This portfolio is composed of companies in the solar, biofuel and LED lighting industries.
I think these are disruptive technologies, like personal computers and workstations and client server software architecture in the 1980s and aircraft in the mid-20th and automobiles in the early 20th Century. We may be approaching, or may have recently crossed a “tipping point” in the Wind, Solar, LED lighting and Bio Fuel industries.
As points of reference, this “Sustainable Energy Portfolio” will be compared to an “UnSustainable Energy Portfolio,” composed of oil industry stocks, and the Dow Jones Industrial Average and the S&P 500.
The Popular Logistics Sustainable Energy Portfolio is comprised of:
- Next Era Energy, NEE, an American company that operates utility scale wind farms and solar arrays.
- First Solar, FSLR, Sunpower, SPWR, and GT Advanced Technology; American companies in the solar energy space.
- Cree and Lighting Science Group, LSCG; Two American companies in the LED lighting space.
- Solazyme, SZYM; an American company in the bio-fuel space.
- This does not include wind energy companies or companies, such as NRG, Exelon, or MidAmerican Energy, Public Service, First Energy, etc. that are beginning to incorporate solar and wind energy into their fleet, which I wrote about in Solar Power and Electric Utilities, Is the Paradigm Shifting? Or Ford and General Motors that are introducing new hybrids throughout their product lines. (I wrote about Ford in Sustainable Investing, Value Investing & Speculation.)
The Unsustainable Energy Portfolio includes:
- BP, Chevron Texaco, CVX, Conoco Philips, COP, Exxon Mobil, XOM, and Royal Dutch Shell, RDS.A, five large multi-national oil companies.
- Halliburton, HAL, and oil industry service company, and
- Transocean, RIG, an international provider of offshore drilling services to oil and gas companies.
- This does not include coal or uranium mining, gas extraction or frakking or coal, gas, or nuclear power plant operating companies, even tho I would categorize them as “unsustainable” as well.
These portfolios are composed of hypothetical investments of $1.0 million in each of these companies, made on Dec. 21, 2012. Over the next two years I will report on these on a quarterly basis. I expect that some of these may be acquired. Others may file for bankruptcy protection. Sooner or later, one or two or more may increase dramatically.
The tables below show the value (tables 1 and 2) and current financial data (tables 3 and 4) of the Sustainable Energy, and the UnSustainable Energy Reference Portfolios.
For the purposes of the simulation, I hypothetically invested the same amount, $1,000,000, in each company, “purchasing” fractional shares. For example, 29,411.8 shares of CREE, 32,258.1 shares of First Solar. If I was managing a fund, or advising a fund manager, I would invest different amounts in each company, based on my understanding of their products and their management.
|Popular Logistics Sustainable Energy Portfolio
|GT Adv. Tech.||GTAT||3.00||333,333.3||1,000,000|
|Next Era Energy||NEE||70.00||14,285.7||1,000,000|
|Table 1. Data as of 12/21/12|
|UnSustainable Energy Reference Portfolio
|Royal Dutch Shell||RDS.A||69.29||14,432.1||1,000,000|
|Table 2. Data as of 12/21/12|
Total hypothetical value of these two portfolios at conception is $14.0 Million.
|Sustainable Energy Portfolio – Key Financials
|Stock||Price||Mkt Cap(B)||EPS||P/E||Debt to A||RoAA|
|Table 3, Financial Data during 12/21/12|
Except for Next Era, which is profitable and available at a low price earnings ratio, investments in these companies could be considered highly speculative. CREE and GTAT are also profitable. As I’ve said elsewhere, GTAT could be a “Value Investment.” Because Lighting Sciences has a market capitalization of $150 million, if I was running a fund I might be inclined to make a significantly larger investment, and ask for a seat on the board.
|UnSustainable Energy Reference Portfolio – Key Financials|
|Stock||Price||Mkt Cap||EPS||P/E||Debt to A||RoAA|
|Table 2 Financial Data during 12/21/12|
These companies, except for Transocean, RIG, may appear to be solid. All, except Transocean, are profitable, with low debt to asset ratios, with what appear to be solid return on average asset ratios, and selling at a low price to earnings ratio. However, an accident like the Deepwater Horizon accident of April, 2010, can happen any time, and adversely effect earnings. Beyond that, however, the oil companies rely on massive subsidies from the taxpayer, and the true costs of their operations – considered economic “externalities” – are not currently accounted for.
Three icebergs are lurking on the horizon that could act to reduce the value of the oil companies-
- A divestiture movement in college campuses and pension funds,
- Sustainable investing, and
- A growing awareness among taxpayers that we don’t need to subsidize profitable companies that are worth hundreds of billions.
|Reference Indices, 12/21/12
|Dow Jones Industrial Average||13190.8|
The 7 companies in the unsustainable portfolio have a combined market capitalization of $1.1 Trillion. The companies listed in the Popular Logistics Sustainable Energy Portfolio, on the other hand, have a combined Market Captialization of $38.1 Billion.My hypothesis is that over a sufficient near to moderate time horizon, the Sustainable Energy Portfolio will dramatically outperform the UnSustainable Energy Portfolio and the Dow Jones and S&P.
I am not a licensed stock broker, investment adviser, financial planner, or money manager. If I was managing a real fund I would not allocate funds in precisely equal amounts. I would also not invest any funds in any of the companies listed in the “Fossil Fuel Reference Portfolio.” I am doing so here because it is purely an academic exercise. I hold a Bachelor’s in Biology and an MBA in “Managing for Sustainability” from Marlboro College. I can be reached at ‘L Furman 97” @ G Mail.