This sector could have a half million job openings and opportunities for older workers


Although the coronavirus continues to rattle global markets and industries, some analysts expect to see greater demand for advanced manufacturing talent in the U.S. as the pandemic diminishes. That could create opportunities for older men and women, including white-collar professionals struggling to find jobs.

Before COVID-19, there were 500,000 manufacturing jobs open in the U.S., according to the National Association of Manufacturers (NAM). “We’re going to have a need very quickly to ramp up on hiring in those facilities that may have been shut down during the crisis or that need to expand operations,” said NAM president and CEO Jay Timmons in a recent press conference.


“The fact that one can get a certificate in about nine months and totally re-career into a nearly guaranteed job is an incredible opportunity for an older worker.”


— Nora Duncan, Connecticut state director of AARP

As manufacturers frantically try to keep up again with demand for essentials and lifesaving PPE (Personal Protective Equipment) for health care workers as cases rise across the country, their innovation and high-tech problem-solving could help dispel misconceptions that all manufacturing jobs are dirty and physically demanding, said Sara Tracey, project manager of workforce services for the Ohio Manufacturers’ Association in Akron, Ohio.

Manufacturing jobs and what they pay

Entry-level manufacturing jobs in industries such as aerospace, technology and defense include CNC operators, set-up technicians and programmers, as well as inspectors, higher-end assembly technicians and quality assurance.

The pay typically ranges between $35,000 and $65,000, including overtime and benefits, said Richard DuPont, director of community and campus relations for the Advanced Manufacturing Technology Center at Housatonic Community College in Bridgeport, Conn. More experienced professionals can earn upward of $95,000.

80% of older Americans can’t afford to retire – COVID-19 isn’t helping

In Ohio, manufacturers have been training and moving some workers into higher positions so the companies can hire and train new candidates for vacated ones, Tracey noted. Resources such as the Making Ohio website let people explore careers in manufacturing, including robotics, automation and 3-D printing.

Industrial maintenance is an important career pathway these days, as well, Tracey said. This sector is expecting more retirements in the near future, which will create jobs from “traditional machine mechanics to troubleshooting state-of-the-art electronic or robotic processes,” Tracey noted.

Also see: Cannabis, whiskey, and mobile bike repair: These entrepreneurs are thriving in the pandemic

Connecticut, among other states, now offers training programs with community colleges, state manufacturers and other organizations.

From banking to precision tools

This kind of training helped Allison Clemens-Roberts, who is over 50, find work after losing her clerical job in the pensions department of a Connecticut bank in 2017. A severance package gave her time to look for work, but she couldn’t find even temporary employment. She blames age discrimination by white-collar employers.

“There’s no way to hide how old you are. They can ask when you graduated from school,” Clemens-Roberts said.

But while she was out of work, Clemens-Roberts received a postcard from AARP offering a 25% tuition scholarship on advanced manufacturing programs at Goodwin University, a career-focused school in East Hartford, Conn.

She wasn’t interested until her husband Frank saw a TV commercial touting the benefits of Goodwin’s manufacturing and other programs.

“He said, ‘Why don’t you think about changing careers?’” Clemens-Roberts recalled.

So, with several months left on her severance, she enrolled in a full-time, six-month CNC (Computer Numerical Control) Machining, Metrology and Manufacturing Technology certification program. It would prepare her for a job working with automated machine tools which requires mathematical skills, attention to detail and critical thinking.

SectorWatch: 80% of older Americans can’t afford to retire – COVID-19 isn’t helping

Scholarships cut Clemens-Roberts’ tuition bill from $7,000 to $3,200. After a two-month paid internship at TOMZ, a manufacturer of precision components for major medical devices in Berlin, Conn., she was hired in April 2019. Six months later, TOMZ reimbursed Clemens-Roberts $1,500 for her education tab.

Clemens-Roberts said her family is now in a better financial position than when she was working in a bank, living paycheck-to-paycheck. Considered an essential worker, she has kept her full-time job through the pandemic, except for three days in March.

“I never thought I would go to college and participate in a graduation — in cap and gown,” Clemens-Roberts said. “That was a big surprise. And [actor] Danny Glover was the speaker. A bucket-list experience.”

There’s “obviously age discrimination, among other things, at play” for job seekers over 50, said Nora Duncan, Connecticut state director of AARP. “The fact that one can get a certificate in about nine months and totally re-career into a nearly guaranteed job is an incredible opportunity for an older worker.”

