8 Diverse Ways to Energize Your Portfolio

Last January, MoneyShow.com asked the top newsletter for their favorite stocks for 2019. Energy, though volatile, has always been among the most popular sectors in these annual surveys. Here's a review of eight top picks in the energy, power generation and renewables sectors. Roger Conrad, Conrad's Utility Investor Brookfield Renewable Energy Partners rose 33.5%% in the first half of the year. The stock -- which trades on both the NYSE and the Toronto exchange -- is up strongly for several reasons. First, the owner of contracted hydro, wind and solar assets continues to execute its business plan of adding assets and profitably recycling capital. First-quarter funds from operations, the company's primary measure of profitability, increased 18 percent, as management made successful investments in Canadian power company TransAlta and in Indian wind power. That's kept the company on track to continue meeting its annual dividend growth target of 5-9 percent, Second, shares we're coming off a low end-2018 valuation, returning to more historically normal earnings and dividend multiples. Third, the Canadian dollar has risen, with a corresponding gain in the U.S. dollar value of BEP. The shares have also arguably benefitted from investment appeal for dividend stocks at a time when the U.S. Federal Reserve is again considering rate cuts. All of these trends should continue to lift Brookfield's returns for the rest of the year. Though gains are likely to be tempered by the stock's returns so far, I continue to rate Brookfield a buy up to $35 for investors interested in a safe yield growing at a mid-single-digit annual rate, with commensurate capital gains. Vivian Lewis, Global Investing My two top stock ideas for 2019 were chosen because they are green investments; I want the world to be safe for my five grandchildren and soon-to-be-born first grand niece, I selected Algonquin Power & Utilities as my top conservative idea and Azure Power as a favorite speculative play. Ironically, in the first half of the year, my the safer stock pick -- Algonquin Power & Utilities -- was up 21%, rising more than my more speculative idea, Azure Power, which rose 16.5%. Algonquin Power & Utilities is a Canadian utilities company which operates both in the regulated and unregulated electric power business, which means it has some flexibility in rates. It also has expanded across the border into the U.S., which reduces the currency risk for U.S.- based investors. Lastly, it has moved into another business, water distribution and sewage. It pays over 4%. It is a safe way to make green by buying a green stock. Azure Power is an integrated project developer which offers guaranteed long-term electricity prices, whatever happens in to oil. It bids for government-supported sites like railway station rooftops. The firm has a decade of experience and over three dozen plants. The founder and CEO since 2008 is a Silicon Valley professional of Indian heritage, Inderpreet Singh Wadhwa. Climate change deniers are putting their heads in the sand rather than learning from the extreme weather conditions hitting the world, flooding in the Mississippi rivers system, murderous heat waves in Chennai, and extreme heat in Switzerland and France where people until now have not needed air-conditioning. I am embarrassed that the India speculation did less well than the more sensible Canadian stock. But my reasoning for both was based on the fact that I want to make sure our planet will remain healthy for the next generation. We have no Plan B if we don't move away from greenhouse gas producing energy sources. We need solar -- Azure -- and alternative energy -- Algonquin -- for the sake of generations to come. I also think they make sense financially. David Coleman, Argus Research First Solar was selected a top investment idea for 2019. The stock rose 55% in the first half of the year. We are maintaining our buy rating on First Solar, a leading solar energy company; we view the firm as well positioned in the solar industry based on its positive cash flow and solid balance sheet. We also like the company's focus on cadmium telluride technology, which should provide a cost advantage relative to more commoditized technologies like polysilicon. In particular, the firm's technological investments have enabled the company to lower the cost of solar generation on a per-watt basis and to improve its conversion efficiency. They have also helped the company to expand its opportunity set of utility-scale projects. For all of 2018, EPS came to $1.36, compared to a loss of $1.60 per share in 2017. We are lowering our 2019 EPS estimate to $2.71 from $2.99 and maintaining our 2020 estimate of $3.31. On valuation, FSLR recently traded at 22.1x our 2019 EPS forecast, in the middle of the historical average range of 4.5x-37.7x and below the peer average of 26.3x. Investors should expect FSLR's financial results to be uneven on a quarter-to-quarter and year-to-year basis due to the timing of revenue recognition. Zach Jonson, Stack Financial Management Entering 2019, we believed Chevron was important to focus on well-managed companies, as the energy landscape remained relatively tenuous. The stock rose 15% in the first half of 2019. Chevron fit this description perfectly due to their high-quality asset base and strong balance sheet. As oil prices have rebounded from depressed levels, CVX has produced solid returns and, in our opinion, continues to offer an attractive combination of value and safety moving forward. Chevron is one of the world's largest integrated energy companies with exploration, production, and refining operations that span