despite its focus on saving clients money, EBOS still commands a premium – it takes about 6% of any solar project’s budget – because any failure of the EBOS can lead to lost power generation, revenue and bring the risk of fire and further equipment destruction – project owners want the EBOS to be reliable. Each system is designed specifically for every project, which provides a bit of a competitive moat. Because of the individual design and the lead times it requires, Shoals has 12-month visibility into its revenue.
Sales in 2021 were $213 million, up from $144 million two years earlier, with net income of $2.3 million, down from $25.1 million in 2019. Gross profit – before EBITDA and SG&A – has been rising, hitting $83 million last year from $44 million in 2019 (the two-year comparison is to show the quick growth – 2020 figures fall in the middle). For the first two quarters of this year, Shoals has tallied $141 million sales, $54 million gross profit and $11.95 million net income.
Business Outlook
Three things suggest Shoals continues to have a bright future.
- Solar growth. As discussed earlier, the latest climate funding should spark a lot of solar growth. How much is a matter we haven’t seen great estimates about just yet, though we are seeing across-the-board revenue increase estimates for solar-related companies with U.S. exposure. Shoals manufactures its products in Alabama and Tennessee, meaning it meets domestic content requirements weaved into the legislation.
- Retrofits. Domestic solar installations have been growing at a 17% clip. Shoals has been growing its revenue by 23%. That outpacing is due in part to gaining market share, but also to retrofitting existing EBOS systems. Systems get retrofitted to utilize more efficient circuitry and reduce maintenance costs.
- EV chargers. In addition to the core solar market, management sees a lot of potential for its plug-and-play style of electrical equipment to lay claim to a chunk of the EV charger market. The company just launched its own EV charger line, “Fuel by Shoals,” which they believe will cut installation time by 40% and also cut materials costs by 30% through things like using above-ground runway to eliminate digging trenches for wiring and other innovations similar to its EBOS system. Based on data from New Energy Finance, more than 700,000 EV chargers will be installed in the U.S. by the end of 2025 – a quintupling of the install base. At a sales estimate of $5,000 per charger, that means a total addressable market of $3.5 billion in the years ahead. The product is directed at commercial fleet, office and retail customers rather than homeowners. The company struck an excited tone over the charger launch in its early August earnings call, saying they have received commercial and bus fleet orders.
Issues to Consider:
Order backlogs are $327 million, up 49% from the year-earlier Q2. Shoals doesn’t break out what products backlog orders are for.
- Full-year 2022 revenue is projected to be $300 to $325 million by management, up as much as 52%, with adjusted net income of around $50 million.
- The EV charger market is fast-growing but has a lot of competition. It requires Shoals potentially selling to a different customer base than they do with their EBOS.
- Shoals acquires some components from China, which are affected by tariffs. To date, there has been no indication of any restricted Chinese components produced by forced labor.
- The company is light on debt, with a $75 million revolving credit line it can tap. It has net $410 million cash on hand on June 30 and expects some quarters it may borrow funds to fuel expansion.
Technical Analysis
SHLS went public by traditional IPO in January 2021 at 25. Shares traded fairly well, rising up to 44 in the follow-through from the IPO, but then suffered in the broad tech stock sell-off that began in November. Shares bottomed at 9.78 in April. Good earnings results pushed shares back to a 2022 high of 27.37 after the Q2 earnings report. Shares are consolidating around 25. Right now, price technicals suggest SHLS may continue to ease lower, with support around 22.50 and at 19. There’s general resistance from 25 through 35, with the mid-27 mark probably the most significant level in there, being the recent peak.
