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Green Tech Investing With Brendan Coffey (Episode 3)

Green Tech Investing With Brendan Coffey (Episode 3)

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On this week’s episode of the MarketBeat Podcast, Kate Stalter sits down with investor Brendan Coffey to take a deeper dive into this fast-growing category.

Kate Stalter
Host

00:04

Welcome to The MarketBeat Podcast. I'm your host, Kate Stalter. And in this show, we cut through the noise and give you real market insights from professional investors, traders, asset managers, and analysts, our guests put the market developments in context and give you actionable information to make you a more successful trader or investor let's get started.

Kate Stalter
Host

00:32

Well in today's show, I have a really exciting topic for you. We are going to be looking at green tech today, and that's a type of technology that is considered environmentally friendly based on its supply chain and sourcing dynamics or its production process. Now, you might think of the technology that's powering electric vehicles, and we certainly discuss that, but we also cover organic food production as well as alternative fuels that may be replacing fossil fuels all those fall under the umbrella of green tech. Now this is a fast growing market and as with any fast growth category, it's pretty typical to see boom and bust cycles. And for example, one mid-cap that does seem to have some potential based on its revenue growth in the past couple of years is Brookfield renewable. The ticker is B E P, but this stock is down 8.8% in January and nearly 25% on a one year basis. Although it does have a positive three year, five year and 10 year track record. Now the point is just because an asset class or an investment thesis is hot or timely does not mean that it can't go through price consolidations or even lengthy timeframes of being range bound. Today's guest is Brendan coffee. He's the editor of the Cabo sector express green tech advisor. He will give us the high level view of green tech, what industries he's watching right now, and also some names of some stocks that he likes. Here's my interview with Brandon coffee.

Kate Stalter
Host

02:13

All right, Brandon. Welcome to the show. Now, first thing I wanna just jump right in, please explain the meaning of green tech. I mean, you could intuitively it kind of makes sense, but I just want you to clarify, is it a subset of ESG or do you have a different definition?

Brendan Coffey
Guest

02:32

Yeah, I, well, so green tech to me, I take a more expansive view. It, it's not just, uh, clean tech stocks, you know, of course includes solar and, and wind, uh, and energy efficiency stocks. That's, that's a huge part of it. That's, that's the most of it, but I also include, um, areas around organic food and, and improving the environment so that, that can be everything from, uh, you know, Chipotle Mexican grill, which serves a lot of organic food in its restaurants to companies that help prevent food spoilage to companies that essentially upcycle hazardous waste. For instance, there's a company called charra that takes the Ash from coal plants, coal energy plants, and sells it into concrete as it gets mixed in the concrete, which is the benefit of making the concrete stronger and, and taking care of this actually massive problem of leftover fly Ash from, from coal powered energy plants. So those sorts of things,

Kate Stalter
Host

03:27

You know, what's interesting about that is that there seem to be some sectors that maybe, or industries or business models that people are not aware of. So it's kind of taking some of these dirty industries like coal and moving it in a more environmentally friendly direction. Is that something that you look for?

Brendan Coffey
Guest

03:48

Yeah, to an extent, I mean, I differ from, from, from an ESG approach in the sense that, you know, the, the SG part of ESG social and governance is, is a lot harder to define, like for instance, a lot of ESG funds own Facebook because of, because of, you know, the way they, the way they compensate employees and, and some of their corporate governance. Um, but there's an argument to be made that, well, maybe Facebook isn't, isn't a social good. Um, because of, you know, there policies around tracking younger users for Instagram and, and spreading fake news and things of that sort. So, you know, the SG part, my, my point is the SG part is, is, is a lot of it's in the eye of the beholder. The environmental part really is, is, is pretty clean cut. It's either helping the environment or it's not helping the environment. And so for that reason, I don't, I don't include stocks that are relatively better than other polluting peers. So for instance, uh, many ESG funds and investors will include oil companies in there because on a relative basis, you know, ExxonMobil maybe less dirty than say shell, but at the end of the day, they're both, they're both carbon into the atmosphere, which, which needs to, which needs to stop.

Kate Stalter
Host

04:57

You know, it's interesting because back when I was a financial advisor and we would work with the fund companies and talk to them about the components of their ESG funds, and you were talking about some of the fossil fuel companies, and you're right, that is an approach that some of these screening methodologies use is they kinda look for metrics of improvement along the way. So you might have fossil fuel companies in these ESG funds, but they do have to pass some very strict criteria, but you're saying you're not even gonna look at those.