the globe. The company has its hands in all aspects of the energy life cycle including upstream, midstream, and downstream/chemical operations, which gives them the ability to navigate the ever-changing commodity environment. In April of 2019, CVX looked to expand upon their strong asset base by offering to purchase Anadarko Petroleum for $33 billion. However, Occidental Petroleum produced a counter bid of $38 billion that was ultimately chosen by company shareholders. Management chose to maintain fiscal discipline and walk away from a bidding war. Going forward, Chevron continues to remain on track to produce multiple years of positive free cash flow as they benefit from an increase in the price of oil and the completion of major capital projects. In spite of double-digit returns to start the year valuations remain attractive, as Chevron trades at a forward based free cash flow yield in excess of 7%. Additionally, management remains focused on providing superior cash returns to shareholders as highlighted by a 3.8% dividend yield. While we anticipate oil price volatility to continue, Chevron has positioned itself to participate when oil prices move upward but also insulate losses during the tough times. This combination of upside leverage and downside resilience provides the exact type of value and safety that we believe is imperative in the current market environment. (Disclosure: Clients and individuals associated with Stack Financial Management hold positions in, and may from time to time make purchases or sales of, this security.) Gordon Pape, Internet Wealth Builder I selected Fortis as my favorite conservative investment idea for 2019. The stock has since risen substantially. The company is a Canadian-based electricity and gas producer & distributor that serves more than three million customers in Canada, the U.S., and the Caribbean. Utility stocks aren't normally big movers, but Fortis was the beneficiary of two developments in the first half of the year. The first was external - the Federal Reserve's switch to a more dovish tone, setting the stage for interest rate cuts later this year. Utilities are notoriously interest sensitive. Rising rates put pressure on their share price while falling rates give them a boost. The second was internal -- the company reported adjusted first-quarter net earnings of $316 million ($0.74 per share, figures in Canadian dollars) compared to $297 million ($0.70 per share) for the same period in 2018. Revenue increased almost 11% year over year to just over $2.4 billion. That combination pushed up the share price by 13.6% in the first half of the year. The stock, which yields 3.5%, continues to be a buy for safe haven investors. Tony Daltorio, Growth Stock Investor Cheniere Energy was my choice as a top opportunity for 2019. Despite the ongoing trade war between the U.S. and China, the number one exporter of LNG (liquified natural gas) from our country -- Cheniere Energy -- rose 18% in the first half of the year. The company is well-positioned to be the exporter of the incremental liquefied natural gas supplied to the global market over the next few years, particularly as demand ramps up from China. The Chinese are finally serious about curbing the rampant pollution in their country. That has led to China markedly cutting back on the use of coal for both power and heating purposes. As a substitute for coal, China is placing a major emphasis on natural gas. China is expected to surpass Japan as the number one LNG importer by the end of the next decade. If trade tensions cool, the bulk of Chinese LNG demand growth will be met by U.S. gas supply, with Cheniere leading the way. Bottom line -- Cheniere will be the second largest operator of LNG liquefaction capacity in the world by 2020. In 2017, the company loaded over 200 LNG vessels, with another 270 vessels in 2018. Significantly, since early 2018, Cheniere has signed long-term deals for over eight million metric tons annually. The world's move away from polluting coal to cleaner-burning natural gas is a major macroeconomic trend. This means any weakness in Cheniere' stock price is a buying opportunity. Jacob Kilstein, Argus Research As an equity analyst for Argus Research, I selected CMS Energy last January as a favorite idea for 2019. The stock has since risen 22.5%. CMS Energy is a Michigan-based holding company with electric and natural gas utilities. The stock rose 19% in the first half of 2019. We are maintaining our buy rating on the stock based on the company's strong growth in both EPS and dividends, which has been supported by capital investments and cost-savings programs. Management continues to project annual EPS growth of 6%-8% -- better than the average of 5%-7% for most utilities -- with actual EPS growth remaining close to 7% over the last fifteen years. The company also benefits from a favorable location in Michigan, with a rising population, a high proportion of skilled labor, a business-friendly regulatory environment, and relatively low exposure to severe weather events. We believe that the company's consistent, above-average growth more than offsets concerns about the stock's high valuation and occasional earnings miss. The shares recently traded at 22.4x our 2019 EPS forecast, above the peer median of 20.1 for electric and gas utilities with fully regulated operations, and above the midpoint of the five-year historical range of 16.3x-23.0x.

8 Diverse Ways to Energize Your Portfolio

A review of top picks for 2019 in the energy, power generation and renewables sectors.

Columnist Conversation

Trifecta Trades

Tuesday Morning Fibocall for 10/20/2020

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.