While AARP helped Clemens-Roberts pay for the tuition initially, the internship helped her get hired as a machine operator.

Older and younger manufacturing workers helping each other

The search for skilled manufacturing labor across the country is creating opportunities for workers of all ages, said DuPont. And older and younger generations working together are assisting each other.

The older students help younger classmates with life skills, while younger students can help with technology,” said DuPont. “Together, they make excellent teams.”

Don’t miss: How will the robots see you through the pandemic?

Just ask Fernando Vega, 62, who is now a quality inspector at Forrest Machine, in Berlin, Conn. It makes precision-machined parts and other components for the aerospace and commercial industries. In the 1990s, he was a quality inspector before recessions and outsourcing forced him to consider other careers.

He tried working for a nonprofit and though Vega found the work rewarding, it wasn’t financially sustainable.

So, Vega went back to school in spring 2018 to study advanced manufacturing at Goodwin.

“I was in a class of 18, and at first everyone kept to themselves. But when it came time to read blueprints, there was some panic and I said, ‘Don’t panic, I’ll show you.’ The [younger] students helped me with trigonometry, and then we started to work together.”

Vega has worked at his manufacturing job throughout the pandemic. At one point, he was putting in 50 hours a week, but that was reduced to 40 hours plus overtime.

Vega recalled promising his mother that he would go to college. “But that was a long time ago,” he said. His mother never got to see him graduate but Vega feels he’s fulfilled his promise — not only to her, but also to himself. “I love my job,” he said.



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American Clean Energy Is Heating Up, European Renewables Offer Fundamentally Sound Diversification Opportunities


So far in the pandemic, clean energy utilities have held up well providing returns averaging 21% year-do-date. Familiar US-listed names include the likes of Atlantica Sustainable Infrastructure (AY), Brookfield Renewable Partners (BEP), Azure Power Global (AZRE), TerraForm Power (TERP), Ormat Technologies (ORA) and NextEra Energy Partners (NEP).

Total Returns: US-Listed Clean Energy Stocks

AY

BEP

AZRE

TERP

ORA

NEP

Average

YTD Return

15.43%

22.31%

48.17%

43.90%

-17.23%

11.93%

20.75%

3 Year Return

73.08%

97.71%

12.90%

145.05%

7.55%

71.41%

67.95%

Source: Seeking Alpha

However, the overall momentum in the sector seems to be outweighing the fundamentals considering mean growth rates of the companies; so overvaluation is a possibility.

Growth Metrics: US-Listed Clean Energy Stocks

3 Year CAGR

AY

BEP

AZRE

TERP

ORA

NEP

Average

Revenue

2.29%

6.28%

45.78%

13.88%

1.79%

3.92%

12.32%

EBITDA

2.79%

10.17%

46.14%

13.20%

1.97%

3.13%

12.90%

Source: Seeking Alpha

We put forward for current investors in clean energy as well as new investors looking for an exposure that renewables in Europe are sensible diversification candidates that still allow one to ride a wave of positive expectations around the energy transition.

Comparative Analysis

In the high-level overview that follows, we compare three US-domiciled companies from the abovementioned stocks — AY and NEP that feature a bullish analyst rating, along with ORA whose price-to-earnings ratio is comparable — to three European utilities, namely Fortum (OTCPK:FOJCY), Verbund (OTCPK:OEZVY) and Iberdrola (OTCPK:IBDRY). (As a caveat, the latter three are not wholly renewable; similarly, US-based AY and NEP produce part of their energy from natural gas and operate natural gas pipelines.)

On the wording: For simplicity’s sake, we will be referring to the chosen US-based companies on aggregate as “US/American”, and to the European utilities under analysis as “European”.

Profile: US vs. European Clean Energy Stocks

US$

AY

ORA

NEP

FOJCY

IBDRY

OEZVY

Market Cap

3.04B

3.17B

3.79B

18.46B

83.60B

17.74B

Enterprise Value

8.35B

4.52B

13.62B

29.27B

135.06B

20.22B

Revenue

1.04B

739.12M

890.00M

5.73B

39.37B

4.36B

Operating income

419.48M

198.63M

248.00M

1.29B

6.38B

879.54M

Source: Seeking Alpha

Although much larger in terms of market cap and income figures, the European companies have been growing at a faster pace on the whole than the American counterparts. To a large extent, this may be explained by the growing region-wide emphasis on realizing a low-carbon economy.

