Oliver Peoples CEO of Yield10 (NASDAQ:YTEN)
Oliver P. Peoples, Ph.D., was named President and Chief Executive Officer of Metabolix in October 2016 in conjunction with the transition to Yield10 Bioscience as the company’s core business.
Dr. Peoples was a co-founder of Metabolix and served as Chief Scientific Officer from January 2000 until October 2016, and was previously Vice President of Research and Development. Dr. Peoples has served as a director since June 1992.
Prior to founding Metabolix, Dr. Peoples was a research scientist with the Department of Biology at the MIT where he emerged as a pioneer of the new field of metabolic pathway engineering and its applications in industrial biotechnology.
The research carried out by Dr. Peoples at MIT established the fundamental tools and methods for engineering bacteria and plants to produce Mirel biopolymers.
Dr. Peoples has published numerous peer-reviewed academic papers and is an inventor of over 90 patents and patent applications worldwide. Dr. Peoples received a Ph.D. in Molecular Biology from the University of Aberdeen, Scotland.
In this 3,541 word interview, exclusively in the Wall Street Transcript, Dr. Peoples explores the challenges that face his company.
“A key part of our gene trait — gene discovery platform — is the oilseed Camelina, which is an oilseed that’s native to Northern Europe. It’s been used in food and industrial use for well over a century, but it’s basically like rapeseed or canola or soybean.
It really has two major components in the seed. The first is the oil — vegetable oil — and the second is the protein.
The protein is usually used in animal feed, similar to what happens with other oilseeds. And that oil is important for a number of reasons.
One, it’s actually got some interesting nutritional properties, so it’s used as a food oil in Europe. It also has some omega-3 fatty acids in it, which are important in the diet. And there are also applications in aquaculture feed for salmon, for example. There’s proof of that.
The third area is obviously Camelina, which has a very fast growth cycle of about 100 days, and it opens up the potential to produce more oil per acre if you were to use that as what they call a winter cover crop in the corn belt, for example.
So the general concept of cover crops is you plant your soybean as usual in the spring, you harvest it in the fall, and after you’ve harvested the soybean, you plant a cover crop — an oilseed cover crop like Camelina — and that crop will sit in the ground over the winter, and it comes up very quickly in the spring.
And by the time you’re getting close to being able to plant soybean again, you’ve got a new harvest of oilseed — Camelina oilseed. That of course gives you a way to increase the productivity of land.
But more importantly, the use of cover crops actually has tremendous environmental benefits in terms of reducing the runoff of nutrients into the water system.
Of course, that ties into things like NOx — nitrogen oxides — emissions. It also increases the soil organic content, which again is an issue regarding climate change. And so as a result of great Camelina as a cover crop, what you’ll end up with is an oil that has a very favorable carbon footprint.
And, of course, when you look at the renewable fuels — particularly the new renewable diesel that’s being mandated in California — and you look at the industry, including many of the big oil players, like Exxon (NYSE: XOM), Phillips 66 (NYSE: PSX) and several others, they’re all basically converting existing petroleum refineries over to renewable diesel.
Of course, that’s going to result in significantly increased demand for vegetable oils in addition to the waste oil that comes from restaurants and all those types of things, plus tallow from the meat sector. So there’s going to be an increasing demand for oil and, in particular, for vegetable oils that actually have a very good carbon footprint or a low carbon intensity index.”
Dr. Peoples explains that the applications for Yield10 products vary considerably:
“We’re testing PHA Camelina for the first time this year. And the PHA is a new crop product. It is a natural polyester material that’s produced in microorganisms.
And Yield10 transfers the genes for that into Camelina, so we can produce the PHA biomaterial directly in Camelina seed. And there we see the potential for a very large-scale production capability, addressing the market for fully biodegradable, renewable, sustainable plastics.”
Near term commercialization for the former MIT researcher’s company Yield10 is the goal:
“Our platform has turned out to be very successful. In addition to testing our traits in Camelina, we are working with a number of seed companies — spanning Bayer, Forage Genetics, Simplot and GDM Seeds — for testing our new traits. They’re testing genetic changes in some of the major crops.
But in the Camelina space, the main milestone is really around the beginning of the commercialization of that platform.
Last year, we planted our first 50 acres of seed production and it went very well. We are currently in the process of preparing samples of oil and protein for various customer testing programs.
We will be reporting out the data from last year’s field trials in the first quarter. That will include the oil trait and yield genes. That will also include the PHA biomaterial genes.
And then one of the things that we are really being very pleasantly surprised about has been the tremendous interest from across the globe on new technologies for reducing the pollution caused by petroleum plastics and the researchers’ interest in the biodegradable plastics.
Actually, there was a recent IPO through a SPAC — special purpose acquisition company — by a company called Danimer Scientific (NYSE: DNMR). But generally speaking, we believe we’re on a path to the fairly exciting new, potentially disruptive technology for the plastic space.
There is now the potential to produce plastic as a cool product with low carbon index fuel, and another cool product in the form of plant-based protein that we can use for food production.
So it’s a nicely integrated story; a lot of pieces are beginning to come together, and have been coming together over the last year. We’re now becoming increasingly excited about the prospects for this approach — we’re just working very hard to move forward into commercialization.”
Get the complete details on the MIT Biotechnology pioneer Dr. Peoples’ near term plans for Yield10 by reading the entire 3,541 word interview, exclusively in the Wall Street Transcript.
Drew Justman, CFA, serves as a Portfolio Manager on Madison Investments’ covered call, dividend income and value strategies. He has been working in the financial services industry since 2001 and joined Madison in 2005.
He earned his BBA in finance and economics and M.S. in finance from the University of Wisconsin-Madison, specializing in the Applied Security Analysis Program. Prior to joining Madison Investments, Mr. Justman worked at Merrill Lynch.
In this 3,478 word interview, exclusively in the Wall Street Transcript, the Madison Investments Portfolio Manager details his firm’s investment philosophy and his personal top picks.
“Madison Investments is 100% employee owned. We were founded in 1974, so we’ve been around for a long time. We manage just under $19 billion as a company; a little less than $9 billion of that is on the equity side, which is where I work.
And really what we’re known for is, we like to participate in up markets and protect capital in down markets. In fact, our company has trademarked the phrase “Participate and Protect,” and what that means is we’re willing to forego a little bit of upside in the strong markets in order to make sure we protect capital in the down markets.
We think by doing that over a full market cycle, we can hopefully outperform our benchmarks while taking on below-average risk.
So downside protection is what we’re really known for, and that’s something that we really focus on here on the equity side and throughout the company.
I should also say, we’re located in Madison, Wisconsin, hence the name Madison Investments.”
The investment selection is process oriented:
“The Dividend Income approach comes from a background of serving bank trusts and conservative clients that wanted equity market exposure and also an income stream.
The question that we try to ask and answer is, how do we achieve good returns and high income and growing dividends and avoid big drawdowns in bear markets?
