Gavin Baker, Portfolio Manager at Fidelity Management & Research Company, is forecasting that e-commerce is likely to triple or even quadruple over the next 50 years, and Amazon.com, Inc. (AMZN) is set to benefit.
“Looking at e-commerce, each year e-commerce comprises 10% of total retail sales, but 40% of incremental sales,” Baker said. “This is likely to be very positive for e-commerce companies with sustainable competitive advantages.”
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Amazon.com is one of these companies that has a competitive advantage, Baker says, due to the company’s immense incremental sales and scale advantage.
“They have less than 10% of total e-commerce sales, but they have more than 100% of incremental e-commerce sales, so they are taking share within e-commerce and from their direct e-commerce competitors in the United States. They are 20 times larger than the number-two player,” Baker said.
Baker also points to other statistical tailwinds he sees behind his fundamental analysis on Amazon.com.
“Amazon is optically expensive. They have total control over their margins. Jeff Bezos runs it with a very long-time horizon. So investors should look at the valuation through a normalized margin basis…I think it’s very clear that on that math that it’s not expensive, but it does have very good price momentum,” Baker said.
Miller Tabak + Co. Analyst Thomas S. Mitchell views Zions Bancorporation (ZION) as a potential acquiree with an attractive geographic service area, despite the company’s struggles resulting from legacy commercial real estate and investments in bank trust preferred certificates.
“We think they have a great franchise. It basically runs from Texas to Washington State…we think that their whole geographic service area is more attractive than the rest of the United States over any long-term periods you think about that it will grow maybe 2% to 3% faster in terms of incomes and jobs, local GDP versus the total United States,” Mitchell said.
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The negativity surrounding Zions’ legacy investments has affected the company’s valuation, yet Mitchell believes this is a solid franchise with significant potential to be acquired.
“They are one of those banks that has had some legacy commercial real estate and some legacy investments in bank trust preferred certificates that have created a negative backwash that they’ve been struggling to get out of and that affects the valuation. We think it’s a premier franchise selling at relatively close to book value and selling at a relatively low valuation to its deposit base, and we think that they have significant potential to define themselves as a target,” Mitchell said.
Kam Mofid, CEO of Real Goods Solar, Inc. (RGSE), says the downstream solar sector, including companies that support the end customers in terms of customer acquisition, design, engineering and installation, remains fragmented. As such, Mofid says he plans to grow Real Goods Solar through selective acquisitions.
“I think it is prudent for us to continue to monitor the competitive landscape and when appropriate transactions exist for us to look at them, not just for the sake of growth, but when specific and new capabilities can be added to the business whether it is new geography, whether it is new techniques improved tools, or much improved processes or any combination thereof,” Mofid says.
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At the same time, Real Goods Solar will remain focused on organic growth.
“There are a couple of dynamics in the solar sector, which are important to consider as we look at and execute our growth strategy,” Mofid says. “One dynamic is that the sector remains both healthy and one of the fastest-growing industries in the country. So there is substantial growth runway.”
Raymond James & Associates, Inc. Analyst Pavel Molchanov says investors who are looking for a way to play the natural gas theme this year should consider Chart Industries, Inc. (GTLS). Whereas natural gas vehicles haven’t gained much traction in North America, Molchanov says opportunity is ripe in China.
“The problem is not the price of natural gas, which of course is quite low right now in the U.S.,” Molchanov says. “The issue is more on the policy front. The U.S. government just has not been particularly supportive of natural gas vehicles.”
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In contrast, Molchanov says the Chinese government is actively supporting the transition of trucks from petroleum to natural gas. Chart Industries makes equipment that turns natural gas into liquid, and Molchanov says the company is selling equipment that produces liquefied natural gas as a fuel for trucks and buses.
“Last year, the biggest source of orders for this company came from China, specifically from PetroChina, which is a state-controlled oil company,” Molchanov says. “I think that shows nicely that the Chinese government is pushing very hard for this — in contrast to Washington, which is doing very little.”
The “name of the game” this year for Solazyme will be scaling up one plant in the United States and another in Brazil, according to Raymond James & Associates, Inc., Analyst Pavel Molchanov. For time being, Molchanov considers Solazyme a bioindustrial company, but he says it could target the fuel market in the future.
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“Solazyme uses an algae technology platform to produce various high value bioindustrials, which includes things like solvents and specialty chemicals and even cosmetics, all using algae technology and with sugar as the raw material,” Molchanov says. “There may be an opportunity for Solazyme in the future to produce fuels, but right now they’re focused on high-value, high-margin products outside of the fuel arena.”
