Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.) Coven’s three picks are MiX Telematics (NASD:MIXT), Opus Group (Stockholm:OPUS), and Control4 (NASD:CTRL). Due to some extensive back and forth in my initial request for picks, I originally included Trimble Navigation (NASD:TRMB) and Kurita Water (JP:6370, OTC:KTWIF) which I kept in the list because they conveniently brought the total picks up to a nice fourteen for the year 2014.
MiX Telematics (NASD:MIXT): Coven thinks the main thing keeping MiX’s stock back is that currently emerging markets are greatly out of favor, including MiX’s home base, South Africa. Despite this, company’s fundamentals are good, and the company should benefit from its aggressive global expansion but particularly in fast-growing Africa, where the company is well established and faces little competition.
This is an orphan stock — mostly unknown outside South Africa, with a small float, It only recently listed in the U.S. and has little analyst coverage other than from the banks that underwrote the offering. What it needs is a few more big contract wins and to keep meeting earnings estimates.” He expects most surprises to be on the upside, given management’s conservative projections.
The main risk he sees is that the company is trying to expand rapidly in a variety of markets Brazil, the U.S., Gulf Region, and Europe simultaneously. Its Software-as-a-Service model allows it to expand into new areas with relatively little capital, but it could still prove to be a strain on management resources.
Even without an upside surprise, Coven expects the company to grow earnings at 15 to 25 percen for at least the next five years.
Trimble Navigation (NASD:TRMB): Trimble has been going from strength to strength this year, with new products, strategic acquisitions, and growing cash flow, and this has been reflected in the stock price up over 20 percent in last three months and 700 percent over five years. It’s not a cheap stock, but I think it’s a quality company that will continue to reward long-term investors. I think that there are a lot of strategic acquisitions to be had and that we’ll likely see a dividend established within the next 12-24 months, too. Over the longer term, the company should continue to grow at 12 to 15 percent annually.
Kurita Water (JP:6370, OTC:KTWIF): Kurita was a potential turnaround play, which Coven had not initially intended to put in his top three, and he has since cooled on it further. He says:
I thought that this stock was only attractive as turnaround play, stock was up about 10 percent, but as long as Japan is mired in its economic malaise, I don’t think there’s more to Kurita than the 2 percent yield and to pray for a pick up in Japan’s economy. Kurita certainly hasn’t been able to capitalize on booming Asian markets for clean water — or at least sufficiently so to offset its heavy exposure to the Japanese market.
Opus Group (Stockholm:OPUS): He has also cooled somewhat on Opus Group, but still thinks it’s a good long term pick.
Opus was up 20 percent within a month of selection: a trader should take his profits, but an investor is better holding on to Opus. While I don’t expect a repeat of 2013 when Opus stock rose 50 percent, I think it it’s going to steadily year after year by taking share from weaker competitors and realizing cost savings from the recent merger. Opus has the best, most experienced management in the business who has a significant equity stake.
From a macro viewpoint, Opus also benefits from overall market growth as governments increasingly outsource non-core services, emissions regulations are increasingly enforced as the growth in the vehicle fleets in developing nations goes hand-in-hand with higher pollutions levels. It’s a major drag on their economies and I don’t see gasoline or diesel engines going away anytime soon. We may also see more on-board diagnostics and emissions testing of off-road vehicles and power boats which would be great given their disproportionately high emissions levels. Long term, I think Opus will be acquired by an industry heavyweight like SGS SA (Swiss:SGS) or a company like Veolia (NYSE:VE). The inspection and certification business is very attractive to a lot of players, and the Europeans tend to dominate it.
Alter NRG Corp (TSX:NRG, OTC:ANGRF): So far, I am pleased with the 2014 performance of AlterNRG. True to its character as a volatile stock, it has a beta of 3.17, but the good news is that it is up 21 percent in 2014. The company recently reached a $15 million equipment & services agreement with BGE Limited, who is developing a large scale Waste to Energy project in China. If executed on time, the company would meet its stated goal of turning cash flow positive in 2014.
Accell Group NV (Amsterdam:ACCEL, OTC:ACGPF): So far this year Accell Group has not disappointed with a 12 percent return, of which 3 percent came from euro appreciation. E-bikes continue to be the high growth product line, though it is mostly concentrated in Northern Europe. For those hoping for an explosion of e-bikes in the US, I would not hold my breath. I believe biking is still mostly an athletic pursuit in our country, even for those who ride their bike to work, judging by the speed of riding and the tight clothing I witness during my Portland morning commute. E-bikes are inherently less athletic and require a different ridership, which is not yet present in significant numbers. Luckily, Accell has enough going for it absent U.S. e-bikers.
Companhia de Saneamento Basico do Estado de Sao Paolo (NYSE:SBS): Down 18 percent year-to-date, owning SBS has been somewhat frustrating. About 8 percent of that decline can be chalked up to the fact that Brazilian stocks as group are in the red. It’s P/E ratio is half of that of its peers at 6.9x and its ROE is 50 percent higher than its peers at 17.6 percent. A positive news flow with regards to its rate case would be a much welcomed tail wind for SBS. Expect some news on that front in the next month or two.
Part of the reason I go through the exercise of asking my panel for their stock picks is probably the same reason you’re reading this article: They are a great source of investing ideas.
Not all great ideas are equal, however. Also, as Coven pointed out in his comments about Meyer Berger, timing of both buying and selling can be very important. I like to buy stocks when they’ve taken a hit due to market sentiment or short term results that don’t detract from the long term story.
Kravetz clearly thinks his 100 percent gains in Meyer Burger are enough, and has sold his fund’s holdings. Readers should take that as a signal that it’s too late to get in on this ride. Readers who did get in should probably take profits as well. Hopefully some of you also took profits in Opus Group at €14.60, as Coven says he would have done. (Coven’s Cleantech Index and the ETF tracker PZD would not have sold, since he only updates the index on a quarterly basis.) Although Coven says he would have sold, I’m keeping it in the portfolio because he also says he would have re-bought after a dip.
I’m currently increasing my positions in SBS and MIXT, both of which are down from their highs because of the market’s increasing nervousness about emerging market stocks. As Coven notes, this nervousness is misplaced with regard to MIXT, since the company has truly global revenues and a dropping South African Rand lowers the company’s expenses more than it hurts its sales.
As a Brazilian water utility, SBS is truly an emerging market stock, but its low price to earnings ratio (6.4) shows that a lot of emerging market risk is well priced in.
I don’t yet own DGII, but because of Jabusch’s comments, I plan to give it another look.
Disclosure: I am long ACCEL, SBS, MIXT, ANGRF, EBODF and HASI. I have sold puts on FSLR (a net long position.)