We have three ‘buys’ and a ‘drop’ from our Watch list this week.
Greentech is looking its most bullish in nine months, as the market are heartened by the Inflation Reduction Act and its $390 million support for U.S. clean energy efforts. The act still has to go be passed by the House of Representatives, but that is probably a rubber stamp after overcoming the high hurdle of the split Senate.
There are still some headwinds to the market. The foremost is that Greentech is butting up against resistance – the Wilderhill Clean Energy ETF (PBW) that we use as a proxy for the sector is bumping up against its 200-day moving average. Coupled with some other chart resistance, the next 10% higher from here will be well-earned.
Overall, every subsector is bullish too, something we haven’t seen in Greentech in about two years. Solar and fuel cells appear the most bullish while wind, water and nuclear are a little more mixed, if not bullish. EVs are the weakest sector, still bullish but with a lot of weak names still holding back sentiment.
Real Money Portfolio
Clean Earth Acquisitions Corp. Shares, Warrants and Rights (CLIN, CLINW, CLINR)
No news on the Greentech SPAC, which is searching for a merger. Shares and warrants are basically level for the week, with rights five cents firmer at 15 cents each, recently. HOLD
Clearway Energy (CWEN/A)
Clearway is stable after last week’s earnings. Technically, shares look like they are consolidating for a fresh leg higher. The company will pay a dividend of 36.04 cents per share to owners as of September 1. Given market bullishness, we’re shifting from Hold to Buy, expecting shares to move toward 40 from here. BUY
Enphase Energy (ENPH)
We wanted to see the Inflation Reduction Act pass the Senate. It has, and the chart suggests shares have broken out of a trading range and could have a long uptrend ahead. Any stumbles in the bill getting past the House of Representatives, which we don’t expect, would be costly – that is a risk buying here. Manufacturing tax credits will benefit the microinverter maker. More importantly, we feel, is the general support for residential solar and energy storage will support the market and benefit Enphase, the market leader in solar inverter products. BUY
Good for Growth Shares, Warrants, Rights (GFGD, GFGDW, GFGDR)
No news from the ESG SPAC, which is searching for a merger. Warrants and rights are weaker this week, but it seems to be larger noise from trades in light volume. HOLD
Li Auto (LI)
Li will report second-quarter earnings Monday, August 15, before the market opens. Consensus is for a loss per share of six cents. We’ll want to see that production remains unaffected by pandemic shutdowns in China as well as a strong start to the sale of its new model, the L9. BUY
Montauk Renewables (MNTK)
Earnings released yesterday came in at 13 cents per diluted share and 14 cents per basic share, right at consensus. Sales were up 114%, to $67.9 million, driven mainly by improved RIN prices, the tax credits Montauk generates from producing renewable fuel – most of Q1’s RINs were unsold going into the quarter because of a belief Q1 was abnormally weak prices, so the company sold more than usual. It has already sold all its RINs in the current quarter. Management raised its full-year revenue estimate for production – RNG and renewable electricity (it doesn’t provide guidance on RIN prices) – about 10%, from $217 million to $239 million. Efforts to expand to generation from livestock waste are progressing and production volumes are rising. In short, Montauk seems to be performing smoothly. With shares technically looking good, we’re shifting our rating from Watch to Buy. BUY
Natural Grocers by Vitamin Cottage (NGVC)
Natural Grocer has broken out of its tightening range, but to the downside, seeing high volume sell-down break support of its 200-day line. We’re going to drop NGVC from our Watch list. DROP
Onsemi (ON)
We were waiting for the Inflation Reduction Act to pass the Senate. It has and so we’re moving the semiconductor maker to ‘Buy.’ It’s one of the strongest performers, technically, in Greentech right now and, as detailed in our issue last week, we feel it also presents a combined value and growth play. BUY
Ormat Technologies (ORA)
Ormat hit consensus expectations on EPS in earnings out last Wednesday. The company had 20 cents EPS, which would have been 27 cents if foreign currency sales didn’t go against them because of the strong dollar. The inflation act’s tax credit structure will add support and simplify financial transactions for Ormat. The financial effect isn’t clear yet, but as the details work through, management expects tailwinds from it. The company also is on track with capacity expansion and seeing good progress in its non-geothermal efforts into solar and energy storage. Shares are consolidating at 90-92. We’re going to recommend a sell-stop around 83.50, while anticipating shares can run to 105 in coming weeks. BUY
Vertex Energy (VTNR)
Vertex plunged this week, dropping from 14 per share Friday into the 7s today. What happened? Wall Street thought they were buying a fuels company when it turns out we learned from Monday’s earnings release management was acting like they were a hedge fund, piling up massive losses on hedges they had taken on the conventional fuel production at the recently acquired Mobile refinery. I tally $116 million in losses in the second quarter on production hedges and intermediate contracts, as crack spreads and backwardation of prices made Vertex’s bets go bad. Making matters worse is about a $23 million rise in inventory, for produced barrels that hadn’t been delivered. The result was a miss of $35 million on adjusted EBITDA management had guided to halfway through last quarter. Worsening matters is management’s muddle over company direction. Just a couple of months ago, management put its legacy renewable fuel business of recycled motor oil up for sale and decided rather than convert Mobile to renewable diesel production to keep the conventional production amid its promise of big profits and add on renewable diesel production to it. Now, management says technically the legacy business is still up for sale, but that it’s doing the best ever, and maybe they won’t sell it – they took $40 million from a credit line to buy complete ownership of two of its facilities from a private investor. They also say the renewable diesel plant is on target, but hint at possible supply delays that may come up. They also say, after this quarter, they are probably done with hedging conventional production and they aren’t guiding for 2022 results in any case. All told, it’s hard to see how the company could have screwed up more in three short months.
