Boom in Oil, Gas Pipeline Building Could Be Boon for Small Caps

Putting controversy aside for the moment, there are a variety of companies that may prosper

Photo courtesy of neteon.net

Photo courtesy of neteon.net

from the current recovery in oil and gas pipeline building. It’s the kind of boom that can create strange bedfellows, considering the pipe now being built from Iraqi Kurdistan to Turkey scheduled to open in the third quarter of 2013. The Kurds and Turks are not known for being friends.

The recovery in oil and gas pipeline building should be fueled by investment in unconventional domestic energy sources like gas shale and oil sands, pressure to repair and replace aging infrastructure and the uptick in the residential construction markets, according to a forecast from IBISWorld.

And if the proposed 1,700-mile Keystone XL pipeline from Canada to the Texas Gulf Coast gets approved, and its fate certainly remains in doubt, that would only add to the local boom. Supporters say it would create thousands of jobs, while environmentalists say it will endanger the environment and possibly the ground water supply. A decision from the Obama Administration is expected by summertime.

A random search turned up four small caps of the many companies involved in oil and gas pipeline business. We’re not endorsing them by any means. Please do your homework before investing.

Dallas-based Crosstex Energy (Nasdaq: XTXI, http://www.crosstexenergy.com/) builds oil and natural gas pipelines, among other services, and operates about 3,500 miles of natural gas and oil pipelines, as well as 10 natural gas processing plants and 10 fractionators as well as barge and rail terminals and product storage facilities. If you’d like to learn more, tune in to the company’s first quarter 2013 financial results conference call at 11 a.m. Eastern, May 9.  XTXI closed April 23 at $18.64, up 21 cents for the day, with a market cap of $886.5 million. Its 52-week trading range is $11.32-$19.51.

Calgary-based North American Energy Partners (NYSE: NOA, http://www.nacg.ca/) provides a range of construction and pipeline installation services to customers in the Canadian oil sands, industrial construction and pipeline construction markets. NOA’s primary market is the Canadian oil sands where it supports its customers’ mining operations and capital projects. NOA closed April 23 at $4.38, up 16 cents for the day, with a market cap of $159 million. Its 52-week trading range is $2.23-$4.70.

Houston-based Willbros Group Inc. (NYSE: WG, http://www.willbros.com/) is a full service engineering and construction company serving the oil and gas and power industries. Founded in 1908, WG has “developed a brand as a preferred contractor, with a reputation for quality, cost, efficiency and safety over its more than 100-year history,” according to The Motley Fool (http://beta.fool.com/asiavalue/2013/03/25/willbros-low-valuations-insufficient-to-compensate/27767/?source=eogyholnk0000001). Back in 2007, before the recession, WG was trading for more than $13. It closed April 23 at $9.79, up 56 cents for the day, with a market cap of $481 million. Its 52-week trading range is $4.07-$10.45.

Sarver, PA-based Geospatial Holdings (OTC: GSPH, http://www.geospatialcorporation.com/) provides pipeline management technologies and services for managing pipeline infrastructure assets in the U.S. Geospatial Mapping Systems, which provides centerline mapping of pipeline infrastructure, is a wholly owned subsidiary. GSPH closed April 23 at $0.08 with no trading for the day and a market cap of $3.5 million. Its 52-week trading range is $0.05-$0.22.

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Whither Tech Investment Banking? Peter Blackwood Talks about Deal Flow and What’s Hot

Peter A. Blackwood is a Managing Director, and heads the Technology & Media investment banking group at Philadelphia-based Janney Montgomery Scott LLC, a bank whose roots go back to 1832, and probably the most prominent mid-Atlantic regional full-service investment bank, broker-dealer and asset manager (with more than $55 billion in assets under management).   Prior to joining Janney in 2009, Peter was a Principal and Head of the Internet & Digital Media Group at Merriman Curhan Ford & Co.  He joined Merriman from SoundView Technology Group, and began his career at E*OFFERING, a startup investment bank later acquired by SoundView.  He went to school at Ohio Wesleyan University.  pabmugshot

I met Peter at Merriman not quite 10 years ago when we were working with a digital media company headquartered in London, which was at length acquired by a larger digital media company that Peter had worked with.  We had a chance to talk on April 16 about the current state of the technology industry vis-à-vis investment banking, and what he foresees for 2013 in terms of deal flow, what he sees as “hot” in technology these days, and what kinds of public and private deal structures are most common in this market.