Avoiding big drawdowns in bear markets helps clients stay invested throughout the full cycle when they might otherwise feel like getting out, and this is critical in order to generate strong long-term returns. And so the answer to that question is, we buy high-quality, large-cap, blue-chip stocks with above-average dividend yields when they’re out of favor. So that’s the background and the 10,000-foot view.
I’d like to talk a little bit more specifically about our process.
The first step in the process is we screen all U.S. traded stocks, and we identify the stocks that have a market cap that is greater than $2 billion and a dividend yield that is 1.1 times the S&P 500 or higher. This produces an investable universe that is around 200 to 250 stocks in most market environments.
The second part of our process is we apply our “relative yield screen,” and this is something that we think is unique to what we do; we’re not aware of any other managers that do this.
Let me explain what relative yield is. Relative yield is a stock’s dividend yield divided by the S&P 500 market yield. Each stock has its own normal historical range. We’re long-term investors and so we like to look at a stock’s relative yield range over 10, 15, 20 years.
We find that when a stock price is low, its relative yield is high, and conversely, when stock price is high or expensive, its relative yield is low. And we think by buying stocks when relative yield is high and selling them when relative yield is low, that is a sustainable, repeatable process that takes the emotions out of the investment decision-making process.
So relative yield is kind of our secret sauce, and that’s really how we identify when to buy and sell stocks.
The third step in our process is we perform bottom-up fundamental analysis of the relative yield candidates that we identify.
Stock prices that have high relative yields means their valuations are generally attractive and stock prices are down. It’s our job to determine why the stock is down. Is it due to a temporary issue, or more permanent or terminal issue?
We want to invest in companies where we believe the issues are temporary.
Within the fundamental analysis that we do, we really focus a lot of time on the following things: First, does a company have a sustainable competitive advantage? This is really important; I’ll get into that more in just a second.
The second thing we look for is, does a company have a strong balance sheet? And then the third thing is, does the company have a history of consistent dividend growth?
We want to construct a high-quality portfolio that has stocks that have all three characteristics.
We want to own stocks that have sustainable competitive advantages, otherwise known as wide moats. Morningstar provides moat ratings for many companies; 35 out of 42 holdings, or 83% of the portfolio, are rated wide moat by Morningstar, which is the highest rating it gives.
That compares to 25% for the S&P 500 and 13% for the Russell 1000 Value Index. So that’s one objective metric we use to try to define high quality.
And then we also look at strong balance sheets. S&P provides financial strength ratings, and 36 out of 42 holdings, or 85% of the portfolio, is rated A- or better by S&P, compared to 33% for the S&P 500 and 22% for the Russell 1000 Value Index.
I’ll also add, 100% of the portfolio is rated investment grade.
And so those two factors — sustainable competitive advantage and strong balance sheet — we use as objective metrics to try to highlight the high-quality nature of our portfolio.
We also want to find companies that have a consistent history of dividend growth. We’ve observed that stocks with wide moats, strong balance sheets and a long history of dividend growth tend to hold up better in bear markets and market corrections, and that’s really important for protecting on the downside.
The last step in our process is, we identify these stocks and we build a diversified portfolio of 40 to 50 high-quality, large-cap, blue-chip names with above-average dividend yields.
These are household names like Home Depot (NYSE:HD), Johnson & Johnson (NYSE:JNJ), McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG), Pepsi (NASDAQ:PEP) and Verizon (NYSE:VZ), just to name a few.
We have a rule of a maximum weight of 5% in a stock, and we have a sector rule of 2x the S&P 500 sector weight or 20%, whichever is greater. We believe this allows us to be different than the underlying index, but also won’t penalize our portfolio too heavily if we are wrong on a stock or a sector.
So that’s our process.”
Get the complete picture by reading the entire 3,478 word interview with the Madison Investments Portfolio Manager Drew Justman, exclusively in the Wall Street Transcript.
Alaina Anderson is a Partner and Portfolio Manager at William Blair & Company.
Ms. Anderson joined William Blair in 2006 as a Research Analyst on the Global Equities team and has over a decade of experience covering stocks globally.
As Portfolio Manager of William Blair’s International Leaders ADR strategy, Ms. Anderson leads decision-making for a $700M portfolio.
In addition to these responsibilities, Ms. Anderson is intimately involved in creating and publishing investment insights for William Blair’s institutional clients, as well as client retention and business development activities.
Ms. Anderson is the former president of the Chicago Booth School of Business Black Alumni Association and a Leadership Greater Chicago Fellow from the class of 2014. She is also a board member and Fundraising Chair of the North Lawndale Employment Network and a member of the William Blair Investment and Audit Committees.
Ms. Anderson graduated from Wharton School at the University of Pennsylvania with a B.S. in economics and earned her MBA from Chicago Booth School of Business.
She is member of Delta Sigma Theta sorority and a member of the Chartered Financial Analyst (CFA) Society of Chicago.
In this 2,103 word interview, exclusively in the Wall Street Transcript, Ms. Anderson details her investment philosophy and gives investors her top picks.
“I cover real assets, which for us includes real estate, utilities, infrastructure and construction. The utilities sector includes independent power producers and renewables companies.
Some people may think that renewable energy generators, from an S&P GICS sector perspective, are in the energy sector. That’s not the case. Those companies are in the utilities sector…
We think the energy transition is a long-tailed phenomenon, and it’s a structural shift in how we’re going to generate power and fuel transport and activate heavy industry. So we would expect that as we emerge from the COVID crisis, we will get back on the ground for delivering capacity growth in the renewable space. Capacity growth was disrupted, but it did not stop.”
Her top utility pick is based in Florida:
“One of the big stories of 2020 was when NextEra Energy (NYSE:NEE) eclipsed ExxonMobil (NYSE: XOM) in market cap. I think there was a story in the Financial Times when that happened…
It is important to note that NextEra, as part of its holdings, holds Florida Power & Light, which is the utility in Florida for power and light.
The interesting thing about NextEra is that a third-to-40% of its EBITDA comes from its nationwide footprint in wind and solar. So they generate wind and solar through NextEra Energy Partners (NYSE:NEP).
And they have about the largest installed capacity base in the U.S. and combined in wind and solar.
So on the one hand, it’s a very well-run utility that has the benefit of having a high return on assets, and in Florida, they have a good population growth rate. So they get good volumes, because everybody wants to move to Florida.
So the utility aspect of NextEra is very stable to slightly growing. And they have a very large installed base for renewable energy that they can sell into; not only their utility in Florida, but utilities elsewhere, because they have a very broad installed base across the country. We’re very positive on NextEra as well.”
The valuations today are justified by several factors, according to the William Blair portfolio manager:
“Valuations across the global renewables space are underpinned by the fact that the energy transition is underway. And it is becoming more and more evident that the energy transition is becoming so impactful that it’s leading to a rethink of fossil.
When you look at the aggregate market cap of the energy sector over the last 10 years, the S&P fossil energy sector has gone from being 12% of the S&P to about 3% or 4% today. So the traditional legacy energy sector is becoming less relevant because the energy transition is in full swing. And that has had a result in the valuations in the renewables space re-rating dramatically.
