User Page: Beth McKenna

Education: BA Lafayette College (PA); MBA Rutgers (NJ)

Interests: running and hiking, all things creative, travel, live music, reading, kayaking and just splish-splashing, writing jingles, stock market…

More Ethanol = More Fertilizer Needed for Corn

Taking stock of fertilizer company stocks

By Beth McKenna  
December 15, 2007 – 11:43 pm

There is a flip side to about everything in life, isn’t there?

Take corn-based ethanol. It’s a plus for the Midwestern farmers growing corn as it provides them with more demand for their crop. It’s a negative for people buying food — expecially those on tight budgets — as the additional demand drives up food prices.

To be fair, let’s note that there are also other factors that have driven up food prices to historic highs: rising transportation (fuel) costs; and growing affluence in Asia, which has led to an increase in demand for meat, which in turn has driven demand for grain to feed livestock. 

As many readers likely know, the US already has ethanol subsidies in place. And, as some may know, Congress just passed a bill increasing those subsidies (and Bush has said he’ll sign the bill now that several of the original clean energy subsidies were taken out).

So, for now, there’s no sense debating whether increased ethanol subsidies are a good or bad thing. For our purposes, this saying applies: IT IS WHAT IT IS.

The bottom-line: More corn being grown to produce the additional ethanol means that more fertilizer will be needed. Fertilizer company stocks, which have posted scorching returns over the past year (and longer), should continue to do well.

Here’s a look at some of the major fertilizer companies (in order of market cap*):

  1. Potash (NYSE: POT) – Canadian firm specializing in potash**, a form of potassium carbonate, as well as nitrogen and phosphate, fertilizers. Some stats: $39.7 B market cap; 173% 1-year stock return; 1.9 beta; 24% Return on Equity (ROE); 30% operating margin (OM); 39% quarterly revenue growth & 67% quarterly earnings growth.
  2. Mosaic (NYSE: MOS) — Minnesota-based company that is the industry’s other giant potash producer. Stats: $36.6 B market cap; 276% 1-year return; 1.5 beta; 15% ROE; 14% OM; 55% Q revenue growth & 180% Q earnings growth.  
  3. Agrium (NYSE: AGU) – Canadian company involved in nitrogen-based, potash, sulfur, and phosphate-based fertilizers. Stats: $7.8 B market cap; 92% 1-year return; other stats not immediately available (not listed on Yahoo Finance).
  4. CF Industries (NYSE:CF) — Illinois-based company that operates in two segments, nitrogen and phosphate fertilizers. Stats: $5.4 B market cap; 304% 1-year return; 0.9 beta; 27% ROE; 18% OM; 46% Q revenue growth & 1085% Q earnings growth.  
  5. Terra Industries (NYSE:TRA) — Iowa-based company that produces nitrogen and methanol products for agricultural and industrial markets. Stats: $3.6 B market cap; 260% 1-year return; 1.9 beta; 15% ROE; 23% OM; 28% Q revenue growth & 426% Q earnings growth.  
  6. Terra Nitrogen (NYSE:TNH) — Iowa-based limited partnership (LP) with a focus on nitrogen fertilizer products. Stats: $2.3 B market cap; 272% 1-year return; 2.3 beta; 98% ROE; 27% OM; 45% Q revenue growth & 232% Q earnings growth.  

*Market capitalization (cap): # shares of company stock x stock price

**Potash: There’s a limited amount of potash production globally, thus, it’s a very profitable product for those companies producing it. Potash comes from mines, and the cost of replicating these massive mines represents a major ”barrier to entry” or “moat” (meaning other companies can’t easily get into this biz).

Before investing, do like one of those Midwestern farmers and dig, dig, dig! A bit deeper. 

This article is not a recommendation to buy or sell any securities.

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Want Wind Power? Need Turbines.

Merrill Lynch forecasts these companies to be wind winners

By Beth McKenna  
December 15, 2007 – 9:53 pm

wind-cu-330.jpgwind-cu-330.jpgBy most accounts, there is a strong tailwind behind wind power.

Merrill Lynch in Europe recently published a report predicting that global wind energy capacity will soar at a compound annual growth rate of 22% between now and 2011. 