JA:  How is 2013 compared to 2012 in terms of deal flow?

PB:  The first few months of 2013 have been busy for us.  A number of transactions we were working on last year were delayed as people worried about the negotiations in Congress over the sequester, and moved into this year.  In the first quarter our team was quite busy executing and completing these transactions, as well as evaluating and pitching new business opportunities.  With regard to Q2 and the balance of the year, we are witnessing a marked increase in activity with regard to public offerings, both with companies selecting underwriters and working through the registration process.

JA:  Interesting that you mention IPOs first.  What is the situation these days with regard to IPOs vs PIPEs?

PB:  Over the past 2 years, PIPEs, or Private Investments in Public Equities, have fallen somewhat out of favor.  Today traditional unregistered PIPEs from the mid-2000s are few and far between.  We are seeing a preference for Registered Direct (RD) offerings, and even more for CMPOs or Confidentially Marketed Public Offerings, a variant of RD offering.  Both the CMPO and Registered Direct offerings are based on shelf registrations, but the Registered Direct is an agented offering and the CMPO is an underwritten offering.

Many issuers now prefer a CMPO structure because it opens up the number of institutions that can participate due to the underwritten vs. agented format.  Some institutional investors have charters that restrict their ability to buy agented offerings vs. underwritten offerings – which means they are excluded from Registered Direct offerings, because they are not underwritten, even though they are fully registered and tradable.  The difference is that the CMPO provides a publicly-filed prospectus supplement prior to pricing, even though it is marketed to a limited number of institutional investors, so the fact of the offering is public knowledge, and it can be underwritten by the investment bank.  As a result, CMPOs have been quite popular over the last few years.

With that said, this year we are beginning to see a bit of resurgence in structured deals, or PIPEs.  We are learning that buyers are more risk-friendly now than they have been for a few years, and are looking to invest in structured deals, which are most commonly PIPEs with common stock and warrants, with registration being filed only after the deal is completed.

JA:  How about size of deals?  Are you seeing small-caps back in the public offering market?

PB:  At our firm, and particularly in technology, the size of companies we deal with is quite broad.  For example, we recently closed a sell-side advisory deal for under $20 million, and are actively working on several deals over $200 million today.  For us, deal size is not the primary motivational factor for new business, but is rather driven by our ability to add value to help a client achieve their goals.  So, if we see an emerging technology that has potentially great demand, we will look to be involved regardless of the size of the company.

On the financing front, today we are primarily oriented toward working on financings for public companies, either IPOs or Follow-Ons.  When it comes to M&A transactions we will seek to work with both private and public companies.  At the moment, we are seeing venture capital at an unfavorable inflection point these days, and we’re not looking at VC deals as a result.

JA: What’s hot in terms of tech sectors?  What can we expect to see industrywide in terms of new issues?

PB:  Many companies across the technology and media landscape today are positioning their solutions as SaaS (Software as a Service) or a Cloud-based solution – for the obvious reasons pertaining to valuation.  So I would say those are two of the hottest sectors.  There are so many companies claiming to be SaaS or Cloud-based that it is creating some confusion, as a matter of fact.

Broadly speaking in software land, perpetual software licensing business is being transitioned to term-based licensing.  Companies with traditional software licensing strategies are in the midst of trying to convert these perpetual relationships to hosted and recurring-revenue models.  So we are seeing, for instance, a business that might have been 65% perpetual licenses, 20% maintenance, and 15% term licenses actively converting or sunsetting these perpetual licenses to either term licensing or recurring, seat-based licensing..  As the value proposition goes, it is more cost-efficient on the client to pay for what they are using.

JA:  What other sectors are you seeing more of?

PB:  Another emerging area that we are quite excited about is where e-commerce and technology intersect, and the emergence of next-generation e-commerce platforms, many of which are SaaS-based.

To give you a case study for the growing need for these eCommerce platforms, let me run through a brief example.  Ten years ago, if you were a company such as Best Buy, as a traditional retailer also seeking to sell goods online with the growth of the Internet.  With the rapid growth in web-based business opportunity, an entire department was created to focus on your web presence, from website creation to product description, pricing, and IT/server management. Today, much of these eCommerce initiatives are being contracted to a third-party provider due to the increased complexity with so many new customer interaction ‘channels’ being used, which is broadly referred to as Omni-Channel.