We get comfortable, because we think that the growth algorithm for renewables is predicated on four things that you have to believe.
At this point, for valuations to make sense, you have to believe that installed capacity will surprise on the upside, or you have to believe that returns from here are going up, and that is the like returns on invested capital, or IRRs, for these businesses are going up.
Or you have to believe that the weighted average cost of capital is coming down, or that the competitive advantage period for these companies is going to be longer than we originally expected.
We lean towards the installed capacity surprises to be on the upside, and the competitive advantage period to be longer. And that helps us get comfortable with current valuations and gets us more comfortable with the belief that there’s more upside to the stocks where we’re invested.”
Ms. Anderson also details her investment in a biodiesel stock:
“Neste (OTCMKTS:NTOIF) is another company that we had invested in for quite some time, and we continue to support.
It’s a global leader in renewable diesel and biofuels. So there are quite a few areas of the economy that emit a lot of greenhouse gas, but are hard to decarbonize.
For example, air transport and heavy freight are among those areas. And Neste, because of its applications on renewable diesel and biofuels, addresses the decarbonization in those spaces.
We expect them to continue to generate double-digit CAGR in earnings.
The market is growing tremendously, particularly in Europe and Germany, and they are establishing a very strong presence in the U.S., particularly on the West Coast with their diesel franchise.
So we think this is transformative technology that has a long runway for growth.”
Read the entire this 2,103 word interview with Alaina Anderson for the complete detail on these and other portfolio picks, exclusively in the Wall Street Transcript.
Frances Tuite is part of the Investment Team of Fairpointe Capital, LLC, serving as Co-Portfolio Manager for the Mid-Cap and ESG Equity strategies, and is responsible for investment research for both strategies.
In addition, she manages the 1837 LP long/short equity fund, which she founded in 2000.
Prior to joining Fairpointe Capital, Ms. Tuite managed the 1837 Fund at RMB Capital and at Talon Asset Management (under the name Talon Opportunity Partners). Previously, she worked at Sirius Partners and Harris Associates as an analyst and portfolio manager, as a sell-side research analyst at William Blair & Company, and as analyst and Director of Research at Johnson Investment Counsel.
Earlier, she was employed at Procter & Gamble in their financial management training program.
Ms. Tuite received a B.B.A. from the University of Cincinnati in finance and accounting and an MBA in finance and accountancy from Miami University in Oxford, Ohio. She holds the CFA designation, is a member of the CFA Institute and the CFA Society of Chicago and has passed the Certified Public Accountant examination.
She is a member of the Chicago Finance Exchange, an invitation-only organization for senior women leaders in finance, and a member of International Women Associates, which pursues global understanding and universal human rights.
She serves on the Steppenwolf’s Directors Circle, and as an Advisor to Recovery on Water, a non-profit focused on rowing for breast cancer survivors. She’s been a competitive rower for over 40 years and rides her bike to work every day in Chicago.
In this 2,965 word interview, exclusively in the Wall Street Transcript, Ms. Tuite details her investing philosophy and shares some of her highly recommended ESG stocks with our readers.
“We are headed up by Thyra Zerhusen, CEO and CIO, who’s been leading the strategy since 1999; she has focused on the midcap space for a long time.
She and I worked together in 1999 for four years, and then went separate ways, so rejoining her has been pretty straightforward since we have had a history together. The bulk of the assets in the firm have always been in the Mid-Cap strategy with a core approach.
I joined Fairpointe to assist in running an ESG strategy that we incepted at the beginning of 2018, something that we talked about last time and that I’ve always been very passionate about.
I also brought with me a small, long/short U.S. equity hedge fund.
My roots are in value investing, but value not in the sense of book value but in the sense of looking at intrinsic value — I was at Harris Associates for many years — and just thinking about businesses and what they’re really worth and also looking for a very attractive risk versus reward.
So trying to protect the downside and yet look for interesting upside. I think what has differentiated us, and my career, has really been our long-term focus and low turnover approach, with a concentrated portfolio of companies that are either misunderstood or undiscovered by the market for various reasons.”
Frances Tuite specializes in ESG stocks with a valuable upside opportunity:
“…The strategy is really looking for turnaround situations, or maybe a company that is spinning off a segment, or where the market hasn’t fully appreciated a restructuring or a change that a company is going through, or where we believe the market has a different view on the outlook for the company’s products or services — that’s always been our approach.
Both portfolios are concentrated. The Mid-Cap strategy generally has 40 to 50 names.
The ESG strategy has around 40 names, so that’s more concentrated even than Mid-Cap.
We generally overlap in the two strategies in terms of names, and we’ve always been involved in governance as a firm and voting proxies, so the G part of the analysis has been with us a long time.
I brought more process to the due diligence on both environmental and social issues. So we do apply ESG principles to both strategies, but the ESG has more constraints than the Mid-Cap.”
One of her favorite ESG stocks is female led re-bar manufacturer:
A company we bought that you might not think of as an ESG name is Commercial Metals (NYSE:CMC), which is a steel company. While it does have a carbon footprint, it produces steel from 99% recycled inputs.
The company takes scrap metal and melts it, but uses an electric arc furnace versus a coal, iron ore or blast furnace, so it is a lot more energy efficient. They are also ahead of the curve in terms of recycling their water.
Commercial Metals is led by a female CEO, which is unusual in the steel industry. When we initiated the position, they actually had a female CFO, but she has since retired. The company’s board is also well diversified.
Re-bar is the majority of their products, so it’s a necessary item to be used in this economy.
Rebar is used in highways, bridges and construction of buildings. Certainly, our bridges need repair, as do our highways.
So here you have a company that you might, on the surface, say, OK, steel, metal company, how can that be a good ESG name?
But we took a more pragmatic approach to our assessment of the company and what it was doing and how it was conducting its business. We consider ESG factors as risk issues, and we didn’t see significant risks to their business from their management or operations.”
Frances Tuite, the ESG stock specialist, has some interesting niche product company investments:
“…A really interesting health care name called CONMED (NYSE:CNMD), and it’s a $3 billion market cap company, so pretty small for most funds. We bought the stock in July when it was $2 billion in market cap.
CONMED makes instruments for orthopedic and general surgery.
Because of COVID, the stock got knocked down as hospitals were not doing any surgeries for a period of time. Their earnings were under pressure, but the stock looked very attractive to us. The company had done an acquisition at the end of 2018, so the balance sheet had some leverage on it and the market this year hasn’t liked levered companies for the most part.
The acquisition they made in 2018 was very interesting.
The company was Buffalo Filter and it manufactures a tool that is used in surgery, especially minimally invasive surgeries. For example, when you cut the skin you use a laser, and during that process smoke is generated.
That smoke can be the equivalent of 30 cigarettes for the health care workers in the operating room if they are not doing anything to control it.
This tool evacuates the smoke, protects the health care workers, and is now being regulated and mandated in some states. Buffalo Filter has 80% market share and it’s growing over 20%. CONMED is not a household name and Buffalo Filter products are a small niche market that is growing rapidly.