Brendan Coffey
Guest

05:34

Yeah, yeah. I mean, there there's, there's plenty of, there are plenty of great stocks without having to resort to, to either oil and, and natural gas producers and, and, you know, I'll freely admit to, to, to some extent it it's, it could be an unreasonable bias on my part as an, as an investor, I'm just very committed to, to environmental stocks and, and the belief that green tech is, is, you know, both going to be a, a, a booming place to, to be an investor in also an absolute necessity.

Kate Stalter
Host

05:59

Now, what is your methodology, Brenda? Do you use fundamentals, technicals? How do you go about your research and how do you identify potential by candidates?

Brendan Coffey
Guest

06:08

Well, I mean, I've been, I've been investing in, in green tech for, uh, at least 15 years. I, I, you know, I did a newsletter in the last green tech boom, uh, in, in the mid two thousands as well, um, for Cabo, but I I'm, uh, so I've been, I've been researching and establishing my universe of green tech stocks ever since. So I have about 300 now that I follow us listed stocks, the way I screen everything is, is by technicals. I'm a, I'm a technical analyst. First, I'm a certified financial technician, which means I've, I've studied all, all sorts of technical analysis and then passed the exams and, and it's the basis of my investing. And so what is that? There's a lot in technical analysis. If I had to boil it down, I I'm essentially looking at momentum and relative strength. Um, and those are two things that studies have repeatedly shown, um, you know, bring, bring alpha.

Brendan Coffey
Guest

06:58

They, they actually have been shown to outperform outperform the market, which, um, is a criticism of a lot of technical analysis is in the sense that a lot of, a lot of what people believe works, you can't quite prove it, you know, as far as chart patterns and things like that. So I like a momentum, you know, is, is, is the stock price increasing? Are the moving averages going up is above the 200 day moving average and the relative strength, more, more importantly, how it's performing relative to the S and P 500 and relative to its peers. That that's my first screen, but I'm not just a technical guy. Once I, once I get a group of stocks that, that I really like their technicals, then I dig in and I start looking for, I start looking for a fundamental reason about why a stock's performing well. Right? So, so like an example of some of the meme stocks last year take off, took off, you know, technically they looked fantastic, but if you looked underneath the hood, maybe there wasn't a compelling, fundamental reason. So I like to look, I like to, I like to identify what other investors in the market have already seen to, to give a stock those good technicals. And that gives me a lot more confidence in, in investing.

Kate Stalter
Host

08:04

So fossil fuel companies aside, do you cast the net pretty wide in terms of industry and sector?

Brendan Coffey
Guest

08:11

Yeah. Yeah. I mean, you know, green tech does tend to cluster around, you know, technology, stocks, utilities, water stocks, but, uh, the various sectors sub sectors within there also include nuclear. Uh, I include, um, wind, as I mentioned before, solar EVs, EV related stocks, fuel cell and hydrogen, um, stocks, uh, on the market right now, all those sorts of things, energy efficiency is big. And, and as I said up cycling, so, uh, what's another example of up cycling that I really like is TrackX the, uh, tr X, the decking company. If, if you've ever owned a home with a wood deck, uh, you know,

Kate Stalter
Host

08:50

Yes.

Brendan Coffey
Guest

08:50

You know, what trouble they can be. Right. Yeah. And sort of in rod and having to paint them track takes the plastic bags that you get at a grocery store. And that also wrap a lot of our consumer products, like, you know, the, the plastic that's around your bunch of paper towels, you get a BJs or Costco takes those plastics and, and uses them as the, as the vast majority of their decking. They, they take that plastic, recycle it, uh, blend it with some wood, wood dust and, and coloring. And then all of a sudden you have a, a, a wood deck replacement that you never have to paint. Uh, doesn't rot, it looks fantastic. And it's grabbing a lot of market share. So I really like stories like that as well.

Kate Stalter
Host

09:30

Yeah. And that, that stuff is not cheap. I do know that cuz I had to replace a deck at my house and I've written about this one for MarketBeat and I'm pulling up the chart and the fundamentals as we speak. I mean, I'm seeing some revenue acceleration in the past few quarters, earnings growth, acceleration, great estimates for the next couple of years. So you're absolutely right. This is a very interesting company for the reasons that you mentioned

Brendan Coffey
Guest

09:56

The initial cost is higher. So they don't do as well with, with home builders and contractors for whom that that upfront purchase prices is their prime consideration. But they do really well with renovators with homeowner like you and me who look at it and say, you know, the cost of ownership of this deck, uh, is cheaper over 5, 10, 15, 20 years, cuz I never have to paint it. I never have to replace the boards. Um, so that, that they're doing well in that area.