The proliferation of programs with feed-in tariff (FIT) and feed-in premium (FIP) schemes have effectively enabled higher margins for producers of energy from renewable sources. FOJCY, for one, almost doubled its revenues from USD3.7 billion to USD6.1 billion between 2015 and 2019. This solid base of earnings, in turn, has made it easier for European utilities to approve further investments into renewable capacity in the way of business expansion.

Comparative Growth Rates

3 Year CAGR

AY

ORA

NEP

FOJCY

IBDRY

OEZVF

Revenue

2.29%

1.79%

3.92%

10.08%

7.48%

12.06%

EBITDA

2.79%

1.97%

3.13%

17.57%

8.14%

6.54%

Net Income

48.27%

-2.33%

NM

60.06%

11.57%

6.98%

Source: Seeking Alpha

European utilities also benefit from higher prices on residential electricity. Consumers can choose where they get their energy from, and utility bills are calculated in direct proportion with the final energy mix. This is currently only possible in 13 US states; across the country, electricity prices on average are more competitive than in European markets. Tariffs in the Midwest and Mideast, for example, can be twice as low as those in Germany, the UK and Spain, to name a few.

All companies in our analysis are multinationals with energy assets in both the US and Europe. However, companies domiciled in Europe tend to have more assets within the home region, which allows them to earn significantly higher revenues as opposed to the companies with a larger clean energy portfolio in the US.

In terms of profitability, the American companies are generating higher margins at top gross profit and EBITDA levels. At net income level, however, the European companies in some instances are 3x more profitable. There are two possible explanations.

Comparative Profit Margins

TTM

AY

ORA

NEP

FOJCY

IBDRY

OEZVF

Gross Profit Margin

100.00%

37.31%

60.45%

54.19%

46.14%

43.00%

EBITDA Margin

70.84%

47.39%

67.53%

33.78%

26.59%

28.64%

Net Income Margin

2.95%

11.93%

-30.90%

39.87%

10.36%

13.48%

Debt-to-Equity Ratio

381.56

93.43

86.10

62.72

85.97

23.88

Source: Seeking Alpha

First, the American companies are considerably more leveraged (with net interest cost constituting on average over 50% of operating income as of the latest fiscal year) than the European utilities (that had a lower net interest cost of not more than 21% of operating income). Although in most cases debt on the books of American companies is isolated to individual projects, it does seem to affect earnings adversely.

Second, European governments, among them France and Germany, have been offering zero or low-interest loans to incentivize the production of clean energy, helping utilities mitigate the cost effect of debt on income statements. It must also be noted that the federal funds rate in the US was higher than a comparative benchmark in the European Union (EU) between 2015 and 2019.

Better earnings have helped the European companies record higher average return ratios. Meanwhile, the American companies have been paying more dividends, some as much as 7%. While their high payout ratios may seem unsustainable in view of smallish net profits, they are not implausible given the add back of material depreciation expenses to operating cash flow that dividends come from. Still, it raises a question: Could the funds be put to better use by paring down debt or investing in new assets to reduce the reliance on project finance?

Comparative Return Ratios

TTM

AY

ORA

NEP

FOJCY

IBDRY

OEZVF

Return on Equity

2.48%

6.32%

-17.26%

14.43%

8.97%

9.40%

Return on Total Capital

3.41%

4.32%

1.50%

3.15%

4.20%

5.82%

Cash From Operations

352.38M

238.81M

426.00M

2.62B

8.06B

1.24B

Source: Seeking Alpha

The US renewable energy may take a major hit from the coronavirus pandemic as job losses in the industry are expected to reach 850,000, and no federal support has been granted in the way of lease or loan waivers. The government continues to charge solar and wind developers for land and water as usual. High debt they carry is an aggravating factor and a risk to their future financial standing.

Comparative Valuation

TTM

AY

ORA

NEP

FOJCY

IBDRY

OEZVF

Price/Earnings

99.18

36.40

7.95

20.33

25.95

Price/Sales

2.92

4.32

3.98

3.17

2.14

3.50

EV/Sales

8.04

6.14

15.31

5.11

3.43

4.64

YTD Price

13.34%

-15.94%

9.97%

-21.61%

25.49%

-9.62%

1 Year Price

29.99%

-0.81%

14.36%

-11.92%

35.53%

-9.62%

3 Year Price

43.73%

6.55%

50.98%

22.77%

63.07%

124.79%

5 Year Price

1.42%

59.07%

61.15%

19.10%

84.42%

137.04%

Source: Seeking Alpha

From a valuation standpoint, the American companies are trading at higher multiples than the European peers, so the latter may be undervalued on a relative basis. We think this is reason enough for American clean energy investors looking to strengthen their asset mix — and new clean energy investors alike — to consider buying into European companies. Specifically, the three companies under review in this analysis are growing earnings at higher rates, whilst being more mature and hence less exposed to risk.