Three of the megatrends Merrill forecasts in this same report:

1. By 2011, the US will be the world’s #1 wind energy market, surpassing current #1, Germany.

2. The global wind energy industry will grow so fast that key component manufacturers will struggle to keep pace.

3. Despite rising demand, there isn’t likely to be a significant number of new market entrants, in large part because of the value buyers place on manufacturers with a proven track record.

It doesn’t take a Nobel-winning economist to realize that if, indeed, demand exceeds supply, and there are few new entrants, there will be some big-time winners among the existing component manufacturers.

The turbine manufacturers Merrill forecasts to be winners and why:

  1. Siemens AG, a German company — has a strong position in the growing offshore markets (out in oceans).
  2. Suzlon Energy, an Indian company – has a a considerable home advantage on its turf. 

How to invest in these companies: 

  1. Siemens — which is not a “pure play” as it has many different business operations — trades on the New York Stock Exchange (NYSE) under the ticker symbol SI. So, US investors can easily purchase this stock.
  2. Suzlon — doesn’t trade on a US exchange. It trades on the Indian exchange (NSE), as SUZLON.

Wish I could hook you up with the entire Merrill report, but I’d imagine it’s pricey. You may want to check out my source below as it contains some great articles pertaining to wind and solar energy companies.

Source: Energytechstocks.com

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SunPower’s ‘Power Purchase Agreements’ Biz Model

No upfront cost -- ahh, the American Dream!

By Beth McKenna  
December 14, 2007 – 11:30 pm

Bavaria Solarpark, Germany - 10 MW

The pic above is of one of SunPower’s largest solar installations — it’s in Bavaria, Germany. Looks like we’re about to land in beautiful country, doesn’t it? Germany is a hot spot for the solar power industry because of the very generous government subsidiaries. Onto the business at hand while I’ve got a captive audience “aboard”…

SunPower in a Snapshot

SunPower Corp. (Nasdaq: SPWR) is involved in the design and manufacturer of solar power products primarily in the US, Germany, and Asia.

The company, which is a subsidiary of Cypress Semiconductor (NYSE: CY), is not an upstart like many in this industry – it’s been around since 1985. It’s based in San Jose, the heart (or shall we say, “sol”) of California’s Silicon Valley.

The company’s product lines include: solar cells, solar panels, and inverters; imagining detectors (based on solar power tech) for medical apps; and infrared detectors for computing and mobile phone apps.

The company’s subsidiary, PowerLight Corp, offers a wide range of full solar power systems for commercial, industrial and residential markets. Systems include roof-mounted, roof-integrated, day lighting systems with translucent solar panels (these sound cool), among others.  

PowerLight also provides various services such construction management, maintenance and monitoring, etc. 

Two Ways to Invest

You can buy stock in either SunPower or its parent company. SunPower’s stock trades on the Nasdaq under the ticker symbol SPWR. Cypress’s stock trades on the NYSE under the ticker CY.

Power Purchase Agreement (PPA) Business Model

This model should be called PPPA — with that first “P” for “powerful!” 

This model involves no upfront cost for the customer (commercial and public agencies only, so Harry and Harriet Homeowner can’t get in on this one). And we’re not talking pay nothing now, but pay through the nose later, ala credit cards and other high-interest rate gimmicks.

Here’s how it works:

  • The funding: In late Nov, SunPower secured $190 million from Morgan Stanley to fund this program. 
  • SunPower & Morgan Stanley will jointly own a holding company that will finance solar power projects.
  • The holding company will buy SunPower’s systems and lease them to the customer at no upfront costs.
  • The customer will have to purchase its electricity (generated from the solar system) from the holding company for a specified number of years.

So, essentially, this program puts SunPower in the energy sales business. The program appears win-win: SunPower makes money and, reportedly, the customer saves money (per my Dec. 1 piece, Hewlett-Packard, which is getting a solar array at one of its facilities under this program, expects to save $750,00 in energy costs over 15 years — and that’s at just one site.)

A PPA program eliminates what has been THE major impediment for the growth of the solar power industry — the high upfront cost.