What to do now? Ordinarily we want to cut losses, but the loss here is so large the odds are we could be at the nadir of sentiment. Without the hedging, the company would have beaten consensus handily, and the expanded renewable fuels tax credits provide the potential for a strong 2023 outlook. The danger is shares could continue to suffer and our losses would get larger due to lack of institutional support – some brokerage analysts clearly were upset with management during the call. Our recommendation to hold here is not out of great conviction, but from the strategy in technical analysis that in a crash like this – a one-day cratering – the best policy can be to wait things out. HOLD
Excelsior Portfolio
ADS-Tec Energy (ADSEW)
Little news for the German EV charger maker. Shares and warrants are holding up fine, if slightly weaker. HOLD
Altus Power (AMPS/WS)
Warrants are performing well, at 2.30 recently, more than double our investment. Shares are approaching 10, the level where we can start to expect management may convert warrants to shares. Because we bought low, the warrants should convert to shares at a great return. We may elect to take profits and sell the warrants once that possibility comes. In the near term, Altus will report earnings before the market opens on August 15. We’re looking for the business to stay on track to generate $120 million sales, which means this quarter and the next two need to average about $33 million. GAAP income will probably be helped by the lower cost of shares and warrants, which due to accounting from the SPAC merger can muddy the long-term picture. HOLD
Constellation Energy (CEG)
CEG continues to benefit from the Inflation Reduction Act, which will provide tax credits for carbon-free energy generation. The company missed consensus estimates, but some analysts viewed results as actually handily beating their adjusted (non-GAAP) expectations. Management also reaffirmed full-year targets on adjusted EBITDA. Regardless of the expectations game, shares are strong and consolidating in the mid-76 area. Shares are still overbought and may need time to blow off steam, but they remain in good form. HOLD
ESS Technology (GWH.WS)
Q2 earnings will be announced Thursday, August 11, after the close of trading. ESS has some trouble gaining market support, so management’s discussion of outlook will have a lot of influence on shares. We maintain the warrants are a ‘Buy,’ given our original investment thesis remains intact. BUY
FuelCell Energy (FCEL)
FCEL is picking up, almost certainly due to the Inflation Act’s provisions. Shares in the mid-4 area today have resistance ahead at 5, with the 5.42 mark, the 200-day average, the most significant. HOLD
Origin Materials (ORGNW)
The carbon negative plastics maker reported $8.1 billion in non-binding offtake orders in its earnings call last week. Its first plant, Origin 1, in Quebec, is on target to begin production at year’s end, while its next plant, Origin 2, in Louisiana, is also on target to begin construction next year, with a $400 million state grant expected. Shares and warrants are improving. HOLD
Ree Automotive (REEAW)
Ree will release Q2 earnings Tuesday before trading. We want to see progress toward production and no balance sheet surprises. HOLD
ReNew Energy Global (RNWWW)
No news for the renewable energy producer. Warrants are stronger in unexceptional action, up to 1.37 recently. HOLD
Volta Inc (VLTA.WS)
Volta releases earnings tomorrow (August 11) after the market closes. A loss of 21 cents per share is expected. The market has been concerned with cash on hand and capital expenses. HOLD
Thank you for being a subscriber. Our next SX Greentech Advisor issue will be published Wednesday, August 17. 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@cabot.net.
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