Industry Tailwinds in Europe

Over the medium term, we expect the robust growth trend in renewable energy to continue across Europe for the following reasons:

Clear directive

The EU aims to transform itself to a zero emission zone by 2050. To adhere to this target, member states are required to set up and execute a number of support schemes over the next 10 years. This has led to a prioritization of clean energy in signing power purchase agreements as well as broader incentives. Although FITs and FIPs will be abolished in most of the EU by 2021, grid-prioritization schemes, significant energy quotas, low-interest financing and high capital commitments as part of the Renewable Energy Directive II 2018 guarantee the clean energy industry’s continued expansion in Europe.

Government mandated targets leave ample room for asset growth

Source: Various (see individual links above)

Government support

The centralized EU legislation encourages new green energy infrastructure and a staged phaseout of coal and oil from the power mix. What this essentially means is that within Europe it is by now more cost efficient to generate electricity from renewable sources than from fossil fuels. With most European countries dependent on energy imports to some degree, the shift toward clean energy is also seen as a major way to support the bloc’s pursuit of energy independence.

Although renewables have gained some traction over the past decade in the USA as well, they are still largely outshone by fossil fuels that continue to benefit from generous incentives. And since the election of the current administration, things took a turn for the worse for clean energy.

COVID-19 US energy supportSource: Center for American Progress

Furthermore, in the absence of a unified federal guidance, individual states set varying milestones and, consequently, vastly different intervention and support mechanisms; this introduces an additional layer of friction for clean energy utilities operating across territories. At least 13 states do not have formal renewable energy standards or targets altogether.

GlobalData forecasts for renewables to account for a hefty 30% share in total installed capacity in the US by 2030. For this to be possible, however, much greater political will is requisite.

Public support

Across most of Europe — in the UK, Germany, France, for example — the consumer push for green energy is more evident. In Germany, consumers are willing to accept possible surcharges associated with renewable energy. In France, more than 83% of citizens support the clean energy transition.

The sentiments are not as clear-cut in the US where opinions on energy appear to be roughly divided along party lines. This serves as an expedient justification for the government’s stubborn opposition to clean energy. As a result, in contrast to European power markets, the American story around renewables does not come through as patently.

Conclusion

Considering multiple supportive macro- and microeconomic environmental factors in addition to strong balance sheets at company level, European clean energy utilities may offer attractive diversification propositions for American investors looking to invest in renewables or to add to their current clean energy portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.





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This hidden COVID-19 investment theme is ‘one of the best buying opportunities I have ever seen’


In the hunt for COVID-19 plays, investors have fallen head over heels for “work-at-home” stocks and companies in vaccines and therapies.

This makes sense. But smart investors are looking beyond the classic virus beneficiaries to snap up an unusual lot of COVID-19 stocks — insurers
US:KIE
.

Unlike favored virus stocks like Zoom Video
US:ZM,
Teladoc Health
US:TDOC,
Novavax
US:NVAX
and Moderna
US:MRNA,
insurers won’t directly benefit from the virus. Quite the opposite. It looks like they are going to get hit hard by business interruption claims, meddling politicians who want to “socialize” virus-related losses, and a prolonged slowdown that could cripple demand.

But here’s the catch: Investors are overly worried about these concerns. These false fears have driven insurers down to really attractive levels.

While Nasdaq Composite
US:COMP
hits new highs and the S&P 500
US:SPX
and Dow Jones Industrial Average
US:DJIA
get closer to their own records, many insurers are down 30% or more year to date. Insurers typically trade at around 1.2 times book value, but they’ve been knocked down to the 0.8 range. The relative performance of Berkshire Hathaway
US:BRK
US:BRK
to the S&P 500 is around a 19-year low.

Despite this terrible performance, underlying industry trends that many investors don’t recognize are about to drive outsized profits at insurers for years.