A few examples of leading brands that have outsourced their eCommerce solutions include UnderArmour and Crocs.

In pre-Internet days, maybe you would have received a catalog from someone like Best Buy, for instance.  You would flip through it and then call in your order on the telephone.  Today, with the rise of these Omni-Channels, you may still get that catalog, or you may get it digitally.  But if you get the catalog  you throw it in your briefcase and look at it on the train or bus while you are going to work.  You use your smartphone or tablet or Kindle and have a look at the items you are interested in.  You get to the office, go on your desktop and have a look at the website to see a bigger image.  You scroll down and look at the reviews.  Maybe on your way home you actually stop by a Best Buy store to look at the laptop or television that caught your eye, but then you go on home.  They maybe you make the actual purchase on the desktop at home.  So you had a catalog or a digital catalog, a smartphone platform, a visit to the store, a visit to the website from a desktop, and a purchase made from a different desktop at home.  All of these consumer touch points have to be tracked and managed seamlessly; order execution has to be flawless, and the branding has to be identical across all platforms.  The retailer, in my example, Best Buy, is now collecting information about your various visits to understand what is attracting you about the product, what you like.  Typically they do not have all that expertise in-house and have no intention of building an inside empire to address it.

Another area we are focused on is within the marketing & advertising space, and also where this content meets technology platforms.  Whether it’s the growth of video-based advertising over traditional display, or the emerging channels of mobile and social, we expect to see this ecosystem to be fertile ground for both new equity issuance and M&A activity for several years to come.

JA:  Are retail investors back in the market, or are all these deals institutional?

PB:  From our perspective, the retail investor is very much back in the market.  Janney has completed 23 public equity offerings so far this year, and retail participation from our platform has been significant across the board.  We find that the retail investor has gotten much more active on IPOs and follow-on offerings than for several years past.  For quite a while now, the retail investor has focused on yield – dividends, interest, and other forms of income.  What we’re seeing this year is retail beginning to be more open to risk by way of more traditional equity, and pursuing capital appreciation over traditional yield.

Retail investors have traditionally been more interested in large caps, but we are seeing them reach into the mid-caps now as well.  We have more than 95 retail offices at Janney, and 10 institutional offices, so we are clearly weighted toward serving the retail constituency by those numbers.

JA:  What are a couple of the deals that the tech group at Janney has participated in recently?

PB:  Over the past year, we worked with Angie’s List (ANGI) on their IPO and follow-on offering, CaféPress on their IPO, and on a secondary offering for WNS Holdings (WNS), which is a business outsourcing company.  We also recently worked on the acquisition by Lexmark (LXK) of Twistage, a unique cloud-based media management platform, and expect to continue to be active in M&A through the balance of the year.

JA:  Is Janney likely to stay regional or will it follow some of the other middle-market banks and go national or international?

PB:  Founded in  Philadelphia in 1832, I would say it is a safe assumption that Janney is and always will be a mid-Atlantic firm.  We have offices in most major metropolitan areas of the United States, but our strongest coverage in terms of sales and trading is geographically centered in the mid-Atlantic.  I am in San Francisco with a part of the technology team, and Janney has had both sales & trading and equity research here for a while but we only added investment banking here in mid 2012 – I was in Philadelphia before that.

Janney’s capital markets presence has seen significant growth over the last few years, across our sales & trading, research and investment banking divisions. Today, we are not seeing many new investment banks being formed.  There are some boutiques out there who are working on specialized deals, mostly in M&A.  The consolidation of Wall Street as a whole after 2007-2008 has been an opportunity for us to pick up key talent as people have been displaced from other banks.  So in many respects, the last few years have been a time of opportunity for Janney.

JA:  Thanks, Peter.

Obama Budget Proposes Big Increases for Spending on Clean Energy

Photo courtesy of KMBC.com

Photo courtesy of KMBC.com

President Barack Obama’s fiscal year 2014 budget proposal made headlines this week mainly for its changes to Social Security, but the increases proposed in US government support for clean energy spending did not go unnoticed. Reuters News Service called the increases for electric cars, wind power and other green technology “dramatic,” particularly because they arrive in the face of Republican criticism.