The smoke that is given off can be carbon monoxide, it can have carcinogens and it can have contaminants from the body of the person being lasered.
From an environmental perspective and also health care worker, these products play an important role. We were able to buy this company during this period of COVID concern and it’s been a huge win for the portfolio.”
Get all of Frances Tuite’s ESG stocks by reading the entire 2,965 word interview, exclusively in the Wall Street Transcript.
Cynthia (CJ) Warner is President and Chief Executive Officer for Renewable Energy Group, Inc. (REG) and is a member of the board of directors.
For more than 35 years, Ms. Warner has held executive positions in the energy sector in operations, business development, strategy, environment, health, and safety. Prior to REG, Ms. Warner was Executive Vice President, Operations for Andeavor.
She oversaw Andeavor’s refining, logistics, and environment, health, safety and security groups. Ms. Warner was also Andeavor’s Executive Vice President, Strategy and Business Development, where she led the company’s strategic growth initiatives.
She joined the company in 2019, bringing more than 30 years of experience in energy, oil refining and marketing, and related technology development.
Ms. Warner recently was named a Fortune 2020 Businessperson of the Year.
She also is a member of the board of directors for IDEX Corporation and a member of the board of directors for Sempra Energy. She is a member of the National Petroleum Council as well as the Board of Visitors of the Vanderbilt University School of Engineering.
In this 3,180 word interview, exclusively in the Wall Street Transcript, Ms. Warner explains how she is managing the “Bernie’s Mittens” of the ESG stocks:
“You’re seeing a lot of heightened interest in the investment community in ESG — environmental, social and governance — types of investments.
And REG sits right at the heart of ESG. That’s what we’re really all about. And because we’re on a growth trajectory and because the demand for our product and the focus on what it is that we do is increasing, there’s a really nice confluence between investor desire for finding better ESG investments and coming to companies like REG. And we feel we have a good solution for them.”
The Bernie’s Mittens of stocks has some serious science backing its development:
“We take waste products of biological oils, either used cooking oil, like the types of oils that would be produced from Burger King or Kentucky Fried Chicken.
We also take fats, oils, and tallows from renderers. We do take some refined vegetable oil as well, and then a waste product from the ethanol production process called distillers corn oil; it’s inedible corn oil.
All of those materials can be converted through transesterification to produce biodiesel, or through hydrodeoxygenation to produce renewable diesel.
Both of those processes produce a high-quality diesel fuel that can be used in any diesel engine and it’s much lower carbon than petroleum diesel. In fact, using biodiesel reduces carbon by over 86% versus using ULSD, ultra-low sulfur diesel, or petroleum diesel.
So it’s a very nice way to reduce carbon and reduce waste at the same time and close the carbon cycle. We’ve been doing this for over 20 years and continuously improve the technology.
And we’re very excited about the prospects for the future because the technology is still quite young. And we know that we still have improvements that we are going to continuously make over the future.
…We took the concept of biodiesel and transesterification and extended that to hydrodeoxygenation, so we also produce renewable diesel, which is also a very good product.
It is not oxygenated, whereas the transesterification does produce a methyl ester, which is an oxygenated molecule. They both have very good qualities.
And in fact, blending them together produces REG Ultra Clean Diesel, which is one of our fastest-growing products that we sell on the market.”
The market for Renewable Energy Group, as a “Bernie’s Mittens ESG Stock”, is growing rapidly:
“The United States does have a renewable fuel standard, which is kind of a cornerstone of incentivizing the growing development of renewable fuels for on-road transportation.
California took that and really accelerated it by putting in place a low carbon fuel standard with a goal of significant decarbonization by 2030. And each year, they ratchet up the requirement for carbon reduction.
So that’s been a very interesting market for us, and for that market, our material is very attractive, because it’s, as I mentioned, one of the most readily available ways to decarbonize today without having to make big investments. That makes California a very interesting market for us.
Oregon, in turn, also has a low carbon fuel standard. They started a little bit later than California. They haven’t been ratcheting up the carbon intensity reduction quite as rapidly as California, but they’re coming on quickly. So that’s also a very interesting market.
Canada’s British Columbia also has a low carbon fuel standard and is very similar to Oregon and California. All of those markets are very interesting for us.
Moving over to Europe, the European Union has the RED II, which is also focusing very much on decarbonization and the use of cleaner feedstocks.
And so they’re very interested, for example, in converting used cooking oil to biodiesel as we do, and then the Nordics have a very strong pull on decarbonization. So all of those markets are good focus target markets for us — they are the pioneers in what we can see is happening because now Canada is talking about a low carbon fuel standard as early as 2022.
Many, many municipalities have now stated their desire and their targets for decarbonization. And it feels like we’re at an inflection point where from multiple perspectives, there’s a desire to decarbonize and therefore, either soft targets or even hard targets being put in place to enable that to happen from a real standpoint as opposed to just a dream or a vision.”
Renewable Energy Group is the Bernie’s Mittens for ESG investing:
“You’re seeing a lot of heightened interest in the investment community in ESG — environmental, social and governance — types of investments. And REG sits right at the heart of ESG.
That’s what we’re really all about.
And because we’re on a growth trajectory and because the demand for our product and the focus on what it is that we do is increasing, there’s a really nice confluence between investor desire for finding better ESG investments and coming to companies like REG. And we feel we have a good solution for them…
There are some big names out there that have been quite clear about their not just recommendations but mandates for investing more into the ESG space and, in some cases, de-investing from heavy carbon industries.
You have names like BlackRock, State Street, UBS, which have all been very, very clear that this is a direction that they expect to take. And again, we’re very happy to be one of the solutions for what they’re searching for.”
Get the complete 3,180 word interview with Cynthia Warner, President and CEO of the Renewable Energy Group (NASDAQ:REGI), the Bernie’s Mittens of ESG Stocks, exclusively in the Wall Street Transcript.
Tony Guglielmin joined Ballard Power Systems as Senior Vice President and Chief Financial Officer in June 2010.
Mr. Guglielmin previously was Senior Vice President, Finance and Chief Financial Officer of Canada Line Rapid Transit Inc. (CLCO), a $2 billion rapid transit project connecting the Vancouver International Airport, City of Richmond and downtown Vancouver.
Earlier, Mr. Guglielmin held senior management roles in treasury, investor relations, corporate development and strategic planning at Finning International Inc. in Vancouver. He was Corporate Treasurer of British Columbia Hydro and he held various management positions with The Bank of Nova Scotia in Toronto.
Mr. Guglielmin received a B.A. in economics and political science and an MBA from McGill University. He also holds the Chartered Financial Analyst designation and belongs to a number of professional organizations including the Financial Executives Institute.
He is on the Board of Information Services Corporation (where he also serves as Chair of the Audit Committee), as well as a number of private companies.
In this 6,488 word interview, exclusively in the Wall Street Transcript, Tony Guglielmin details his company’s strategy for investors:
“We’ve been public for over 27 years, traded on the Nasdaq and Toronto Stock exchanges. Our core business is the design and manufacturing of fuel cell stacks and engines for a number of end-market applications.