Molchanov says Solazyme’s plants in the United States and Brazil should be coming on line very shortly.
Raymond James & Associates, Inc., Analyst Pavel Molchanov says EnerNOC, which exclusively served the U.S. until 2010, has been doing an effective job of diversifying its geographic footprint since 2010. This year, Molchanov says he expects to see EnerNOC gain traction in Asia.
“The concept of demand response, which has traditionally been very focused in the U.S., can actually be even more economically appealing in other geographies, and I think Japan and Korea are good examples of this,” Molchanov says. “These are countries that have high power prices, much higher than in the U.S., and with frequently tight supply/demand on the grid. In Japan in particular, after the disaster at Fukushima, the country’s nuclear reactors have been shut down, which have caused blackouts and extremely high power prices.”
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Demand response helps balance the grid using advanced demand curtailment, and Molchanov says it is something for which the Japanese government is currently advocating. He says EnerNOC entered into a joint venture in December 2013 with Japanese conglomerate Marubeni.
“Revenue here is not something that’s going to materialize immediately, but it’s a good start, and I would expect EnerNOC to get into other overseas markets,” Molchanov says. “In addition to Japan, they’re already in Australia and New Zealand. I think they will get into other geographies in the next 12 months.”
S&P Capital IQ Equity Research Analyst Angelo Zino says LDK Solar Co., Ltd. (LDK) has about $2.8 billion in interest-bearing debt, about $280 million of which is convertible debt that was due at the end of February. Zino says that convertible debt is of particular concern for him because it is outside of China.
“So we think that LDK until now has benefited from favorable lending support from China lenders,” Zino says. “However, when you start talking about offshore debt, that’s a totally different animal, and our belief is that LDK may not be able to come up with an agreement with these credit holders by the end of February, and if no agreement has been reached, it has the potential to really create a liquidity crisis for the company.”
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Zino says that debt, in his view, calls into question LDK’s longer-term financial stability.
“We saw a similar situation occur with another company, Suntech Power Holdings, last year, which led the firm into bankruptcy, and we think LDK could be heading in the same direction,” he says.
The company has since has filed a liquidation petition, and has welcomed appointed joint provisional liquidators.
Deutsche Bank Securities Inc. Analyst Dan Galves says he expects Tesla Motors, Inc. (TSLA) to deliver strong production growth and volume growth in 2014 and 2015. He expects the company’s performance to beat Street expectations.
“Consensus right now is assuming that that margin stays flat for the next couple of years,” Galves says. “And based on our view that the company is still getting much more efficient at producing the car, that they will achieve higher production scale, and there are many areas of potential cost-savings in the supply chain that we think that that gross margin has the potential to surprise the Street to the upside, and we think numbers are going to be going up for 2014 and 2015.”
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Galves says demand in China could also spur volume growth for Tesla. Additionally, he expects to see some increased demand when Tesla releases its Model X SUV in late 2014.
“You’ll have the potential to start seeing early prototypes of that vehicle to get people excited — so we still see a really bright future in front of the company,” Galves says.
S&P Capital IQ Equity Research Analyst Angelo Zino says he believes SunEdison Inc. (SUNE) will pursue solar securitization, which he views as one of several positive catalysts for the stock. He says SunEdison is his top U.S. stock pick for 2014.
“First, it has a semiconductor IPO, which we expect to occur in the first quarter,” Zino says, “On top of that, we expect the announcement of a number of potential yield co structures where it can carve out some of its solar businesses.”
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Additionally, Zino says SunEdison has one of the best solar pipelines in the industry. He also highlights the company’s strong balance sheet, which he says makes it one of the best-positioned players in the sector.
“So we’re very encouraged with what is going on at SunEdison,” he says.
S&P Capital IQ Equity Research Analyst Angelo Zino says Trina Solar Limited (TSL) is his top China stock pick for 2014. His positive view of the stock is in part the result of higher demand for solar in Asia Pacific, of which Zino believes Trina Solar will be a primary beneficiary because the governments in that area prefer to support local sustainable players.
“But really what’s going to drive Trina Solar in 2014 is how well they do in transitioning into the higher-margin project development business,” Zino says. “Recently, Trina Solar announced a one-gigawatt project where 300 megawatts of that is going to get completed in 2014. Our understanding is that this is one of the largest projects that has ever been announced in China.”
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Zino describes Trina Solar as “best of breed” in China. He says Trina is on pace to continue to win large projects in China and other Asia Pacific countries.
“So that’s the name you want to invest in if you believe in the Asia Pacific solar story,” Zino says. “Our view is the expectations for that stock remain too low for 2014 and 2015, and we would expect it to outgrow the industry.”