“This is one of the best buying opportunities I have ever seen, and I have been covering the group since 1998,” says Greg Locraft, an equity analyst for T. Rowe Price. “Don’t worry too much about the individual names. Just get money on the table.”

We’ll get to six names in a second. But first let’s look at the three main reasons why insurers look very really here.

1. Insiders are buying big time

One of the key themes I look for at my stock newsletter Brush Up on Stocks is broad, sector-wide buying by corporate insiders. That’s clearly the case with insurers.

There’s been very large (in many cases $1 million worth or more per company) insider buying at about a dozen insurance companies in the past several weeks. It’s happening across the space, from life insurance and annuity companies to workers’ compensation, home mortgage and auto insurance companies.

The biggest buying has been happening at property and casualty insurers and insurance brokers. They’re the ones that will benefit most by the favorable COVID-19-related trends. So we will focus on those as suggested stocks to consider.

2. The insurance market is turning in favor of the insurers

Insurance company investing calls for a twisted logic: Bad is good. And it looks like things are getting really bad (good) right now. Here’s why.

On top of all the weird storms and wildfires this year, insurers are going to get hit with large COVID-19 related claims. All these claims will cost them money — or capital. In this business, capital is capacity because to write insurance you need money on hand to back potential claims. Whenever capacity declines in an industry, this creates shortages that drive up prices. Those higher prices will be great for insurers and their investors in the coming years.

“The best time to invest in insurers is when they get hit with a lot of losses,” says Ania Aldrich an analyst for Cambiar Aggressive Value Fund
US:CAMAX.
Like now.

Big losses also drive out irrational underwriters and discourage new entrants which also curtails supply, points out Chris Davis who co-manages the Davis Opportunity fund
US:RPEAX.

Meanwhile, all the uncertainty around COVID-19 and the weak economy makes managers and people in general more insecure. So they want more insurance. “People value insurance after they feel a loss,” says T. Rowe Price’s Locraft. “They are going to buy more insurance, and pay more for it.” All of this creates favorable pricing trends for insurers, a dynamic known in the industry as a “hard” market.”

“You have classic hard market emerging in property and casualty insurance, and it is the first hard market since 2001,” says Locraft. “That is why insurance insiders are buying. They know it. They see it. And they’re buying it.”

Insiders who were recently buying confirm this. “We expect that market pricing will continue to remain strong, to allow the industry to absorb the higher losses that are expected to emerge from this pandemic,” Axis Capital Holdings
US:AXS
CEO Albert Benchimol said in his company’s most recent earnings call.

3. Investors are worried about false issues

First, concerns are high that a wave of lawsuits will force insurers to pay companies for COVID-19 downtime. But this is unlikely. Most business interruption policies include exemptions for pandemics, viruses and bacteria. Payouts also require actual physical damage to property.

One way around this might be to claim that COVID-19 caused “damage” by being present on the surfaces of restaurant tables, office desks and factory equipment. But this probably won’t work. “How do you put COVID in the building when it was shut, and the virus dies in 48 hours? I don’t know,” says Greg. “If it breaks bad, it will be really bad. But my view is they are fine.”

For the second false fear, investors worry there’s a risk that state politicians will pass laws forcing insurers to pay out for virus-related business downtime, even though policies obviate this. This also seems like it will go nowhere. Indeed, politicians in several states are already backing off.

“The politicians will figure out this would be very unprecedented, and they will destabilize the sector if they force insurers to pay for these damages,” says Aldrich at Cambiar Aggressive Value Fund.

Here’s how Benchimol at Axis puts it: If states crippled the industry with forced payouts, who will cover damages from the next big hurricane to hit Miami? No one, unless the insurance industry itself gets bailed out, which would sort of defeat the purpose of making them pay.

Finally, investors are worried about prolonged weak demand for insurance and sustained low returns on investments at insurance companies, given low bond yields, because of an extended sluggish economy.

But if like me, you believe that the huge dollops of stimulus will make the economy rebound nicely, then interest rates and business demand for insurance will follow suit. “The yield curve is steepening and the economy is getting better. And inflationary pressures may build which would make interest rates go higher,” says Todd Lowenstein, an equity strategist at The Private Bank division of Union Bank.

Favored insurance companies

To profit from the bullish insurance sector trends shaping up, consider the following names. Many of them pay decent dividend yields which look secure. In property and casualty, insiders have recently been big buyers at Axis Capital, Selective Insurance Group
US:SIGI
and State Auto Financial
US:STFC.