Our current focus is particularly on medium- and heavy-duty transportation. But we also provide fuel cell engines and systems into other markets, like the backup power market and distributed generation, as examples.
The company has been around for over 40 years. It was a private company, started up here locally in the Vancouver, British Columbia, Canada, area by its original founders. And today, we are approaching 1,000 employees.
Our global headquarters are here in Vancouver, British Columbia, Canada. We also have offices in Europe and Asia.
Ballard Power Systems Europe is located in Denmark, servicing the European market.
We also have an office in China — at Guangdong, China — for sales and service. We also have a small office in the United States in Bend, Oregon, servicing the United States market.
We also have an important joint venture in China with a company called Weichai Power.
It’s the world’s largest diesel engine manufacturer. We’re a 49% owner of that joint venture and that joint venture in China is important with the China market being the largest market for engines for commercial vehicles.
And that joint venture is to assemble Ballard-designed engines — stacks and engines for the Chinese market. So that’s our basic footprint.”
Mr. Guglielmin details fuel cell technology for investors:
“A fuel cell is a rather simple looking product, but quite complex. A fuel cell is an energy conversion device. And I’ll distinguish that from a battery, because obviously, when we think about zero-emission transportation, one often thinks of battery-electric, also, Tesla, obviously, which is using lithium-ion batteries.
I’ll just distinguish, where a battery, the fuel in a battery, is stored within the battery, as we all know. And then the life of the battery is determined by how long the charge can stay in a battery and you have to recharge it.
A fuel cell, on the other hand, is more of a conversion device. The fuel is outside of the fuel cell, so it’s stored in a tank.
No different than the hydrogen fuel stored in a tank, no different than a combustion engine. And the fuel cell itself has some attributes of the battery in that the fuel that you use from the tank passes through the fuel cell and combines with air, ambient air; it creates an electro-chemical device.
So the oxygen combining with the hydrogen passing through a fuel cell creates electricity. And the only byproduct from that electricity is a small amount of water, so the H2O that comes out of the combination of hydrogen and oxygen.
So the fuel cell has an anode and a cathode and a membrane in the middle.
An individual cell is really combined in, what we call, an MEA, or a membrane electrode assembly, which is basically an anode and a cathode — with a catalyst in the middle that allows the protons and so forth through a pass-through and some plates, usually a carbon-based plate, to provide the rigidity and allow the hydrogen to flow.
And so each fuel cell, an individual cell, creates a little bit of power and as you stack these up, a number of individual cells, that’s what we call a fuel cell stack, which is literally a stack of a number of individual cells.
And that fuel cell stack is essentially the device I described. It’s a solid-state device with no moving parts. You can generate enough power in an individual stack to move a bus or a truck.
There’s a tremendous amount of energy density in a fuel cell. You can create an awful lot of power on a very small device and that stack goes into an engine with a bunch of balance of plant.
And fundamentally, that fuel cell can replace the combustion engine in the same way that a battery could. And then from that point forward, what a fuel cell does, which is where the batteries and fuel cells start to compete, if you will — that’s the power source that drives the electric drive system.
So when you think of a battery-electric vehicle, a Tesla, you’ve got the batteries that are driving the electric drivetrain and all of the electronics. A fuel cell car or fuel cell truck has essentially the same electric-drive system.
It’s just using a fuel cell with the hydrogen to drive that system. So we call it a fuel cell electric vehicle. It’s a pure electric vehicle driven by the fuel cell itself. So that’s really what a fuel cell is.
It’s a relatively simple-looking device, but it’s quite complex.
There’s a lot of chemistry, a tremendous amount of patents and know-how that goes into the design of those individual fuel cells and also how to stack them up and put them in an engine and that’s what Ballard does.
We design, we make our own fuel cells, we make everything inside the stack, we make our own MEAs, we make our own plates. And that’s where a lot of our patents and know-how resides. It’s right in the core of the fuel cell itself.”
The company is positioned for global clean energy growth:
“China is a massive market opportunity. And so in China, we’ve been active in China for many years.
We have CRRC. It’s one of the world’s largest train companies, rolling stock train companies. We’ve did some work in the rail market with CRRC many years ago. We’ve done some work as well in the light-duty passenger train market as well.
In China, we have a project in the train market.
But we announced two years ago, 2018, this joint venture with Weichai Power. Again, Weichai makes about 1 million diesel engines a year — they’re the largest supplier of diesel engines to the truck/bus, commercial truck market in China. They recognized, as part of this momentum in China, to move to zero emissions and fuel cells. They recognized the need to do that in their business and so they have had to make a direct equity investment.
Two years ago, they made a 19.9% investment in Ballard, and then we set up this joint venture with Weichai.
They own 51%, we 49%, and that joint venture is up and running today. It went into operation in about the mid-last year 2020. And again, it assembles Ballard-designed engines. So we design them and we also sell the core MEA — the core material that goes into the fuel cell that was on that technology.
Ballard continues to sell those to the joint venture, but the joint venture then assembles these stocks and engines for the truck, bus and the forklift market for the Chinese market.”
Get the complete detail on Ballard Power and read the entire 6,488 word interview, exclusively in the Wall Street Transcript, Tony Guglielmin, CFO of Ballard Power Systems.
Andy Marsh is President and Chief Executive Officer of Plug Power Inc. Mr. Marsh joined Plug Power as President and CEO in April 2008. Under his leadership, Plug Power has led innovation, bringing the hydrogen fuel cell market from concept to commercialization.
Early on, Mr. Marsh identified material handling as the first commercially viable market targeted by Plug Power. Today, the firm’s fuel cell solutions are leveraged by world leaders such as Amazon, Walmart and Carrefour to power industrial electric vehicles.
As CEO, Mr. Marsh directs all aspects of the organization’s objectives and focuses on building a company that leverages a combination of technological expertise, talented people and sales growth. Mr. Marsh continues to spearhead hydrogen fuel cell innovations, and his ability to drive revenue growth 300% has landed Plug Power on Deloitte’s Technology Fast 500 list in 2015, 2016 and 2017.
Previously, Mr. Marsh was a co-founder of Valere Power, where he served as CEO and board member from the company’s inception in 2001 through its sale to Eltek ASA in 2007.
Under his leadership, Valere grew into a profitable global operation with over 200 employees and $90 million in revenue. Prior to founding Valere, he spent almost 18 years with Lucent Bell Laboratories in sales and technical management positions.
Mr. Marsh is a prominent industry voice. Nationally, he is the Chairman of the Fuel Cell and Hydrogen Energy Association, and sits as a member of the Hydrogen and Fuel Cell Tactical Advisory Committee — HTAC.
Internationally, Mr. Marsh represents Plug Power in their role as supporting members of the Hydrogen Council, a global initiative of leading energy, transport and industry companies. Mr. Marsh holds an MSEE from Duke University and an MBA from SMU.