What to Do Now
With the sector testing support, and price technicals suggesting a drift lower, we’re going to watch for signs that what appears to be a mild, cyclical drift lower is about to reverse. Odds are, shares may test support at the 40-day moving average, around 22, before seeing a reversal, assuming the market situation remains mixed as it has been of late. WATCH
Shoals Technologies Group (SHLS)
Revenue (trailing 12 months): $249.4 million
Earnings per share (TTM): 0.07
All-time high (intraday): 44.04
Market cap: $2.79 billion
Recommendation: Watch
Intended Portfolio: Real Money
ESG Three
The ESG Three are three technically strong stocks to explore for further investing. We choose from among the 200 most-held stocks by ESG funds, and further screen out companies for clear environmental, social and/or governance issues such funds often overlook. As a general rule, we exclude fossil fuel producers from ESG consideration given their clear environmental impacts.
McKesson Corp. (MCK)
What is it?
A U.S.-focused pharmaceutical and medical supplies distributor.
Why is it ESG?
The business leads peers in environmental metrics, according to MSCI. ESG funds own $95 million of shares.
Why now?
The latest quarter, reported a month ago, beat expectations. Shares are just off a new all-time high of 373.84.
Cigna Corp (CI)
What is it?
A U.S. managed care and insurance company.
Why is it ESG?
It leads peers in environmental and governance metrics and has a strong corporate structure to protect the vast amounts of consumer privacy data it has. ESG funds own $499 million of shares.
Why now?
The company beat guidance in its latest quarter and shares are strong.
Centene Corp. (CNC)
What is it?
The largest Medicaid managed care organization in the U.S.
Why is it ESG?
It’s in the top quartile of its industry for environmental metrics. ESG funds own $128 million of shares.
Why now?
A new CEO is cutting corporate costs – mainly real estate with much of its workforce now remote. That is expected to improve margins.
Current Portfolio
Real Money Portfolio
| Stock | Ticker | Buy Date | Buy Price | Price on 9/6/22 | Gain/Loss | Rating | Sell-Stop |
| Clean Earth Shares | CLIN | 3/4/22 | 9.99 | 9.89 | -1.00% | Hold | None. Trust is 10.10 |
| Clean Earth Warrants | CLINW | 3/4/22 | 0.01 | 0.11 | 1000.00% | Hold | None |
| Clean Earth Rights | CLINR | 3/4/22 | 0.01 | 0.15 | 1400.00% | Hold | None |
| Cleanway Energy | CWEN.A | 3/17/22 | 33.41 | 34.93 | 4.55% | Hold | Around 28 |
| Energy Recovery | ERII | 23.69 | Buy at 25 or higher | ||||
| Enovix | ENVX | 8/18/22 | 20.49 | 19.18 | -6.39% | Buy | |
| Enphase Energy | ENPH | 8/11/22 | 298.56 | 297.37 | -0.40% | Buy | |
| Growth for Good Shares | GFGD | 2/3/22 | 9.97 | 9.82 | -1.50% | Hold | None. Trust is 10 |
| Growth for Good Warrants | GFGDW | 2/3/22 | 0.01 | 0.10 | 900.00% | Hold | None |
| Growth for Good Rights | GFGDR | 2/3/22 | 0.01 | 0.11 | 1000.00% | Hold | None |
| Li Auto | LI | 7/21/22 | 36.01 | 26.62 | -26.08% | Hold | None |
| Montauk Resources | MNTK | 8/11/22 | 15.51 | 17.33 | 11.73% | Buy | |
| Onsemi | ON | 8/11/22 | 67.32 | 66.91 | -0.61% | Buy | |
| Ormat Technologies | ORA | 8/1/22 | 86.72 | 92.68 | 6.87% | Buy | around 85.30 |
| Sunrun | RUN | 33.14 | Watch | ||||
| Vertex Energy | VTNR | 6/1/22 | 13.88 | 8.41 | -39.41% | Hold | None |
* Clean Earth units cost 10.01 each; Growth for Good units 9.99. Buy prices above reflect an allotment for each component after splitting the units.