Also consider “creative” underwriters like Markel
US:MKL
and Chubb
US:CB,
which are good at coming up with customized specialty lines of insurance for things like classic cars, horse stables and summer camps, says Davis.

Finally, insurance brokers and consultants thrive in a “hard” market where prices and insurance demand go up — like right now. These are fee-based businesses with a decent amount of recurring revenue. Here Davis likes AON
US:AON,
and insiders do, too.

At the time of publication, Michael Brush had no positions in any stocks mentioned in this column. Brush has suggested AXS, SIGI, STFC and AON in his stock newsletter Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School. Follow Brush on Twitter @mbrushstocks.





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Falck Renewables: Resilient With Leverage Opportunities, But Dividend Too Small (OTCMKTS:FKRNF)


By Felipe Bijit

Utilities continue to be a supremely interesting sector. It offers opportunities in diverse exposures across power technologies and geographies, all providing similar resilience to impacts that result from another set of coronavirus-related lock-downs. In the case of Falck Renewables (OTC:FKRNF), resilience is offered through globally diversified renewable assets. As a renewable utilities company, Falck offers valuable resilience from electricity markets in the case of a second wave and another round of stay-at-home orders, where residential activity offsets commercial. However, within even the narrow scope of Italian renewable players, Falck is not particularly strong on the income side, which is important in an uncertain market where prices can become easily discounted. For that reason, companies like ERG (OTC:ERGZF) are more attractive.

Overview

Falck Renewables is an Italian-based company mainly engaged in the renewable energy sector. They’re a rather sizable player, with 1.13 GW in renewable capacity from wind farms, waste-to-energy assets, solar farms and biomass-based energy. Additionally, Falck is involved in the operation and maintenance of third party renewable energy power plants. They also manufacture totalizing fluid meters for the energy industry.

(Source: Falck Renewables FY 2019 Results)

Despite its beginnings in Italy, now the domestic market accounts only for 31% of their capacity. Just recently, further forays abroad were made with the company heavily investing in the UK market as well as partnering with Eni (NYSE:E) for expansion in the US.

(Source: Falck Renewables Q1 Results)

Resilience and Sustainable Leverage

Q1 results were strong, with generation up 35%, thanks mainly to strong winds this year and capacity coming online in the Nordics. Performance drag was coming mostly in the Italian division with -8% for unfavorable weather conditions and negative pricing developments. However, even without the impacts from the new operating capacity, resilience was evident despite the fall-off of commercial demand for power.

(Source: Falck Renewables Q1 Results)

Regarding Falck’s financial position, it stands at 650 million EUR with an average interest rate of 3.4%. At the moment, the cost of debt is higher than competitors like ERG, which has secured fixed-rate debt at lower cost than 3.4%. This is an area that can be easily improved upon for Falck when debt becomes refinanced or is rolled over, leveraging interest in green bonds which are attracting substantial flows and demand, as well as persistence in the low interest rate environment thanks to further monetary accommodation. Due to the substantial debt capacity of utilities businesses that have proven resilient even in this environment, there is definitely an opportunity for sustainable leverage to be added on and tweaked so that Falck can enhance shareholder returns.

(Source: Falck Renewables Q1 Results)

Final Remarks and Dividend

Looking at multiples on 2019 annual finances, Falck is a little bit more expensive than ERG, a comparable Italian renewable generation player. But the difference can be explained by Falck ramping up more capacity in 2020. In Sweden, 46.8 MW of capacity should be coming up from a wind development, and in Norway, 50 MW. 56 MW of French-acquired wind capacity will also be bearing fruit in 2020, as well as some solar assets in Italy and Spain.

Although there isn’t anything alarming about the valuation relative to peers, the dividend is something that gives us pause. In a crisis environment, dividends transcend the movement of markets, which may discount everything like they did in the March sell-off, regardless of prospects. Since utilities offer a lot in way of COVID-19 resilience, it’s important that the dividend is ample from picks in this sector.