While many government agencies get slimmed down in the budget proposal, the Department of Energy would get an 8 percent increase to $28.4 billion next year, Reuters reported. Included are a 75 percent increase in spending on advanced vehicles to $575 million and a 29 percent increase in spending on the ongoing effort to integrate solar and wind power into the national electric grid, Reuters reported. Support for biofuels would increase by 24 percent.

“These increases in funding are significant and a testament to the importance of clean energy and innovation to the country’s economic future,” the Obama administration wrote in the budget proposal, according to the Reuters report.

While Republicans have criticized the US backing of companies like Solyndra, a solar panel maker that went bankrupt, and Fisker Automotive, a hybrid sports care maker which is struggling and laying off employees to hold off bankruptcy, President Obama has maintained that clean energy is a key to the country’s future.

Government support for the clean energy industry “has nearly doubled (the US) energy generation from wind, solar, geothermal and other renewable energy sources” since Obama took office in 2008 and maintaining this level of support “could lead to breakthroughs in the years to come,” Reuters reported.

We’ve been following several wind and solar energy companies, including:

Newbury Park, CA-based Sauer Energy (OTC: SENY, http://www.sauerenergy.com/) is a development stage company developing vertical axis wind turbines for commercial and residential uses. Formerly BCO Hydrocarbon Ltd., the company disposed of its oil and gas interests and in July 2010 purchased Sauer Energy and in May 2012 purchased Helix Wind Corp. Back on Dec. 24 it was trading for $0.24. It closed April 12 at $0.10, down 1 cent for the day. Its market cap is now $9 million and 52-week range is $0.08-$0.39.

China-based China Ming Yang Wind Power Group (NYSE: MY, http://www.mywind.com.cn/) is a wind turbine manufacturer focused on designing, manufacturing, selling and servicing megawatt-class wind turbines. Last July, MY announced it was considering a joint venture with China-based Huaneng Renewables Corp. to develop wind power and solar power projects in China and overseas markets. MY stock closed Dec. 24 at $1.21. It closed April 12 at $1.35, up 1 cent for the day. Its market cap is now $169 million and 52-week trading range is $1.06-$2.47.

Chatsworth, CA-based Capstone Turbine Co. (Nasdaq: CPST, http://www.capstoneturbine.com/) develops and markets microturbine technologies, including technologies used to provide on-site power generation for wind power. It closed Dec. 24 at $0.91 with a market cap of $278 million.CPST closed April 12 at $0.93, down 4 cents for the day. Its market cap is now 282 million and 52-week trading range is $0.73-$1.20.

San Mateo, CA-based SolarCity Corp. (Nasdaq: SCTY, http://www.solarcity.com) designs, installs and sells or leases solar energy systems to residential and commercial customers, as well as electric vehicle charging products.  It closed March 15 at $16.74 with a market cap of $406.5 million. SCTY closed April 12 at $19.97, down 41 cents for the day. Its market cap is now $1.5 billion and 52-week trading range is $9.20-$21.40.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/ ), which sells a variety of solar products, closed back on March 15 at $3.50 with a market cap of $151 million. It closed April 12 at $4.07, down 3 cents with a market cap of $176 million. Its 52-week trading range is $1.95-$5.15.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), which makes a wide variety of solar products and systems, closed back on March 15 at $11.80 with a market cap of $1.4 billion. SPWR closed April 12 at $11.06, up one cent for the day. Its market cap is now $1.8 billion and its 52-week trading range is $3.71-$13.88.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/) designs, manufactures and sells photovoltaic modules worldwide. Back on March 15, TSL closed at $4.11 with a market cap of $291 million. It closed April 12 at $4.19, up one cent, with a  market cap of $335 million. Its 52-week trading range is now $2.04-$7.99. 

China-based Yingli Green Energy Holding Co. (NYSE: YGE, http://www.yinglisolar.com/) makes photovoltaic products including cells, modules and systems. YGE closed back on March 15 at $2.47 with a market cap of $387 million. It closed April 12 at $2.12, down 5 cents, with a market cap of $324 million. Its 52-week trading range is $1.25-$4.12.

China-based Suntech Power Holdings (NYSE: STP, http://am.suntech-power.com), the world’s largest producer of solar panels, closed at $0.70 back on March 15 with a market cap of $127 million. It closed April 12 at $ 2012, and then rose to $1.87 in early January, but has been falling since. STP closed March 15 at $0.75, udown 12 cents for the day, with a market cap of $135 million. Its 52-week trading range is $0.30-$2.96.