* don’t include dividends totaling $0.714 per share for CWEN/A
Excelsior Portfolio
| Security | Ticker | Buy Date | Buy Price | Price on 9/6/22 | Gain/Loss | Rating | Note |
| ADS-Tec Energy Warrant | ADSEW | 10/20/21 | 1.66 | 1.20 | -28% | Hold | |
| Constellation Energy | CEG | 4/21/22 | 64.23 | 82.32 | 28% | Hold | Sell-stop ‘around 70' |
| ESS Tech Warrant | GWHWS | 6/9/22 | 0.53 | 0.59 | 11% | Buy | |
| FuelCell Energy | FCEL | 1/6/22 | 5.20 | 3.94 | -24% | Hold | Half-sized position |
| Origin Materials Warrant | ORGNW | 6/16/21 | 2.43 | 1.28 | -47% | Hold | |
| Ree Warrant | REEAW | 6/16/21 | 1.10 | 0.22 | -80% | Hold | Convert in tender |
| ReNew Power Warrant | RNWWW | 6/16/21 | 1.81 | 1.28 | -29% | Hold | |
| Volta Warrant | VLTA.WS | 6/16/21 | 2.21 | 0.63 | -71% | Hold |
Sold positions
| Stock/Security | Ticker | Buy Date | Buy Price | Sell Price | Gain/Loss | Sell Date | Note |
| Advanced Water Systems | WMS | 1/6/22 | 130.65 | 96.70 | -26% | 5/9/22 | sell includes dividend |
| Aecom | ACM | 2/17/22 | 73 | 74.36 | 2% | 4/25/22 | sell includes dividend |
| Aemetis, Inc. | AMTX | 9/24/21 | 14.63 | 14.76 | 1% | 12/14/21 | |
| Altus Power Warrant | AMPS.WS | 5/19/22 | 1.06 | 3.07 | 190% | 8/24/22 | |
| Aptiv | APTV | 11/18/21 | 177.01 | 148.55 | -16% | 1/19/22 | |
| Archaea Energy | LFG | 12/2/21 | 18.27 | 19.93 | 9% | 5/10/22 | |
| Array Technologies | ARRY | 11/18/21 | 25.30 | 17.95 | -29% | 12/1/21 | |
| Aspen Aerogels | ASPN | 10/6/21 | 45.99 | 50.12 | 9% | 12/21/21 | |
| Centrus Energy | LEU | 9/21/21 | 33.46 | 69.66 | 108% | 11/17/21 | Half sold this date |
| Centrus Energy | LEU | 9/21/21 | 33.46 | 49.68 | 49% | 12/4/21 | Half sold this date |
| Charah Solutions | CHRA | 2/3/22 | 5.22 | 4.47 | -14% | 4/7/22 | Half sold this date |
| Charah Solutions | CHRA | 2/3/22 | 5.22 | 4.00 | -23% | 4/21/22 | Half sold this date |
| Darling Ingredients | DAR | 4/21/22 | 84.94 | 73.06 | -14% | 6/15/22 | |
| Daseke | DSKE | 2/3/22 | 11.23 | 7.32 | -35% | 5/26/22 | |
| Energy Vault | NRGV | 4/8/22 | 18.87 | 10.14 | -46% | 5/12/22 | Half-sized position |
| Enphase Energy | ENPH | 11/10/21 | 228.73 | 188.94 | 49% | 12/22/21 | |
| ESS Tech | GWH | 11/18/21 | 14.97 | 10.33 | -31% | 1/6/22 | |
| Infrastructure Energy Alternatives | IEA | 3/24/22 | 13.25 | 10.15 | -23% | 4/25/22 | |
| KraneShares China Green Energy | KGRN | 2/10/22 | 41.38 | 42.89 | 4% | 9/21/21 | |
| Li-Cycle Warrant | LICY.WS | 6/16/21 | 2.42 | 2.52 | 4% | 12/27/21 | |
| Lithium Americas | LAC | 1/20/22 | 27.60 | 26.14 | -5% | 4/25/22 | |
| MP Materials | MP | 3/9/22 | 45.01 | 40.86 | -9% | 4/25/22 | |
| Navitas Semiconductor Warrant | NVTS.WS | 6/16/21 | 2.57 | 6.68 | 160% | 11/18/21 | 3/4s sold this date |
| Navitas Semiconductor Warrant | NVTS.WS | 6/16/21 | 2.57 | 3.26 | 27% | 2/10/22 | 1/4 sold this date |
| Onsemi | ON | 8/4/21 | 44.63 | 57.60 | 29% | 1/20/22 | Half sold this date |
| Onsemi | ON | 8/4/21 | 44.63 | 56.68 | 27% | 1/26/22 | Half sold this date |
| Wolfspeed | WOLF | 11/4/21 | 129.99 | 117.38 | -10% | 12/3/21 |
Real Money Portfolio
Our primary portfolio is the Greentech Real Money Portfolio – we invest alongside subscribers in the picks we make. That portfolio is designed to be fully invested at 12 stocks of equally sized initial investments. We have 10 full positions right now.