So, investors should consider investing in companies that have PPAs.

Some Financial Stats 

  • Stock return of 238% over the past 1-year period (to Dec 14) vs. the S&P 500’s (a proxy for the overall market) return just shy of 3 %. 
  • Operating margin of almost 3.9% (over 1-year period) — this is a bit too thin for my comfort level and should be watched to see if it grows. 
  • Return on Equity (ROE) of 2.4% — same comment as above, especially considering the company’s debt/equity ratio (0.5) (debt increases ROE).
  • Most recent quarter’s revenue was up over 258% (compared to same quarter of last year)
  • Most recent quarter’s earnings (Net Income) down almost 12% — a negative and should be investigated further by anyone considering investing.
  • Financial liquidity is good with a current ratio of 4.0.  
  • P/E (price/earnings) of 647 (trailing 1-year period) and 62 (based on projected earnings over forward 1-year period) — this is a very pricey stock based upon P/E valuations. 
  • Beta of 2.0 (means the stock is 2x as risky — in the stock price fluctuation sense — as the overall stock market). 

The Bottom-line

The two big pluses for this company’s stock: the torrid revenue growth and the PPA program. However, margins need to expand so that revenue growth translates into better earnings growth. The PPA program should help the company’s bottom-line going forward, but “should” is the key word at this point.

Investors may want to check out my piece on Suntech Power (NYSE: STP). Suntech has much better operating margin (12.9), ROE (21.3), and quarterly earnings growth (85%); its P/Es are more reasonable (89 trailing, 40 forward); and has an incredibly low beta (0.2). Suntech’s stock has returned 153% over the past year — not SunPower’s 238%, but a heck of a great return at much lower risk (compare the two betas — a 10-fold difference).

Time to fasten your seat-belt — we’ll be landing in Bavaria (pic) soon. Make that sunny Bavaria.   

This article not a recommendation to buy or sell any securities.

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‘Iberdrola Renewables’ Goes Public

Largest clean-energy IPO ever!

By Beth McKenna  
December 14, 2007 – 11:25 pm

 

Iberdrola SA is a Spanish mega-utility, as it’s one of the world’s five largest utilities. It’s also a clean-energy powerhouse as it’s the world’s top producer of wind power. My fellow green money writer Tim and I have mentioned Iberdrola a few times on this site.

Iberdrola has been building its wind-energy business through a series of acquisitions over the past few years. But it became the wind-powerhouse when it acquired Scottish Power last year for $23 billion and, in the deal, whisked up a huge wind-energy portfolio, including Portland, Oregon-based PPM Energy, the No. 2 US wind-energy producer after Florida-based FPL (NYSE:FPL). (Check out my recent piece on FPL.)

The Big Green IPO

The company sold 20% of its clean-energy unit Iberenova in a pricey IPO this past week. The new public company is called ‘Iberdrola Renewables’ and trades on the Madrid stock exchange. Based on the IPO price, the total market value of the unit is $32.3 billion. As 20% of the unit was floated as the IPO, the company now has an additional $6.5 billion (4.5 billlion euros) in green.

Let’s put some perspective on the size of this big green monster: 

  • It’s the largest clean-energy stock market IPO ever! 
  • It’s also the second largest IPO this year — behind Russia’s VTB Bank.

Where’s the IPO Green Going To Go?

By all reports, the US figures predominently in the company’s expansion plans. PPM Energy already has extensive operations in the Pacific Northwest and California, and has wind farms under construction in Pennsylvania, Minnesota, and Colorado.

Iberdrola also is expanding rapidly in France, Greece, Eastern Europe, and Spain.

How Can I Invest?

The stock trades on the Madrid exchange (MCE) under the ticker IBR (MCE:IBR). It does not trade on any US exchanges — I’d imagine this is just a matter of time.

Given the massive size of this one, it’s almost a sure thing that at least a couple of the major clean-tech ETFs (a subject Tim and I’ve written about) will likely include Iberdrola Renewables in their holdings in the near future — and perhaps they even picked up some shares at the IPO this past Thursday. Stay tuned as we’ll keep on top of this one. 