Kate Stalter
Host

10:24

As a trader or investor, you need timely information to help you make better decisions and analyst upgrades and downgrades can give you the outlook for the stocks. You're watching, coming from the big institutions who are behind 75 to 80% of market movements for absolutely no cost MarketBeat will send analyst recommendations, right to your inbox daily, you will get a concise summary of analyst, upgrades, downgrades, and new coverage along with relevant news and information for the stocks on your watch list. Real time portfolio monitoring tools, a rundown of the top headlines each day, market calendars, the MarketBeat mobile app and other research tools don't miss out on this sign up right now it's a hundred percent free. You'll find this at marketbeat.com/ratings/newsletter that's marketbeat.com/ratings/newsletter. And that link will be in the show notes. Now we kind of are getting into this topic, Brendan, but I wanna talk to you about the challenges and opportunities. So let's, let's talk about the long term. Give me some of the challenges for green tech and some of the opportunities in the long term. And then we'll kind of look a little closer in the near term after that,

Brendan Coffey
Guest

11:47

Oh, when you talk long term, then I, then I have to give you my macro thesis for, for green tech , which is, uh, you know, I think you, and a lot of, a lot of investors will recall that that green tech had had its own.com like boom, in the middle of, of the two thousands decade, right. That 2005, uh, 2008 period, where if, uh, just like a.com, if, if you had, if you were associated with solar, you went up, you went up triple digits in, in 2007, 2006. Um, yep. Uh, like the.com year that burst. Um, and, and it had a very, very long, uh, dormant period where, where no one in the market wanted green tech stocks, um, the, the, no, the shares just couldn't rally. Um, and it's incredibly evocative of, of that, of the.com post.com period of, of that 2001 to 2012 period, where if you invested, even in Amazon or Microsoft, you didn't make any money in those stocks over that 10, 11 year period.

Brendan Coffey
Guest

12:46

Um, and then they broke out, you know, you've wanted to be in Amazon and Microsoft and, and all those, those companies, the past decade, um, uh, similarly with green tech, they had this long dormant period. And what happened in that dormant period is all the, the evaluations got much, much better. Um, solar was the most expensive energy source on the utility scale 10 years ago. It's now the cheapest, um, that those sorts of things, and really what happened really about a year ago now is it broke green tech broke out of its long term range and, and really took off from two from about February, 2000, uh, 20 into two, 2021. Um, really just tremendous growth. Now it's had, it's stepped back a little, a very natural, uh, market progression had a, had a huge run up it's retraced about 50%, very classic technical move. Um, and right now we're, we're, you know, testing, testing, it's, it's been weak, we're testing some support, uh, but I expected certainly to, to sort of take back, um, take back up again, strongly the, the long term cases is too compelling and, uh, you know, short term near term, as I said, um, the markets market has, has have a, had a rough patch since February last year.

Brendan Coffey
Guest

14:05

Um, uh, partly it got ahead of itself and expectations of what the Biden administration would do, right? The, the bill back better bill and then the infrastructure bill, um, and valuations got ahead of themselves because they're their tremendous number of, of new stocks in the green tech space companies that, that are only a year or two old, um, from their IPO or from their merger with a spec. So, um, so in the near term, we are seeing some, some step back in valuations and, and, and sort of reconsidering gross stocks in general, um, because of all the action of the fear of inflation and what the Fed's doing. And so it's not just a green tech thing, but, but it's certainly experiencing all of that gross stock concern.

Kate Stalter
Host

14:48

Now, when you're talking about green tech as an asset class being range bound, or breaking out of a range, are you talking about an index? Do you have your own index? Is there some kind of index that you use? How, what are you looking at when you say that?

Brendan Coffey
Guest

15:03

So, yeah, the one I follow is, is the, the wild Wilder hill clean, uh, energy index, uh, which has an ETF P BW is the ticker the same as, as my broader universe. And you know, another one people follow is the, is the Q clean Q, C L N uh, ETF index, um, that I don't prefer quite as much cuz that's, that's fewer components and it's more heavily weighted into Tesla. Um, and I'd rather see how the market's doing outside of Tesla, but those are the two I follow. And when you think, well, you know, they're, they're in a range is if you just look at the chart there since may of last year, they've really, you know, trawled the path between, uh, you know, about a 20% area of price.

Kate Stalter
Host

15:43

Yeah. And I'm looking at this, I could see it's, it's been declining recently and I'm not one that necessarily says, Hey, ignore this asset class because it's declining because eventually there will be an opportunity because investors will come in at lower valuations, won't they? Oh,

Brendan Coffey
Guest

15:58

Definitely. Definitely. Yeah. I, we will, we'll see, we're already starting to see some stocks that coming in, starting, starting to show some pretty good valuations. And then, you know, that, that, that index isn't, isn't all of green tech, as I've said earlier. Right? So, uh, nuclear stocks aren't included in, in most green tech indexes, but those are doing very well. Um, still, they have been in the past year, um, as well as water stocks, water stocks have been great. They've gotten clipped recently too. Uh, but they're still better performers.