When the sector is bullish, we keep our cash in the ETF based on our benchmark index – the Wilderhill Clean Energy ETF (PBW). When bearish, we keep our cash in U.S. Treasury bills. We prefer to execute sell-stops on daily closes at or below our sell-stop mark, rather than intraday lows – but either way will work fine in the long term.
Clean Earth Acquisitions Corp. Shares, Warrants and Rights (CLIN, CLINW, CLINR)
No news for the SPAC on the hunt for a Greentech merger. In our portfolio table, we adjusted the buy prices to reflect the total cost we paid for the units (rather than their market prices when the units were split), mostly attributed to the shares. The warrants and rights represent our profit. HOLD
Clearway Energy (CWEN/A)
CWEN/A is back on support around 34-35, providing a good entry point. Price action technicals indicate shares are turning back higher soon. BUY
Energy Recovery (ERII)
We set ERII as a “buy at 25 or higher” with our August 15 issue. That price would be confirmation that shares are breaking out of a long consolidation. It’s possible if shares ease further to support around 20-22 we could be buyers, depending on broad market conditions. Right now, ERII is best watched. BUY at 25 or Higher
Enovix (ENVX)
ENVX is meandering in a range of 18.50 to 25, with plenty of support at 18.50 down to 16. Little news, with expectations the battery maker will announce a new, large customer or two at some point this year. BUY
Enphase Energy (ENPH)
The microinverter maker is consolidating, and it’s possible shares may drift lower to support at 257-264. 305 is resistance. BUY
Growth for Good Shares, Warrants, Rights (GFGD, GFGDW, GFGDR)
No news from our ESG-focused SPAC seeking a merger. In our portfolio table, we adjusted the buy prices to reflect the total cost we paid for the units (rather than their market prices when the units were split), mostly attributed to the shares. The warrants and rights represent our profit. HOLD
Li Auto (LI)
Weak July deliveries and weakness among competitors have the EV maker looking bearish, with shares recently eating away gap support. If you believe in China’s EV market and in government incentives there to spark auto buying, patience now should be to our benefit. HOLD
Montauk Renewables (MNTK)
MNTK is on top of support and looks bullish as shares consolidate here on mild volume. No news. BUY
Onsemi (ON)
Last week was ON’s first down week after a run of eight straight up weeks. Action is normal and has shares back to a decent buy slot, with shares near the 40-day moving average. BUY
Ormat Technologies (ORA)
Technicals say ORA may continue to ease back here, but support in a band at 88-92 should come in. No news for the geothermal power plant developer and operator. BUY
Sunrun (RUN)
RUN is on support, but shares are drifting lower and we’ll want to see some price-related technical indicators improve before considering adding to the portfolio. WATCH
Vertex Energy (VTNR)
VTNR is managing to consolidate in the 8-9 area. They’re struggling with some immediate resistance, but holding here is a good step toward working higher in the longer term. Likely the next quarterly report will provide a catalyst higher. HOLD
Excelsior Portfolio
Excelsior is our special opportunities portfolio and is managed without consideration to the Real Money Portfolio. We may or may not recommend sell-stops in Excelsior. In June 2021 we purchased five SPAC warrant positions as a basket trade: Navitas, Li-Cycle, ReNew, Ree and Volta. Of these, Li-Cycle, was closed at a 4% profit in December. Navitas was closed in February at a 127% return.