How Did the IPO Go?

The stock offering was priced at 5.30 euros per share. Below is the chart for the two days the stock has traded. It closed at 5.50 on Friday Dec 14, for a two-day gain of 3.8%.  

IBERDROLA RENOVABLE (IBR.MC)

This article is not a recommendation to buy or sell any securities.

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Consumers Say They’d Pay More Green for Things Green

How do Americans stack up in this international survey?

By Beth McKenna  
December 14, 2007 – 11:20 pm

Go to fullsize imageGo to fullsize imageI’d like to think people will do what they say they’d do – but I think there’s generally a difference between the two. So, with that caveat in mind, let’s discuss this survey.

The survey involved almost 2,000 people in the US, Britain, Germany, the Netherlands, Australia, and Japan.

The results:

  • Almost 70% of the sample said they’d pay a premium for clean or “green” energy such as wind or solar.
  • Australians were the most willing to pay more for renewable energy.
  • Americans were the most willing to pay the highest premium – 20% or more – for cleaner energy.
  • Germans appeared the most environmentally-conscious – one in three said they had evaluated how their everyday choices affect the environment, compared to one in seven Americans.
  • Nearly half of the total sample said they’d pay more for other green products such as cleaning supplies and hybrid cars.

The implications? Even if there is a gap between what people say they’d do and what they’d actually do, these are still pretty decent numbers and indicate that green products and services can likely do well even if they are priced a bit higher than non-green alternatives.

Source: Reuters

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How Green are the Presidential Candidates’ Vehicles?

From Clinton's & Edwards' hybrids to Obama's & Huckabee's OPEC dream-machines

By Beth McKenna  
December 11, 2007 – 7:35 am

 

I’ve always liked Alanis Morrisette’s “Isn’t It Ironic.” In addition to be being a darn catchy tune, there seems to be much truth to the central theme of the lyrics: irony abounds. 

While perusing some political news, Alanis’ tune came to mind. There’s no blue-red state partisanship here as I see irony (and I’m being generous using this term) on both sides of the political aisle:

McCain’s Words:

Republican John McCain, stumping in the early voting state of South Carolina on Monday, told a crowd at the Center for Hydrogen Research that the US needs to reduce its dependence on troubled parts of the world for oil.

McCain’s Wheels:

A Cadillac CTS – a mid-sized gas-guzzler. Fuel economy: 17 mpg city/26 mpg highway (and these are the overstated “old” averages).

Chorus:

Hit it Alanis…….“Isn’t It Ironic?” (click to hear the tune and see the video)

Obama’s Words:

Democrat Barack Obama detailed his energy plan while campaigning in New Hampshire in October. His speech touted his record in the Senate pertaining to supporting alternative energy. Here’s a quote from his speech that appears on his website:

“The question is not if a renewable energy economy will thrive in the future. It’s where. And if we want that place to the United States of America, we can’t afford to wait any longer. Global warming is not a someday problem. It is now.”

Obama’s Wheels:

A Chrysler 300C – a full-sized sedan with a V8 engine. Fuel economy: 15/23. 15?!

Chorus:

Hit it again Alanis …….“Isn’t It Ironic?”

My Take: 

Both McCain and Obama seem like good guys. But if you’re running for President, wouldn’t it show “good judgement” to walk-your-green-talk? Me thinks so.

Let’s be fair and note the following. McCain reportedly has the best environmental record among the Republicans. Additionally, his car is “green” in comparison to former Arkansas Gov. Mike Huckabee’s vehicles of choice: a Chevy Tahoe SUV (about the biggest SUV one can buy; fuel economy: 15/20) and a Chevy Silverado pickup truck.

While I like Obama, he doesn’t get an out either. He touts himself as having “good judgement” despite his inexperience. If one is running for President, touting his limited voting record, wouldn’t you think one would have the smarts to make sure his wheels matched his words? 

Click here to check out what vehicles the major spinmeisters — uhh, candidates — are taking a spin in.

Photo: Ford Escape hybrid. John Edwards has one — in addition to other vehicles. Hillary Clinton also has a Ford hybrid, although the article didn’t specify the model.