St. Peters, MO-based MEMC Electronic Materials (NYSE:WFR, http://www.memc.com) manufactures and sells silicon wafers and photovoltaic materials. Through SunEdison, it’s a developer of solar energy products. It closed March 15 at $4.53 with a market cap of $1 billion. WFR closed April 12 at $4.76, down 6 cents, with a market cap of $1 billion. Its 52-week trading range is $1.44-$5.70.

REITs, REIT IPOs Among Equities Enjoying Strong Start of 2013

CyrusOne management rings bell at Nasdaq. Photo courtesy CyrusOne.com

CyrusOne management rings bell at Nasdaq. Photo courtesy CyrusOne.com

Record-setting highs for the Dow Jones Industrial Average and solid gains for the S&P 500 mean a wide variety of equities are enjoying a good run during the first three months of 2013. But many commentators have pointed out that REITs, or real estate investment trusts, are particularly good investments thanks to the improving state of the real estate market and the returns a REIT investor receives, among a variety of other reasons.

REITs are federally obligated to invest only in real estate, including physical properties and mortgages. The rules stipulate that if they pay out at least 90 percent of their earnings they do not need to pay income taxes.

While the case can’t be made that REITs did better than the overall equitly market in the first quarter, they had a strong showing, according to GlobeSt.com, a real estate site that focuses on REITs (http://www.globest.com/news/12_579/national/reit/REITs-Make-Strong-Q1-Showing-331904.html). The FTSE NAREIT (National Association of Real Estate Trusts) All REITs index “delivered a 9.11 percent return” compared to the S&P 500’s return of 10.61 precent.

NAREIT President and CEO said in a statement: “REITs continued to reward their shareholders with all the benefits of real estate investment. They did so while also providing the advantages of liquidity and moderate leverage.”

The GlobeSt.com story also highlights the three REIT IPOs completed in the first quarter, noting that each outperformed the market since their offerings. Here are the three:

Carrollton, TX-based CyrusOne Inc. (Nasdaq:CONE, http://www.cyrusone.com/) is a data center REIT providing storage facilities for about 500 customers including 9 Fortune 20 and 108 of the Fortune 1000 companies. As of Sept. 30, 2012, CONE’s portfolio included 23 operating data centers in nine markets: Austin, Chicago, Cincinnati, Dallas, Houston, London, San Antonio, Singapore and South Bend. CONE posted a 25.24 percent return in Q1. It closed April 9 at $23.39, down 3 cents for the day, with a market cap of $512 million. Its trading range so far is $20.53-$24.49.

McLean, VA-based Gladstone Land Corp. (Nasdaq: LAND, http://www.gladstoneland.com/) is focused on U.S. farmland where tenants grow annual row crops such as berries, lettuce and melons. LAND also leases part of its Oxnard, CA farm to an oil company. LAND posted a 6.1 percent return in Q1. LAND closed April 9 at $16, down 9 cents for the day, with a market cap of $104.5 million. Its trading range so far is $14-$16.77.

Chicago-based Aviv REIT (NYSE: AVIV, http://www.avivreit.com/) has been in business more than 30 years and owns post-acute and long-term care skilled nursing facilities and other healthcare properties. It is one of the largest owners of skilled nursing facilities in the nation. AVIV commenced its IPO March 11. AVIV closed April 9 at $24.96, down 35 cents for the day, with a market cap of $1.2 billion. It’s trading range so far is $22.10-$25.45.

This Big, Bad, 949-Horsepower, Million Dollar-Monster Is a Hybrid

If you are a fan of electric and particularly hybrid vehicles, and more people apparently are every day, you have to like the spectacular news coming out of Ferrari and the recent report from Autodata Corp., a research firm.

Photo courtesy of automonthly.blogspot.pt

Photo courtesy of automonthly.blogspot.pt

Let’s start with Ferrari, which unveiled its La Ferrari supercar in Geneva in March. Yes, Ferrari’s “biggest and baddest” car these days is a hybrid, according to the Los Angeles Times (http://www.latimes.com/business/autos/la-fi-hy-autos-hybrid-20130330,0,2070748.story). It’s a V-12, “949-horsepower, million-dollar monster” that also has two electric motors and recharges its batteries with regenerative braking and the engine’s excess torque.