In his 2,774 word interview, exclusively for the Wall Street Transcript, Mr. Marsh details the advantages of his company’s alternative energy formula:
“What is not always captured is the degree that they are more cost effective than internal combustion engines. You can power an electric vehicle in two ways: lithium batteries or a fuel cell.
So why would you ever choose a fuel cell? Well, if you are driving a vehicle like a car, 4% of the time, you can charge it at home using batteries. They are the perfect solution.
But if you’re thinking about applications that are asset intense, then fuel cells have three unique advantages. One is, a fuel cell can fill up a car within five minutes.
Think about if you are driving a delivery van like a FedEx truck, and it has to go 150 miles a day. Filled up with hydrogen, it can be on the road all day. You can travel up to 500 miles often without a refill.
With batteries, a car has to recharge every five or six hours — and charging it may take an hour.
When companies like DHL and others want fast fueling, they like the energy density of fuel cells at certain points because it is 10 times that of battery electric vehicles. Because of that, you can carry more packages on board.
We also show a slide that was developed by DHL that shows battery electric vehicles running for 100 miles as Class 3 vehicles that cannot meet the minimum requirements for the number of packages you can put on board.
Fuel-cell-powered electric vehicles, because of the higher energy density of a hydrogen tank versus batteries, can go way over 500 to 600 miles and still exceed the minimum requirements for how many packages you can put on board.”
The Plug Power CEO guided to full year and future year goals:
“Our guidance for 2020 is to do over $300 million in gross billings, with $20 million in EBITDA.
If you look at our plans going forward, by 2024, we have been very public about our plan to be a $1 billion revenue company with about $750 million coming from our traditional business with customers like Walmart, Amazon, Home Depot, BMW, throughout the United States and in Europe.
We expect $200 million from on-road vehicles. We are doing some exciting work with a company like Lightning Systems that is providing vehicles to Amazon, and we have a number of other partners we have been engaged with.
We see the stationary market being a $50 million market opportunity for us. We have laid out a five-year plan that says, at the end of 2024, our revenue will be $1 billion, our EBITDAs will be $200 million, and our operating income will be $170 million.”
These financial results have translated Plug Power into a dominant market participant:
“Five years ago, we were essentially the best system integrator in the fuel cell industry. But since that time, there has been a high level of integration at the system level, whereby we do hydrogen fueling stations, fuel cells and the aftermarket service.
We have a data center in Dayton, Ohio, that monitors our products 24/7. We also today are North America’s largest MEA supplier. The MEA is a critical component, much like a thin film battery layer in a fuel cell.
We are the largest manufacturer in North America of fuel cell stacks.
So when you start looking at the heart of our fuel cell engine, most of the critical components are actually designed and manufactured by Plug Power. We are really excited that we are beginning to move into large-scale hydrogen generation and distribution.”
The dominance is the basis for a long term strategy:
“One, if you look at the revenue and the customer set that Plug has developed, we are where most of our competitors are aspiring to be. Plug Power is doing business every day with Amazon, Walmart and Home Depot.
Two, no one has the broad technical and business capabilities that we do to meet all the needs in the supply chain for the emerging hydrogen economy from hydrogen generation to building fuel cell stations to building high-end fuel cells or capabilities in MEAs. These achievements just uniquely separate us from our competition.
I would go as far as to say that, when you look at the market cap and then the revenues for our competitors, as in comparing us to folks like Nuvera, Nikola and others, Plug Power is greatly undervalued with its revenue and EBITDA potentials, and it has a much higher growth trajectory than they were projecting for the next five years.
An investor sent me a note last night that Plug Power is really the undervalued gem in the fuel cell industry.”
Read the entire 2,774 word interview with the CEO of Plug Power Andy Marsh, exclusively for the Wall Street Transcript.
Michael E. Hoffman joined Stifel in 2014 and is a Managing Director and Group Head of Diversified Industrials Research, covering Environmental Services and Pest Control. He is based out of the Stifel Baltimore office.
His past awards include ranking #2 in pollution control from Institutional Investor, Greenwich Associates, and Reuters and top ranked with Starmine for Commercial Business Services estimates and stock picking. Mr. Hoffman has been an analyst for more than 32 years, having also been an analyst with Wunderlich Securities, Friedman Billings Ramsey, Credit Suisse, Robertson Stevens, and Salomon Brothers.
He was director of research at Wunderlich, president, chief operating officer, and director of research with Caris, deputy director of research, head of fixed income research and group head of diversified industrial research with FBR, and head of global value research at Credit Suisse.
Mr. Hoffman earned a B.S.E. from Widener University and an MBA from the Johnson School at Cornell University. He is the 2001 owner/rider winner of the Maryland Hunt Cup, an errant golfer and avid fly fisherman.
He is a member of the National Waste and Recycling Association Hall of Fame Class of 2020.
In this 2,255 word interview, exclusively in the Wall Street Transcript, Stifel analyst Mr. Hoffman offers some recommendations for ESG portfolios looking to add waste management securities.
“I’ve been a sell-side analyst for 33 years. Within that timeframe, I’ve always covered environmental services, which at one time was called pollution control.
Through time, I’ve covered staffing companies and multinational, multi-industrial conglomerates and defense. I’ve always had, at the root of my coverage, the environmental services space. I’m also the group head of the industrials coverage at Stifel…
In the solid waste, if there’s a major difference on a global basis, it’s the European countries, predominantly more so than anywhere else in the world, that have walked away from landfill as the primary form of disposal, which from our perspective, had more to do with land space than viewing landfill as bad for the environment.
All of Europe fits inside the upper-eastern quarter of the United States, and they have more people than the U.S. With one quarter of the landmass, why would Europe use good land for disposing of your waste on a long-term basis if there are alternatives? And that is why Europe embraced waste energy which is referred to as energy-from-waste (EfW).
In Europe, waste-to-energy is the primary form of disposal, and then recycling with some volume that has to go into landfill.
In North America, our primary source of disposal is landfill, partly because we have an abundance of land and partly because it’s the lowest-cost option.
It’s also an extraordinarily highly engineered solution too, which is often lost in the conversation. Since 1994 with the final rulemaking of the Subtitle D, which governs the design, operation and lifecycle costs and financial obligations of operating municipal solid waste landfills — this is one of the most highly sophisticated civil engineering source solutions to waste management.
And it’s one of the most reliable, consistent and lowest-cost bioreactors available for converting organics and capturing the energy value of organics in a waste stream.”
According to the Stifel star analyst the solution in North America is engineering intensive:
“…Landfills generate methane, which is a greenhouse gas. What is usually lost is how effective the design is in capturing that methane and then converting it into energy.
It is an effective, reliable way to do it and much more cost effective than, say, the only other method that can be done at scale, which is anaerobic digestion. They’re extraordinarily expensive.
They require power prices in the $60, $70 a megawatt, where spot energy prices today are $25 a megawatt. And it’s not without its own air pollution-related issues. So a modern landfill is a very effective solution and it works for us here in North America because we do have an abundance of land.
