Cleantech stocks have not captured the imagination of Canadian investors for some time.
It’s not that there aren’t reasons. Perhaps some got burned by Timminco, the shrouded-in-mystery solar player that soared and then crashed when its “revolutionary” technology couldn’t handle the harsh light of day.
Or, going back further, it might have been the somewhat less controversial yet equally painful chart of Vancouver-based Ballard Power, which never was able to capitalize on the enormous hype around fuel cell technology that sent its stock to the moon in 2000 and 2001.
But today, things are different. Investors have no taste for cleantechs that produce ongoing losses. As a result, the issuers that are left are lean, mean and pursuing opportunities that are actionable and investable in the near term.
Here are three Canadian cleantechs analysts currently think fit that bill.
Haywood Securities analyst Pardeep Sangha likes solar player UGE International (TSXV:UGE). In November, the analyst maintained his “Buy” rating and one-year price target of $1.00 on UGE International, implying a return of 156.4 per cent at the time of publication.
The analyst says UGE has a clear and growing market opportunity.
“Solar costs have declined over the past five years, leading to distributed solar becoming the fastest growing source of energy,” Sangha argues. “The commercial solar market is underserved and highly fragmented, providing UGE with numerous opportunities for growth and for consolidation.”
You may classify it as a utility, and industrial, or perhaps even a “Special Situation” stock, but there is no doubt that what Oakville-based Algonquin Power (TSX:AQN, NYSE:AQN) is doing is moving a part of the world away from its dependence on coal and oil. Algonquin, which operates numourous hydroelecttric and solar facilities, has been around for three decades and public for two.
But Industrial Alliance Securities analyst Jeremy Rosenfield thinks the stock remains an undervalued opportunity.
““In our view, AQN remains the most well-balanced investment option in the sector, supported by the Company’s (1) diversified business model (power & utilities), (2) leverage to favourable macroeconomic themes (e.g., the strong USD), (3) healthy near-term organic and M&A-based growth (forecasted 8-10% EPS and FFO/sh growth, and 15%+ FCF/sh growth through 2020), and (4) attractive dividend growth (~10%/year),” the analyst says. “The creation of AAGES and investment in Atlantic Yield provide immediate accretion and a well conceived strategic platform for AQN to grow in international markets. In addition, we see significant upside from AQN’s capital investment plan at EDE, if approved by regulators,” the analyst says.
Rosenfield currently has a “Strong Buy” rating and a one-year price target of $17.00 on Algonquin Power, which closed December 5 on the TSX up 1.4 per cent to $13.46.
Quebec City-based water treatment firm H2O Innovation (TSXV:HEO) is another favourite of Haywood’s Sangha. The firm, which designs, manufactures and commissions customized integrated water treatment systems and has a line of specialty products, has been a consolidator in its space, with ten acquisitions in the $2-million to $25-million range. Sangha says these pickups have removed the lumpiness from H2O Innovation’s revenue and provided it with a steady stream of recurring revenue. He says there are strong macro drivers backing the company.
“There are over 24,000 municipalities in North America, many of whom lack modernized water treatment facilities, leaving numerous lives susceptible to water-born illnesses,” the analyst says. “We believe H2O is well positioned to take advantage of the increased water infrastructure spending over the coming years.”
Sangha currently has a “Buy” rating and one-year price target of $2.25 on H2O, which Friday closed up 1.7 per cent to $1.17.