Who knows how many La Ferraris will actually sell, but the good news from Autodata is that hybrids are certainly selling faster than ever. Hybrid sales in the first two months of 2013 are up 32 percent over the same period last year, according to the Times report.

While overall marketshare is still low, about 4 percent, the fact that Ferrari is now in the hybrid market underscores the fact that that hybrid technology “is being taken seriously by virtually all the automakers,” noted analysts in the Times, including Nissan which introduced a new hybrid version of the Pathfinder at the New York Auto Show in February after dropping out of the hybrid market a few years ago. Overall, hybrids deliver 40 percent better fuel economy than conventional gasoline-powered cousins of the same model.

As we have noted earlier, the Prius is now the best-selling car in California, the nation’s largest auto market, and they’re apparently reliable. Not only are they now being used as taxicabs, which take a notorious beating, but the Times story notes that Toyota reports that 90 percent of all Prius cars it sold since introducing the model are still on the road. 

The story includes a note that one large Houston Ford dealership reports that its sales of hybrids are up 400 percent from a year ago. Nationally, Ford reports it’s selling 3,000-4,000 of its C-Max hatchback hybrid, a direct competitor to the Prius V station wagon, according to the Times.

While Toyota’s hold on the hybrid market has dropped from 73 percent to 63 percent, thanks to competitors like Ford, the overall market size is much bigger, meaning “both automakers are sharing a bigger pie,” noted the Times.

Unfortunately, hybrid vehicles are difficult to link directly to small cap stocks. So we’ve taken some liberties and included companies like Tesla Motors, which makes electric vehicles and is a mid-cap, and Axion Power International, which makes a battery used in a hybrid 18-wheeler made by a private company called ePower.

Palo Alto, CA-based Tesla Motors (Nasdaq: TSLA, http://www.teslamotors.com/) manufactures the Tesla Roadster, the Model S and other electric vehicles and electric powertrain  components. The last time we looked at Tesla last on Feb. 20 it closed at $38.90 with a market cap of $4.4 billion. But it came out with promising news this week, saying car sales nearly doubled in the first quarter of 2013 compared to the fourth quarter, and expects to turn a profit. TSLA closed April 2 at $44.34, up 41 cents, with a market cap of $5.1 billion. Its 52-week range is now $25.52-$46.68.

New Castle, PA-based Axion Power International (OTC: AXPW, http://www.axionpower.com/) has developed a specialty PbC battery technology designed for micro- and mild-hybrids, as well as an advanced energy storage device. A private Pennsylvania-based company, ePower, is developing 18-wheeler hybrid trucks with the Axion PbC batteries. Axion closed April 2 at 26 cents, down 1 cent for othe day, with a market cap of $30 million. Its 52-week trading range is $0.20-$0.47.

Santa Rosa, CA-based ZAP (OTC: ZAAP.OB, http://www.zapworld.com/) makes a variety of all-electric vehicles including trucks, motorcycles, shuttle buses and sedans and was formerly known as ZAPWORLD.COM. Most of its business at this point is with government or military customers. When we last checked on Feb. 20 its stock closed at $0.08 with a market cap of $24 million. It closed April 2 at $0.17, up 2 cents on the day with a market cap of $51 million. Its 52-week trading range is $0.06-$0.27.

San Diego-based Maxwell Technologies Inc. (Nasdaq: MXWL, http://www.maxwell.com/) was formerly known as Maxwell Laboratories. The company manufactures ultracapacitors that are energy storage devices and power delivery systems for use in transportation, automotive, IT and industrial electronics.  MXWL closed Feb. 20 at $10.01 with a market cap of $292 million. It closed April 2 at $4.98, down 17 cents for the day, with a market cap of $145 million. Its 52-week trading range is $4.92-$18.33.

Turnaround in Housing Market, Low Inventory Causing ‘Bubblelike Price Jumps’

Photo courtesy ownthedollar.com

Photo courtesy ownthedollar.com

Home construction was an important topic this week, with the release of data showing construction on new U.S. homes in February showed “gains for single family residences and apartments as longer-term trends signaled a housing market that continued to strengthen,” according to the Wall Street Jounal’s Market Watch.