Today, solid waste is using a piece of land that doesn’t have risk associated with it, like ground water or surface water access that are too close to the site.
These landfills are a highly engineered, fully lined, multiple-layered system that capture the liquids generated in a landfill called leachate.
The landfill is lined with a 12-millimeter high-density polyethylene liner, which a vacuum can be drawn on the seals. There’s a 30-year obligation to monitor the site once it’s closed to assure that there’s no risk to human health and the environment.
Once capped, a vacuum can be drawn on the landfill in order to pull the gases off. Modern Subtitle D landfills are extraordinary civil engineering projects in how to manage a landfill lifecycle, economically and environmentally, and so a safe way to manage waste.”
Stifel analyst Michael Hoffman explores several companies providing this service:
“There are five recommended publicly traded solid waste equities. By size: Waste Management (NYSE:WM), Republic (NYSE:RSG), Waste Connections (NYSE:WCN), GFL Environmental (TSE:GFL) and Casella Waste (NASDAQ:CWST) — largest to the smallest.
All of them operate landfills. All of them have landfill gas operations, with about 1 million tons of waste under the cap to support LFG generation…
We just published our 2021 outlook and one of our top picks for 2021 is GFL Environmental; it’s the most attractive relative value within the group.
We have a “buy” on all of our solid waste; there is a stock for virtually any type of investment style. GFL, on a relative value basis, compared to the peer group, based on enterprise value or free cash flow yield, is the most attractive entry point.
The other way the market tends to look at this is sustainable sales, profit and free cash flow growth rates. Waste Connections is a compelling stock year in and year out, because it tends to be a high-single-, low-double-digit free cash flow growth compounder year in and year out.
We think Republic is deemed as extraordinarily reliable, repeatable equity, and with solely U.S.-based revenues.
Waste Connections, Waste Management and GFL all have both U.S. and Canadian, which introduces currency translation. Sometimes its currency is favorable and sometimes it is not; however, it is all translational, not transactional, so really should not matter.
Casella is deemed a very attractive small-cap play the market has rallied around over the last year and a half. There have been a lot of non-traditional small-cap money looking for high-quality recurring revenue stories with good underlying organic growth characteristics, a good free cash growth compounder, and Casella fits that bill.”
Get the complete detail on these and other compelling Stifel recommendations from the Hall of Fame analyst Michael Hoffman in his complete 2,255 word interview, exclusively in the Wall Street Transcript.
Hugh Wynne is Co-Head of Utilities and Renewable Energy Research at SSR LLC, an independent research firm providing in-depth analyses of industry trends for institutional investors in both the public and private equity markets.
SSR also provides advisory services to electric utilities, utility regulators and the suppliers of power generation and energy storage equipment. Prior to joining SSR, Mr. Wynne was Managing Director and Senior Research Analyst at Bernstein Research, where he was responsible for the regulated utility, independent power and renewable energy sectors.
In that role, he was ranked nine times by Institutional Investor in its annual All-American Research Team poll.
Mr. Wynne’s power sector research has focused on the critical long-term trends driving structural change in the industry, including the scale, structure and cost of the investment in renewable generation and energy storage required for states and utilities to achieve their CO2 reduction targets; the impact of increasingly stringent environmental regulations on the coal, oil and gas-fired fleets; and the challenges that the growth of renewable generation presents both to competitive power markets and the traditional utility business model.
Before joining Bernstein, Mr. Wynne was Vice President of Finance at ABB Energy Ventures, the power project development subsidiary of ABB Asea Brown Boveri, where he was charged with making equity investments in and arranging non-recourse financing for major power generation and transmission projects globally.
Previously, Mr. Wynne was a Senior Vice President at Lehman Brothers’ Utilities and Project Finance Group. Mr. Wynne holds a B.A. degree from Harvard University, where he graduated magna cum laude and was elected to Phi Beta Kappa, and a M.A. degree in economics from Stanford University.
In this 3,801 word interview, exclusively with the Wall Street Transcript, Hugh Wynne gives investors detailed advice on renewable energy stocks.
“So basically, what we’re seeing is that, one, there are state and corporate targets being set for much lower levels of carbon output and thus much higher levels of renewable generation.
Those targets will be met primarily by substituting the output of new wind and solar power plants for the output of the existing coal- and gas-fired power plants. And because the cost of fuel and the variable cost of operation of those fossil fuel plants is relatively high — maybe $25 per megawatt hour — a large portion of the capital cost of building new wind and solar resources — which in the case of solar may be $35 per megawatt hour — will be offset by savings from fuel that’s not burned and variable costs that are not incurred to run the existing fossil fleet.
So we see the opportunity here to make a very large investment in renewables, but to do so in a way that has a limited impact on the cost to supply electricity because of the savings at fossil fuel plants.
Just to give a sense of the scale of that investment, when we did an analysis of 25 of the vertically integrated utilities in the country that have set targets to reduce CO2, we found that in order to achieve those targets, those 25 companies would need to invest capital equivalent to about 20% of their current regulated asset base, or rate base, over the next decade.
So on average this is a big investment relative to their existing assets. Moreover, the range around that average can be pretty large. There are some companies that may have to invest amounts equivalent to half or even two-thirds of their current rate base to achieve their CO2 reduction targets.
While sharing in the rapid growth of renewables, utilities have characteristics that we think will set them apart from other growth stocks in the renewable space.
The most important of these is that utilities are regulated monopolies.
They’re not subject to competition in their service territories. Their returns on capital are supported by regulated electricity rates and revenues, and those allowed returns on equity which are currently over 9.0% or maybe 800 basis points above the yield on long-term U.S. Treasury bonds.
So a very substantial equity risk premium is available on these stocks, and yet their returns are protected from competition and are historically insensitive to the economic cycle. Regulated utilities pursuing investments in renewable generation thus offer growth with very low variability on earnings, so low betas.
In sum, we find regulated electric utilities a unique way to play the growth of renewables, in that they earn returns well in excess of their cost of capital and, in the absence of competition, the stability of these monopoly earnings makes them far less risky growth stocks than some of the other alternatives out there.
Not to mention that they still trade in line with the S&P 500 as opposed to an extravagant premium.”
This important insight leads to specific stock picks from Hugh Wynne:
“Some of the stocks that have quite robust renewable growth opportunities are also stocks that we find attractive in terms of their relative valuations, regulatory environment, and power demand growth.
Two stocks that fall in this bucket are Pinnacle West (NYSE:PNW) and Entergy (NYSE:ETR). What particularly interests us about these two companies is scale of the opportunity for them to invest in new renewable resources as the means to reduce their exposure to coal- and gas-fired generation.
At Pinnacle West, we estimate that the capex required to achieve their CO2 reduction target could be equivalent to as much as 40% of the company’s existing regulated asset base. It’s possible that PNW’s regulators will not permit it to own all those new renewable assets, and will require that some portion be owned by independent power producers.
But as a vertically integrated utility in a regulated state, Pinnacle West is in a good position to incorporate a significant part of this investment into their rate base. We think the same goes for Entergy, where we believe that the scale of investment required to meet their carbon emissions targets for 2030 is equivalent to about a third of their existing regulated asset base.