ADS-Tec Energy (ADSEW)
Warrants are unchanged over the week. The market hasn’t done much with the company’s strong orders report – it’s a young stock that needs to build up institutional support. Management should be presenting quarterly results soon, but no date is set. HOLD
Altus Power (AMPS.WS)
We recommended taking profits in our Altus Power warrants in our weekly update two weeks ago. The portfolio booked a 190% profit by selling at 3.07. Warrants have eased back to 2.67 since. SOLD
Constellation Energy (CEG)
CEG continues to consolidate, trading in a range between 79 and 83. Little news. HOLD
ESS Technology (GWH.WS)
The iron-flow battery maker warrants are around 65 cents this week, firmer than last. BUY
FuelCell Energy (FCEL)
FuelCell will release third-quarter earnings tomorrow morning. Consensus is for a loss of six cents a share. Investors will be watching for indications of orders from Asia and elsewhere outside of Korean conglomerate Posco, which is committed to $50 million in orders this year. HOLD
Origin Materials (ORGNW)
Not much movement over the past month on Origin warrants. The company is a carbon-negative plastics maker that’s expected to start production late this year. HOLD
Ree Automotive (REEAW)
Ree is offering to convert every five warrants to one share in a tender ending September 22. We recommend conversion, which must be done through your broker. No news from the EV chassis maker otherwise this week. CONVERT WARRANTS TO SHARES IN COMPANY TENDER
ReNew Energy Global (RNWWW)
The Indian government is expected to implement a new solar production incentive program. ReNew mainly owns and operates renewable plants in India, but plans in-house manufacturing capacity that would benefit. Warrants are unchanged over the week at 1.26. HOLD
Volta Inc (VLTA.WS)
Warrants are about the same as last week, at 58 cents. The EV charging company has no news and is seeing quiet trading of late. HOLD
Our next SX Greentech Advisor issue is published Wednesday, September 21. Weekly updates are published every non-issue Wednesday, and any timely notices get distributed as needed. Get in touch with comments, suggestions and questions any time. Reach me at brendan@cabotwealth.com. Thank you for subscribing.
The estimated carbon generated in the production and distribution of this newsletter is offset by CO2 removal with Climeworks at its plant in Iceland.
The next Cabot SX Greentech Advisor issue will be published on September 21, 2022.
About the Analyst
Brendan Coffey
Brendan Coffey, Chief Analyst of Cabot SX Greentech Advisor, has been immersed in investing for more than 25 years, including as an investment advisory editor, investor, markets reporter and writer about and for a wealth of Wall Street’s most influential minds. He’s discussed investing strategy with the likes of Carl Icahn, Mark Cuban and Leon Cooperman and collaborated with hedge fund managers and entrepreneurs on books and essays. He’s written about investments and markets for Forbes, Bloomberg, Fortune, The Wall Street Journal and numerous other outlets.
Brendan is a Certified Financial Technician (CFTe), representing extended study and achievement in technical analysis of securities. He combines technical and fundamental analysis in pursuit of a long-held passion for environmental and ESG stocks that began with the study of environmental law as an undergraduate at Boston College. Brendan’s also been a fellow at the Scripps Howard Institute on the Environment, served on a municipal energy planning board and, last decade, was editor of Cabot Green Investor and Cabot Global Energy Investor. In addition to ESG, he conducts proprietary research into billionaire-owned stocks, SPACs, sports-related equities and other sectors.