In fact, the turnaround in the housing market, after so many months of lagging demand, has caught home builders off guard, according to the New York Times (http://www.nytimes.com/2013/03/21/business/economy/in-us-surprise-housing-demand-catches-industry-off-guard.html?ref=business&_r=0). “After six years of waiting on the sidelines, newly eager home buyers across the country are discovering that there are not enough houses for sale to accommodate the recent flush of demand,” noted the Times report.

That’s leading a rush for the new but still limited inventory and “bubblelike price jumps” in areas that have been hit hard in recent years. Standard & Poor’s Case-Shiller index shows that prices nationwide rose 7.3 percent throughout 2012 but in places like Sacramento, CA and Phoenix, the prices have risen 35 percent and 26 percent, respectively. Part of what’s driving the market is the improved economy, but the low interest rates are also playing an important role, noted experts in the Times story.

Certainly this is great news for investors in small cap housing stocks, who have already enjoyed a great return if they invested last Fall. Their only issue now is whether to sell and take some profits or continue to enjoy the rise.

Here are six small cap home builders we last covered Sept. 14:

Red Bank, NJ-based Hovnanian Enterprises (NYSE: HOV, http://www.khov.com/) specializes in single-family detached homes, condominiums and town homes and operates in two segments: homebuilding and financial services.  In October 2011 HOV was trading for $0.89. By Sept. 14, 2012 it had jumped to $3.89, with a market cap of $515 million. HOV closed March 20 at $6.32, up 13 cents for the day. HOV’s market cap is now $879 million and 52-week trading range is $1.52-$7.43.

Los Angeles-based KB Home (NYSE: KBH, http://www.kbhome.com/) is a home building and financial services company catering in large part to first time buyers. KB is an old Southern California home builder, founded in 1957 and formerly called Kaufman and Broad. Back on Aug. 31 KBH closed at $11.04 with a market cap of $851 million. It closed Sept. 14 at $13.65, pushing its market cap up to $1.05 billion. KBH closed March 20 at $21.57, up 54 cents with a market cap of $1.67 billion. Its 52-week trading range is $6.46-$21.79.

Columbus, OH-based M/I Homes Inc. (NYSE: MHO, http://www.mihomes.com/) builds single family homes primarily in the Midwest, Mid-Atlantic and southern parts of the U.S. The  company was founded in 1973 and, like most of the other builders, has homebuilding and financial services divisions. It closed Sept. 14 at $20.77, with a market cap of $379 million. MHO closed March 20 at $26.03, up 86 cents on the day, and now has a market cap of $584 million. Its 52-week trading range is $11.25-$29.07.

Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/) builds and sells single-family and multiple-family homes in 16 states in the U.S. It also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. At the close on Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86, up 19 cents for the day, with a market cap of $410 million. Its 52-week trading range is $10-90-$20.15.

Irvine, CA-based Standard Pacific (NYSE: SPF, http://www.standardpacifichomes.com/) builds single family and detached homes and targets a wide range of homebuyers. It also provides mortage financing services through its mortage finance subsidiary, Standard Pacific Mortgage. SPF closed Sept. 14 at $7.46, up 19 cents for the day and setting a new 52-week high, with a market cap of $1.49 billion. It closed March 20 at $9.07, up 35 cents for the day, with a market cap of $1.9 billion. Its 52-week range is $4.12-$9.18.

Westlake Village, CA-based The Ryland Group (NYSE: RYL, http://www.ryland.com/) is a homebuilder and mortage finance company. RYL covers many aspects of the home buying process including design, construction, title insurance and escrow. It closed Sept. 14 at $31.52, also setting a new 52-week high, with a market cap of $1.41 billion. RYL closed March 20 at $42.16, up $1.61 for the day, with a market cap of $1.9 billion. Its 52-week trading range is $17.18-$43.

Is Outlook Sunny for Solar Stocks in 2013?

Photo courtesy of blog.heritage.org

Photo courtesy of blog.heritage.org

The big news for the solar industry this week came in a report from the Solar Energy Industries Association noting that “solar panel installations in the U.S. surged 76 percent in 2012.” That number was driven largely by growth in residential and commercial projects, and a boom in “larger, utility scale (solar) plants,” according to Investor’s Business Daily (http://news.investors.com/technology/031413-648050-solar-installations-up-but-forecast-slowing.htm?ven=yahoocp,yahoo).