(Source: Company Update May 2020)

Although Falck pays out a growing dividend, we think a utility company can push a little harder on its payout ratio to offer a dividend higher than its current 1.23%. A company like ERG, which is developing assets as well, although with less than half as much capacity as Falck coming online in 2020, seems a better pick right now. Indeed, most utility companies offer a better dividend and could be considered over Falck. Given the importance of a substantial dividend in a crisis market, we’d prefer to limit our utility exposures to companies with better income propositions and would recommend passing on Falck till it’s moved past its growth phase.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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No March-Esque Meltdown; Looking For Buying Opportunities


On Thursday, US equity markets sold off by more than 5% before recovering by about 1% on Friday. With the Nasdaq Composite (QQQ) already achieving new all-time highs despite a very uninvestable environment containing ugly spectres such as COVID-19, rapidly deteriorating US-China relations, and mass protests/looting across the country, it is easy to brand equity indices as “toppish”.

While only time will tell whether last week’s mini-correction is the start of something bigger and badder, I will say that the technical charts were flashing warning signs prior to the sell-off. I have touched on these warning signs more in detail in my service; briefly, risk-on proxies like the Australian dollar were hitting resistance while the risk-off Swiss franc was rapidly gaining in strength. The clues in the world of currencies led me to believe a sell-off in equities was due.

Before Thursday’s market open, I informed subscribers of my Marketplace service The Naked Charts to take profit on more than half of the long positions at market. Among them, long positions in Tesla (NASDAQ:TSLA), Alibaba (NYSE:BABA) and Visa (NYSE:V) were cashed in for profits of +10%, +15%, and +19% respectively. Almost one year on since the service was launched on 1 June 2019, The Naked Charts has banked in an absolute return of +142.5%.

The key question at this juncture is: Where do equities go from here?

Below is the weekly chart of the Nasdaq Composite. I like to look at long-term charts to see the trend in the grand scale of things. For the Nasdaq Composite, the trend is indisputably upwards, and very strong at that. This makes the reward skewed towards being long the index rather than being short.

Since the dot-com bubble, the index has broken out higher from three consolidative ranges, each serving as mini-platforms to push the index higher. The index’s ability to completely erase off the sharp sell-off that took place in March in a mere two-month period must be respected. This uptrend is a very, very strong one.

Chart of Nasdaq Composite

On that note, given the Nasdaq Composite’s track record of strength and resilience, I am very hesitant to call for a full-blown March-esque 25%-30% correction at this point. Perhaps we have hit a short-term road bump given the speed at which the index had run up, and a healthy correction is due. A further 3-5% sell-off in the index should clear up some of the froth in equity positioning, and open up attractive buy opportunities in some stocks.

If you have $1 today, which investment asset will give you the most bang for buck?

I covered this topic in my Marketplace service, where I looked at long-term charts of ratios between different asset classes such as currencies, commodities, and equities. The end-goal was to find the one investment vehicle that is on the strongest, long-term uptrend, and that investment vehicle should be where one should be placing his or her money as it has the highest probability of generating the best returns over time.

In a nutshell, two findings surprised me. We may all think gold (GLD) had a fine run since last year, but surprise, surprise… palladium has actually outperformed gold on every time frame imaginable – short-term, medium-term, long-term. Below is the chart showing the ratio between gold to palladium. Palladium’s historical outperformance against gold has been truly breathtaking.

Chart of gold-to-palladium ratio

On that note, is palladium the strongest investment vehicle to put your money in? Well, yes, and if you want an alternative, the one market that is on par with palladium in terms of historical strength is the Nasdaq Composite. Below is the historical chart showing the ratio between the Nasdaq Composite to palladium. The ratio remains in a triangle pattern, with no clear winner in terms of trend.

Chart of Nasdaq Composite-to-palladium ratio

See what happens where I switch the Nasdaq Composite with the S&P 500. Below is the chart of the ratio between the S&P 500 to palladium. The trend is now clearly downwards, in palladium’s favour.

Chart of S&P 500-to-palladium ratio

To round up, I am cognisant we had a sharp sell-off in equities last week Thursday, which probably set alarm bells going off in the investing community worldwide. But the trend of US equities is strongly upwards, especially for the Nasdaq Composite.

Historically, the strength and resilience of the Nasdaq Composite is almost unparalleled, save only if you compare it with palladium. With that, the probability of generating the best returns is still highest if one invests in the Nasdaq Composite. I do not expect a March-esque meltdown in equities from here and will be looking for buying opportunities in selected stocks if we see a further 3%-5% sell-off.

Since launching on 1 June 2019, my technical analysis service has banked an absolute return of +142.5% with 45 trade recommendations as of 13 June 2020 with an average holding period of 5.56 weeks per trade. Do check out my Marketplace Service at The Naked Charts!

Disclosure: I am/we are long AMZN, AEM, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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