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Biodiesel a Top 10 Yahoo Search?

San Francisco's green fleet propels "biodiesel" into the mainstream

By Beth McKenna  
December 3, 2007 – 3:13 pm

Top 10 Searches

  1. Tin Man Mini Series
  2. BCS Standings
  3. Spice Girls
  4. NFL Scores
  5. Dip Recipes
  6. Christmas Music
  7. Mike Huckabee
  8. Driving Directions
  9. Fantasy Basketball
  10. BIODIESEL !!!

There you have it, folks — the Top 10 Yahoo searches on Sunday, Dec. 2.

No Paris Hilton? No Justin Timberlake? No smut type stuff? Yes, I’m shocked, as well. Pleasantly, but, nonetheless shocked.

When I saw “biodiesel” on this list, I knew there was some big (ok, nix “big” — remembering Paris and JT — and replace with “fairly widely-read”) news out. I didn’t imagine that lots of people woke up on a Sunday and out-of-the-blue (or rather, green) decided that they’d like to do a little brushing up on the merits of biodiesel after making dip (#5) while Christmas tunes play in the background (#6) and before checking out some more football stuff (#4).

Seems the New York Times, San Francisco Chronicle, and several other major newspapers all had pieces which ran on Dec. 1 or 2 about San Francisco completing the conversion of its city fleet to run on biodiesel.

In a soyshell, the news:

San Fran just completed this 1-year long conversion project. Its 1500 diesel vehicle fleet (ambulances, fire engines, buses, street sweepers, etc.) is now reportedly the largest green fleet in the US.

Its fleet uses B20, which is mix of 20% soy-based biofuel and 80% petroleum diesel fuel. The soy oil is bought from producers in the Midwest. (And yes, the same “takes food out of the food supply” argument against corn-based ethanol could be used here — but that’s another topic.)

You can click on the names of the papers listed above to read each of their pieces. This specific news, while interesting, is not my point here.

My point? ‘Green’ has surely hit the mainstream when a term such as “biodiesel” appears on a top search engine’s (Yahoo, Google) Top 10 searches.

Investors should pay heed to this type of green-mainstreaming news and investigate further.

The questions that come to mind here: Are other cities — US and international — following suit (speaks to demand)? What are the investment plays here: soy producers? diesel engine manufacturers?

Stay tuned (just like San Fran’s diesel engines) – as I already have one possible investment play here, which I plan to write about within the coming week.

Hmmm…as for that Top 10 list, maybe the Tin Man left his heart in San Francisco?

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Hewlett-Packard the Latest Silicon Valley Company to ‘Go Green’

HP's getting a 'free' solar array from SunPower?

By Beth McKenna  
December 1, 2007 – 12:58 pm

Hewlett-Packard Co. (HPQ)

It seems the ole “Go West Young Man” mantra of the late 1800’s gold rush days has been replaced by today’s “Go Green Young & Old Company.” Just as the gold miners saw green – as in $$$ — in Gold, corporate America sees that same green in Green.

Hewlett-Packard (HP), which trades on the New York Stock Exchange under the ticker symbol HPQ, announced this week that its initial greening steps will include:

  • Installing a 1-megawatt solar array at its San Diego facility
  • Buying wind power for its Ireland operations
  • Subsidizing employees’ home solar systems

HP’s core business is the manufacture and sale of computer servers and PCs, though it’s also involved in various other technology products and services. It’s one of the biggies ($132 billion market cap*) as well as one of the old-timers (founded in 1939) in Silicon Valley.

There’s been several green initiatives announced by Silicon Valley companies over the past week or so, including those by search engine mammoth Google and semiconductor fabrication equipment manufacturer Applied Materials. Google’s and Applied Material’s stock both trade on the tech-heavy Nasdaq as GOOG and AMAT, respectively.

(Google’s very ambitious green initiatives were recently covered in a piece by Tim Plaehn — click here to read.)

Seems corporate American is realizing that not only does embracing clean energy help the environment, it also helps the bottom-line (likely in two ways: by being a marketing tool to help increase sales to the increasingly green-conscious consumer and by helping to cut energy costs).