The same report cited a slower growth forecast for 2013 of around 30 percent, “amid falling prices for solar products,” according to the IBD story, which is packed with interesting factoids about the industry:

  • Solar was installed in “nearly 83,000 homes in 2012”
  • From 2009-12, the U.S. solar industry grew at a compound annual growth rate of 82 percent
  • The forecast for solar industry growth from 2013-16 is 28 percent
  • A record 3,313 MW of solar photovoltaics were installed in 2012
  • The solar capacity that went online in 2012 “amounts to more than 40 percent of the nation’s entire existing capacity.”

So what does this mean for an investor in solar companies, many of them small caps? Apparently there’s still an oversupply globally of solar panels, prices have continued to fall “amid tech innovation, economies of scale and overcapacity, and price wars “mean manufacturers are producing panels at about half their normal capacity.” All this is bad for manufacturers but good for end-users “as the cost of using solar energy gets closer to parity with fossil-fuel energy sources.” 

Certainly investors could have done a lot worse than bet on solar stocks (particularly SPWR) since the beginning of 2013. While many have seen prices dip from highs in early February and March, a look at recent returns over the past six months shows that those who have been riding the solar wave since then have generally had a good run, although it seems to be easing up in recent weeks. The question is now, will it continue through 2013?

Here are a few of the small cap names we have been following:

San Mateo, CA-based SolarCity Corp. (Nasdaq: SCTY, http://www.solarcity.com) designs, installs and sells or leases solar energy systems to residential and commercial customers, as well as electric vehicle charging products. Back on Dec. 20, 2012, SCTY was trading for $10.67 and its run started from there. By March 6, 2013 SCTY was nearly $20. It closed March 15 at $16.74, up 14 cents for the day, with a market cap of $406.5 million. Its 52-week trading range is $9.20-$20.38.

Tempe, AZ-based First Solar (Nasdaq: FSLR, http://www.firstsolar.com/), which specializes in thin-film solar modules, is not a small cap as we define it but we include it for comparison purposes. Back in late September FSLR was trading for about $20 and was as high as $36.13 in February before it fell. It closed March 15 at $26.61, down 65 cents, with a market cap of $2.2 billion. Its 52-week trading range is $11.43-$36.98.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/ ), which sells a variety of solar products, closed back in late September 25 at about $3 with a market cap of $130 million. It got above $5 by mid-February and then dipped like many of the others. It closed on March 15 at $3.50, down 3 cents for the day, with a market cap of $151 million. Its 52-week trading range is $1.95-$5.15.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), which makes a wide variety of solar products and systems, closed back on Sept. 25 at $4.60 with a market cap of $547 million. SPWR closed March 15 at $11.80, down 24 cents for the day, with a market cap of $1.4 billion. Its 52-week trading range is $3.71-$13.88.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/) designs, manufactures and sells photovoltaic modules worldwide. Back in mid-December, TSL was trading for about $3.95, ran up to $5.81 in early January, but has tumbled since. It closed March 15 at $4.11, up 1 cent for the day, with a market cap of $291 million. Its 52-week trading range is $2.04-$8.68. 

China-based Yingli Green Energy Holding Co. (NYSE: YGE, http://www.yinglisolar.com/) makes photovoltaic products including cells, modules and systems. YGE closed back on Dec. 21 at $2.18, then ran up to $3.49 by mid-February, but it, too has been dropping since then. It closed March 15 at $2.47, up 7 cents for the day. Its market cap is now $387 million and 52-week trading range is $1.25-$4.60.

China-based Suntech Power Holdings (NYSE: STP, http://am.suntech-power.com), the world’s largest producer of solar panels, closed at $0.92 back on Sept. 25, 2012, and then rose to $1.87 in early January, but has been falling since. STP closed March 15 at $0.70, up 3 cents for the day, with a market cap of $127 million. Its 52-week trading range is $0.41-$3.68.

St. Peters, MO-based MEMC Electronic Materials (NYSE:WFR, http://www.memc.com) manufactures and sells silicon wafers and photovoltaic materials. Through SunEdison, it’s a developer of solar energy products. In early November, WFR was trading as low as $2.18 and then hit a recent high of $5.66 in mid-February. It closed March 15 at $4.53, down 24 cents for the day, with a market cap of $1 billion. Its 52-week trading range is $1.44-$5.70.