So we’re bullish about these companies due to their attractive growth potential as they transition to renewable energy to meet their own carbon reduction targets — particularly as their share prices suggest that investors are not incorporating this growth into their valuations.”
Some other recommendations from Hugh Wynne recognize a variety of positive factors in the renewable energy sector:
“During the recent rally in renewable energy stocks, the owners of renewable power projects have underperformed the renewable equipment manufacturers.
Yet we think the yieldcos have become more attractive as their stocks have appreciated and their cost of capital has fallen, allowing for larger and more accretive acquisitions of renewable assets. Among the names we find most compelling in the space are NextEra Energy Partners (NYSE:NEP) and Brookfield Renewable Partners (NYSE:BEP)…
Also, some renewable equipment manufacturers that are currently underperforming may offer opportunities. First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), for example, have failed to keep up with some of the other renewable equipment manufacturers due to investors’ concerns regarding the expiration of U.S. tariffs on imports of solar panels.
Yet with Democratic control of the Congress, the Biden administration will be in a position to implement policies that are far more supportive of renewable energy. First Solar and SunPower will benefit, and they’re currently the cheapest renewable equipment companies around.”
Get the full insight by reading the entire 3,801 word interview with Hugh Wynne, exclusively with the Wall Street Transcript.
Timothy Winter, CFA, is a portfolio manager of The Gabelli Utilities Fund, The Gabelli Utilities Trust, The Gabelli Global Utility & Income Trust, and the Love Our People and Planet ETF and a research analyst covering the utilities industry for GAMCO Investors, Inc.
He joined the firm in 2009 and has over 25 years of industry experience. Previously he served over 15 years as research analyst covering utilities at AG Edwards, as well as Jesup & Lamont and SM Research.
Mr. Winter has received numerous awards and recognition for his work in the industry.
He was a three-time All-Star Wall Street Journal winner and five time ranked number-one Electric Utility Team by Institutional Investor. In 2018 he received Thomson Reuter’s U.S. Analyst Award and was ranked the number-one stock picker in the electric utility sector and water utility sector and number two in the gas utility sector.
In this 2,454 word interview, exclusively in the Wall Street Transcript, this award winning analyst for Gabelli explains how to profit from the alternative energy investment theme.
“It’s an exciting time in the utility and power sector because it’s undergoing a great transformation, which is really just the “greening” of the sector.
The industry is moving from primarily fossil-fired power generation — coal and gas — to renewable generation like wind and solar battery storage. The industry is retiring old coal plants and replacing them with efficient gas plants, wind and solar plants.
Utility-scale battery storage is becoming ever more necessary to make wind and solar power less dependent on weather. That’s on the supply side.
On the demand side, there is rooftop solar, electric charging stations and a trend to electrify industrial processes that use oil and gas. The electric grid also needs to be modernized to handle greater electric flows and two-way flows, and hardened to increase reliability during extreme weather events, like hurricanes and wildfires.
Basically the theme of alternative energy and green energy just runs through the entire sector. Investing in infrastructure is what utilities do, and the infrastructure is going to have to be moved from being a fossil-fired-oriented system to a renewable energy system.”
This leads the Gabelli stock picker to some large cap investment opportunities:
“NextEra Energy (NYSE:NEE) and its 60%-owned yieldco, NextEra Energy Partners (NYSE:NEP). NEE and NEP are the largest U.S. renewable players and own portfolios of wind, solar, and have huge backlog of future development opportunities.
NEE is the largest utility in Florida, with plans to develop 10 GWs of solar over the next decade, and its renewable development subsidiary owns 27 GWs of renewables with another 15-20 GWs under development.
NEP grows by either developing wind and solar, or by acquiring existing projects from its parent NEE, which owns 60%. NEE plans to grow 6-8% per year and NEP plans to grow the distribution 12-15% per year.
Also Brookfield Renewable Partners (NYSE:BEP, NYSE:BEPC), which is two different tickers because there’s BEP, and then there’s the tracking stock, the BEPC. Brookfield is also one of the one of the world’s largest renewable developers with a 19,000-MW portfolio of renewables.
A lot of that is hydro, but they are also developing considerable amount of wind and solar, and potentially offshore wind. BEPC is going to be a 10%-plus grower with a nice dividend yield.
There’s Orsted (OTCMKTS:DNNGY), which is the Denmark company that is the world’s largest offshore wind developer. I would add EverSource (NYSE:ES) and Avangrid (NYSE:AGR) as large utilities with significant and growing non-regulated renewable development businesses. AES is a transforming utility and power developer with a global renewable portfolio and pipeline with a commercial-oriented battery company. The whole industry would be considered as beneficiaries of alternative energy in the transformation of power — the greening of the system.”
Other players find a place in the Gabelli portfolio:
“It is definitely early but that doesn’t mean it’s too early.
Plug Power (NASDAQ:PLUG) is once again garnering a lot of attention. I say that because it also did in the tech bubble of 2000. There are a couple of established green hydrogen players.
One is Nel (OTCMKTS:NLLSF), another is Ballard Power (NASDAQ:BLDP). There are a number of larger players trying to get into the business, including NextEra Energy who has got a pilot program. Electrolyzers will be a significant key to getting to a net zero carbon economy, because the hydrogen produced from an electrolyzer is perfect for use with hydrogen fuel cells…
Utility-scale batteries is one thing that we’re looking at it. Other than Tesla (NASDAQ:TSLA), which trades at too high of valuations for us, and large multi-nationals like Panasonic (OTCMKTS:PCRFY) and LG Chem (KRX:051910), we like newcomer EOS Energy (NASDAQ:EOSE), which is a pure play with a utility-scale battery.
We also invest in lithium players like Livent (NYSE:LTHM) and Albermarle (NYSE:ALB).
Also, green hydrogen is on our radar because natural gas has been an extremely important part of getting where we are even today in the transition to renewable. The transition from coal to renewable requires that we use natural gas as a transition fuel.
Natural gas backs up wind and solar when the sun doesn’t shine, or wind doesn’t blow. Natural gas is cleaner than coal and oil and has gotten so cheap that it’s led to a number of new gas-fired plants over the years, and today gas has become almost 40% of U.S. electric generation, which has led and will continue to lead to coal plant retirements. So gas has been extremely important.
Now, the problem is, gas is now being viewed as a dirty fossil fuel in some camps, and natural gas can’t exist in a net zero carbon economy without carbon sequestration. The hope is that green hydrogen can today replace natural gas.
You can blend it into natural gas up to about 10%. And moving forward, hopefully, we’ll get to the point where it could become a much more meaningful, if not 100% source of replacing natural gas. It also can power fuel cells, where you can have a distributed fuel cell at the industrial site, or the commercial site, or even at a residential home. So we’re looking at that.”
Get the complete information on these renewable energy stock picks by reading the entire 2,454 word interview with Timothy Winter, exclusively in the Wall Street Transcript.