Some specifics about HP’s green initiatives:

  • Solar array at San Diego facility

California-based solar cell manufacturer SunPower (Nasdaq:SPWR) will install the array, which will provide about 10% of HP’s power needs at this facility. HP estimates the solar system will save it about $750,000 in energy cost over 15 years. SunPower is supplying the solar system to HP at NO UPFRONT COST — my next post will focus on SunPower and its powerful ‘Power Purchase Agreement’ (PPA) Business Model.

  • Wind power for Ireland facilities

HP will buy a year’s worth of clean electricity generated by Airtricity’s European wind farms, saving it an estimated $40,000 in 2008. For interested readers, electricity generated by Airtricity’s (love the name — catchy and aptly descriptive) wind farms is fed into Ireland’s national power grid rather than directly to HP facilities. Seems the Emerald Isle will be getting a bit greener.

  • Subsidy for employees’ home solar systems

HP and SunPower will each kick-in $2,000 rebates to HP employees who install SunPower’s solar arrays. That $4,000 is on top of the generous state rebate under the California Solar Initiative program.

Some Financial Stats:

  • Stock return of 29.7% over the past 1-year period (to Nov. 30) vs the S&P 500’s (a proxy for the overall market) return of 6.0% (CHART at top compares 1-year returns for HP (blue) to competitors IBM, Dell and Microsystems, as well as to the S&P 500 (orange) and Nasdaq (yellow))
  • Operating margin of almost 8.4% and profit margin of almost 7.0% — better than industry averages and competitor Dell’s, but not as good as IBM’s
  • Return on Equity (ROE) of 19%
  • Most recent quarter’s revenue was up over 15% (compared to same quarter of last year) — better than industry averages, Dell’s and IBM’s
  • Most recent quarter’s earnings (Net Income) up over 27%
  • Profit margins are increasing (earnings increased more than revenue, percentage-wise)
  • Trailing (12 mos) P/E (price/earnings) of 19.1 and forward P/E of 13.5. P/E is less than current quarter’s earnings percentage (27) increase, indicating that the stock is not over-valued based upon this one commonly-used valuation measure
  • Beta of 1.3 (the stock market as a whole has a beta — measure of risk or stock price fluctuation — of 1, meaning HP’s stock is 30% more volatile than the market. Volatility is not necessarily a bad thing. Case in point: Apple — its beta is 2.2 and it’s had stellar returns over the past few years.

This article is not a recommendation to buy or sell any securities

* “market cap” (market capitalization) = stock price x total number of shares of stock available

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Florida Utility FPL Group Leads in Developing Renewable Power

Pt I (of II): Seems the gators & crocs aren't the only things green in Florida

By Beth McKenna  
November 29, 2007 – 1:24 pm

FPL Group, a major Florida electric utility, has taken the early lead in developing renewable power. Seems the gators and crocs (as in critters, not shoes) aren’t the only things green in Florida.

FPL primarily serves residential and commercial customers located on the lower west (Gulf) coast and industrial customers on the east coast of Florida.

FPL’s stock trades on the New York Stock Exchange under the ticker symbol “FPL.” Part II will discuss FPL from an investment standpoint.

Winning in Wind Power

FPL is the largest US wind-power generator.

Wind power provides about 30% of Florida Power & Light’s, the company’s power generation subsidiary, total power output. FPL has 48 wind farms across 16 states.

Additionally, earlier this year the company announced plans for a huge $20 billion expansion that will triple its wind capacity.

Starting to Soar in Solar

FPL has interests in seven solar thermal facilities in California’s Mojave Desert with a combined power generation capacity of 300 megawatts (MW). FPL’s overall share is about 50% — or 150 MW.

Solar thermal – sometimes called “Big Solar” – involves sunlight being reflected from a trough (or mirrors) to heat a water pipe, creating steam that drives a traditional turbine.

FPL announced in September that it will invest $1.5 billion to expand its solar power operations. It plans to expand the California operations by another 200 MW and build a 10 MW pilot facility in Florida, which could be expanded to 300 MW if it proves successful. It has also started the permitting process for 600 MW of new solar generation.

