Ben Kallo, Analyst with Robert W. Baird & Co., says First Solar, Inc. (FSLR) remains his top pick in spite of negative sentiment around the stock. He says it is a contrarian call, but that investors should remember that First Solar is one of the leaders in the solar industry.
“First Solar arguably has the strongest balance sheet in the industry, which provides a lot of flexibility in their growth plans,” Kallo says. “In underlying the business, First Solar has a differentiated technology which I think will help it in its growth plans, not in 2015, but on into 2016 and 2017 and beyond.”
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Kallo says many investors are focused on rooftop solar and companies like SolarCity Corp (SCTY), which he says is doing well because of the current U.S. boom in rooftop solar.
“With that said, First Solar still has a significant pipeline of utility-scale projects or big projects out in the deserts — that provides very good visibility into 2015 and 2016, and then they have a very strong global pipeline which should help 2017 and beyond,” Kallo says. “They have optionality to do things with those projects, whether or not they choose to sell them like their traditional method or to hold them onto their balance sheet, which they can do because of their strong cash position, or to issue a yieldco as many are speculating that it could be a possibility.”
Robert W. Baird & Co. Analyst Ben Kallo says he expects to see growth return to Tesla Motor Inc’s (TSLA) story in China. He says weakened demand in China has had an impact on the stock price in the short term, but he doesn’t expect the effect to continue.
“In the short term, I think obviously it’s had an impact on the stock price for Tesla, and that is really the first time they, in a very loud way with Elon at the Detroit Auto Show, have brought it up,” Kallo says. “Tesla had spoken about exploding demand. Now there had been other regions where their similar type of demand characteristics have occurred, particularly in some parts of Northern Europe — also Germany was slower to develop than Tesla had originally expected — but because China is such a big market, and because Elon had talked about China being a major part of the growth story, that it reached into a lot of negative attention from investors.”
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Kallo says Tesla has already improved operations in China, including replacing some key employees and redoing the ways that they install charging systems. He believes that will help increase demand in the region.
“In a couple of quarters, well within this year, I expect to see that growth aspect returning to Tesla’s growth story for China, and I expect that the stock will actually rebound as we hear more about them making progress and fixing the issues on the ground there,” Kallo says.
Edward Jones Analyst Andy Pusateri has a “sell” rating on Southern Co (SO). He says the stock’s valuation is high, and that the company has more risk relative to the traditional growth trajectory of most regulated utilities because of two new builds the company has underway.
“One is a clean coal plant in Mississippi that’s nearing completion, and they have had a lot of issues with cost overruns as well as time delays in constructing that plant,” Pusateri says. “They are to the point there where they have kind of hurt some regulatory relationships in Mississippi, and also the customers are done paying for any cost over, so the shareholders are going to have to eat any additional problems.”
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Pusateri says the other risk factor for Southern is its nuclear construction. He says that because we haven’t had any new nuclear builds in the U.S. in over 30 years, there is an assumption that there might be delays or cost overruns.
“In my opinion when you have that risk outstanding there is less certainty, and so investors in my mind are willing to pay higher multiples for certainty as it relates to earnings growth and pay less for companies with uncertainty, and I think Southern just has that uncertainty right now, and therefore we think shares deserve to trade at discounted multiple,” Pusateri says.
Andy Pusateri, Analyst with Edward Jones, says Dominion Resources, Inc. (D) is one of his favorite utility stocks for 2015. He says the stock is trading near all-time highs and at a peak multiple, but that it is also poised for above-average earnings growth based a couple of factors.
“One is regulated utility investments. So utilities are allowed to earn regulated returns on the investment that they are making on the equity component of that investment,” Pusateri explains. “Dominion has a lot of opportunity to make investment, and generation, electric transformation and gas distribution, so I think that’s good, regulated, safe, visible growth that investors like.”
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Secondly, Dominion recently formed a master limited partnership, Dominion Midstream Partners (DM). Pusateri says the biggest earnings for the MLP will come from Cove Point and its liquefied natural gas facility.
“I think ultimately though, earnings starting in 2017 will really start to help increase cash flow to Dominion and help them grow their dividend at a higher rate,” Pusateri says. “So that’s what I like about Dominion.”
Entergy Corporation (ETR) CFO Andrew Marsh says the company has a lot of infrastructure needs in terms of strengthening reliability and efficiency and lowering costs for customers. Specifically, he says management anticipates a need for an additional 2,400 to 3,000 megawatts of incremental generation.
“We have an industrial renaissance going on in the southern part of our service territory, mainly along the coast in Louisiana and Texas,” Marsh says. “It may be a matter of timing; demand may slow if the industrial renaissance does, and if this happens, it is most likely at the end of the decade.”
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Entergy recently acquired Union Power Station, which Marsh says added about 2,000 megawatts of additional generation capacity. He says the company may pursue additional acquisitions to further increase capacity.
“By and large, we think we will require new generation, in large part because of the location we expect the load to come in, along the coast,” Marsh says. “And so as we move forward, we will be looking to enhance reliability through most likely building or contracting power built along the coast.”
Edward Jones Analyst Andy Pusateri has a “sell” rating on Wisconsin Energy Corp (WEC). He says he does not see a fundamental flaw with the company, management or strategy.
“When I look at Wisconsin Energy, the issue is really valuation, and utilities in general obviously have been on a good run and are trading near an all-time high,” Pusateri says. “Wisconsin Energy is in the same boat; if you look at our 2015 estimate, it’s trading at nearly 20 times earnings. That’s very high for a utility in general, especially utility with a growth outlook like we see for Wisconsin Energy.”
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Utility stocks in general are expensive at the moment, Pusateri says. And, Wisconsin Energy is trading at the high end of the range.
“They have had a good run, but now I think their focus is on returning more cash to shareholders versus robust earnings growth that we saw over the last 10 years,” he says. “So to me there are better places to be.”
RBC Capital Markets Analyst Leo Mariani says Pioneer Natural Resources (PXD) is one stock that is well-positioned during the current weak oil price environment. It operates in the Permian Basin and Eagle Ford Shale, which Mariani says are two of the lowest-cost plays in the U.S.
“The company also has a very strong balance sheet as well, one of the best in the industry, and they have a very strong hedge book,” Mariani says. “So really, the low prices that we’ve seen over the past several months haven’t impacted them as much with their hedge book as other companies.”
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Mariani says he expects Pioneer to be able to get some production growth during the weak price environment in 2015. As a result, the company is likely to be in a better position than some of its peers.
“When a recovery [occurs] they are likely to go back to business as usual versus where it was six months ago,” Mariani says.
Mitchell Roth, President of Bourbon Brothers Holding Corporation (RIBS), a holding company with two restaurant concepts, is looking to move open a fast-casual version of its Southern Hospitality brand. Southern Hospitality was originally created in NYC by Eytan Sugarman and Justin Timberlake.
“We thought this was particularly important because, in my opinion, fast casual is where the industry is going. Fast casual outpaced casual dining five to one in 2013, and to a large degree, I think that the reason for that is because of the evolution of consumer taste and preferences in the restaurant space. You are seeing Millennials, who are a very powerful generation at this point, really impacting the restaurant space,” Roth said.
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Roth believes the fast-casual category is here to stay, as people are continuously opting for high-quality products at reasonable prices. Bourbon Brothers is looking at several geographic locations to employ this concept.
“I think that the opportunity to develop fast casuals in New York is something that is very appealing to us. Washington, D.C. is the number one fast-casual market in the country, and it is within very close proximity to New York. So I think that that would also be a natural move for us,” Roth said.
Oswald Clint, Analyst with Sanford C. Bernstein & Co., says Total SA (ADR) (TOT) is one of his favorite names in the oil & gas sector. He likes the French integrated oil company for a number of reasons and says it peaked in terms of its investment in 2013.
“So the capital requirements of this business are declining, and ultimately we believe project execution is good, project quality is high, and we believe cash flow strength will also be very strong over the next couple of years, and I think that’s what drives our confidence in this particular name,” Clint says.
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Total has historically had better returns relative to other integrated oil & gas companies, Clint says. And, the company also has increasing exposure and weighting to long-life assets.
“So again, LNG, oil sands, these are assets that we think are good for the scale of these companies,” Clint says. “All of them can tackle these types of projects given their engineering prowess and their ability to develop challenging projects. They can get better returns from these projects versus smaller E&Ps who might try to participate in this asset type.”
Bernard Colson, Managing Director and Senior Analyst for MLPs at Oppenheimer & Co., says EQT Midstream Partners LP (EQM) is one of his top stock picks for 2015. He believes the company is positioned to continue strong growth.
“Number one, they have no commodity price exposure in a direct way. All of their contracts are fee-based contracts,” Colson says. “Number two, they’re leveraged in kind of a manageable way. I mean, every MLP is going to have some debt. You’re not going to have any MLPs that don’t have any debt, but they have a manageable level of debt.”
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In addition, Colson says EQT has a significant cash flow cushion and a strong, supportive parent company, both of which make the stock a defensive investment. And, Colson says EQT is exposed to the Marcellus Shale, which is a natural gas-focused shale. Since natural gas prices have not come down nearly as much as oil prices, Colson believes we will see continued development in the Marcellus.
“There are a lot of reasons to like [EQT Midstream Partners]; I anticipate that it’s going to grow in the kind of mid-20s on a percent basis,” Colson says. “Now, it’s a lower yield. It’s right now, I’m looking at a 2.7% yield, but it’s company that is set up to continue its strong growth.”