Ausra Inc. will design and supply the equipment for FPL’s new solar plants. Ausra claims that its large-scaled plants will be able to produce power at a cost level on par with natural gas-fired plants. The proof will be in the…power per kilowatt.

Check out my post on Ausra for more info about Ausra as well as the solar thermal process.

Why Wind has Breezed Past Solar at the Utility Level

At the utility level, the action in renewable energy has so far focused on wind power.

Why? Simple economics. Wind has been cheaper to build and enjoys the US federal production tax credit (while solar does not — crazy, huh?)

FPL believes, however, that it can now develop solar power profitably, even without the federal production tax credit. Stay tuned because if this turns out to be so, there will be Big Money to be made in Big Solar.

Here are some utility-level solar stats:

  • As of 2005, there was only 411 MW of solar power capacity connected to the US power grid, compared with 8,706 MW of wind power.
  • Just 13 facilities produce utility-scale solar power, 11 in CA and two in AZ.
  • Net solar power generation from utility-scale facilities (defined as more than 1 MW of capacity) accounted for just 0.01% of all renewable energy in 2006, according to the US Department of Energy.

See you in awhile crocodile…as I’ll be back with Part II, which examines FPL from an investment standpoint.

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Florida Utility FPL Group Leads in Developing Renewable Power

Pt II (of II): Green as gators & crocs, but is it a good place for your green?

By Beth McKenna  
November 29, 2007 – 1:24 pm

FPL Group Inc. (FPL)

Part I of this piece looked at FPL’s leadership in generating renewable energy, as well as the predominance of wind over solar as a renewable energy source for the utility industry as a whole.

Now we’re moving from talking green-tech and green-stats to talking about your green.

FPL’s stock trades on the New York Stock Exchange under the ticker symbol “FPL.”

A “Safer” Way to Invest in Renewable Energy

Investing in a financially stable utility company that’s profitably developing and using renewable energy to generate electricity is likely a less risky way to invest in renewable energy than investing in a company developing one specific type of renewable energy.

Sure, you may hit it big if you invest in the right company, but you also may put your money into a company that falls by the wayside because its technology is not as good as its competitors’.

FPL will continue to generate electricity regardless of what type of alternative energy proves superior. By nature, utilities generally have a protected monopoly, meaning if you live in one particular area, you’re generally stuck buying your electricity (and water and natural gas) from the company serving your area.

Think you have to sacrifice returns if you invest in a “safe and stodgy” utility? Hardly. FPL’s stock has trounced the US stock market over the past 1-year period: 30% vs 3% return for the S&P 500. That’s before the approximate 2% annual dividend is added in.

And the chart at the top shows you the story over the past 5-year period (S&P 500 in red; Nasdaq in green).

IMO, carefully selected utility stocks are one of the best kept investment secrets. Why? Perhaps because they might not seem as “exciting” as the latest tech stock. Likely because many utilities have DRIPs (dividend reinvestment plans) that not only allow you to automatically reinvest your dividends, but also to purchase additional shares of stock directly from the company. Directly — as in nobody makes a commission off your investments.

Some Financial Stats

  • Beta of 0.66 (the stock market as a whole has a beta — or measure of risk — of 1, meaning FPL is about 1/3rd less risky than the market)
  • Stock return of 30.0% over the past 1-year period (to Nov. 27) vs the S&P 500’s (a proxy for the overall market) return of 3.0%
  • Operating margin of almost 15% and profit margin of almost 9% (on par with industry averages)
  • Return on Equity (ROE) of over 13%
  • ROE (on wind power investment) stated by company to be in “high teens,” which is very good
  • Dividend of about 2%
  • Most recent quarter’s revenue and earnings (compared to same quarter of last year) were about flat. This appears to be a fluke as the company has enjoyed steady growth over the long-term — but should be further investigated by anyone considering investing.
  • Company’s experience with wind and solar should prove profitable going forward

See you later alligator…as this is Part II of II.

This article is not a recommendation to buy or sell any securities.

Chart: Yahoo Finance

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Filed under Alternative Energy, Green Money, Solar, Wind
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