Kate Stalter
Host

16:27

You know, I wanna get into some specific names here in just a minute, but one thing I would like to get your take on for a long time, and I think maybe this is changing, but for a long time, investors would say, oh, I I'll take a lower return to invest in something that's environmentally sustainable. And you could tell the way I'm sort of mocking it and how I say that. I never liked that point of view cuz I thought, wait a minute, you don't have to do that. Don't be so quick to say, you're gonna give up a return. I'm sure that's something that you agree with, right?

Brendan Coffey
Guest

17:00

You're not, you're not surrendering growth in green tech because, because you know, it's the area where there's gonna be growth. You have a massive shift away from away from coal. Um, certainly away from away from oil in many circumstances and even from natural gas because solar and wind are, are the cheapest energies on a utility scale to, to generate new electricity. Just certainly cheaper than natural gas, which surprises many surprises, many people, you know, so that that's where all the growth is coming from. If you, if you believe that the energy mix in the world is changing, um, and it is then, then the place you wanna be is in green tech.

Kate Stalter
Host

17:35

So let's turn to a few of the names that you like. I know you, you published some portfolios in your newsletters every month. So tell us some that you're looking at right now.

Brendan Coffey
Guest

17:45

Yeah. One is in, is in semiconductors. The company is on semi, uh, used to be known as on semiconductor. It's a, it's a semiconductor maker that for a very long time has been considered more of a commodity type player in the sense that, that they make cheap semiconductors, that they sell to whoever will buy them. So that that long has left the company open to the commodity price swings of, of semiconductors. They got a new CEO in late 2019 and they they've they've they're shifting the business model and focusing on an alternate to, to Silicon ships called Silicon carbide, which is when you weave carbon in with Silicon. Now, why do you need a replacement for Silicon? It's been great for semiconductors for, for decades? Well you, in things like electric vehicles, uh, EV chargers, you know, inverters to convert electricity from, from solar and wind to, to the AC current, to feed into the grid.

Brendan Coffey
Guest

18:41

Silicon's not very good at handling high heat. Uh, again, it physically gets brittle. Uh, it becomes very inefficient and, uh, can't operate at, at certain frequencies and it all gets very technical and then sort trust the scientists on, on why silicons no good, but there are two alternatives. One is Silicon carbide and on semis jumped, uh, headlong into Silicon carbine chips and what's happening is they're buying and they're in the midst of buying. They control a, a Foundry in east Fishkill, New York, where they're gonna be making Silicon with a bake Silicon carbine chips they're expanding production, uh, to, to sell into, especially EVs and, uh, with on semi it's really encouraging because on semis long in a top 10 chip supplier to the automotive industry to automakers, but they've been down at that more cheap, cheap semiconductor area, moving to Silicon car buy, they move up the value chain, right?

Brendan Coffey
Guest

19:36

Cause then they can, they can put their, their chips in, in the traction systems, in, in the battery control systems and all the high value parts of, of an electric vehicle. Um, so that's really encouraging. So what's happened recently is they've closed that valuation gap between how they used to be valued and, and how semiconductors are, are valued in general. And, and if you look at their chart, they're still the stock's still doing great. They have a lot of interest from automakers. And, and I really think the, the, the management strategy towards expanding production in the, in these high value chips with some onshoring, you know, with that onshoring narrative too, of, of, of building 'em in New York makes it compelling still for, for a good while.

Kate Stalter
Host

20:18

Yeah. And I am looking at the chart it's just below last, week's all time high and I'm looking at the revenue and the earnings growth really picked up in late 2020. So exactly. To your point, they got a new CEO and things are looking like they started turning around pretty soon after that. So that's pretty interesting.

Brendan Coffey
Guest

20:37

It is. It is. You have to like it when a company executes on their plan. Right. Um, uh, so another one, I like it. It's, it's, uh, it's one, it's one. We took profits onto my portfolio. Uh, a couple weeks ago we got stopped out at profit. Um, but I still quite like it. I'm looking to get back into it, uh, is Aspen AALS. Now this is a, uh, they're in Massachusetts company. Really, really fascinating niche is, is they make arrow gels and what's an arrow. Gel is it's, it's a micro lats that, uh, act as insulators. So for a very long time, Aspen Aero gels focus on, on selling into the liquid natural gas industry because they can, uh, these, these micro lats there Aero gels could be wrapped around LNG pipes to help keep the, the, the gas super cool. What the, what the air gels are perfect for is preventing thermal runaway in EV car fires.

Brendan Coffey
Guest

21:32

Thermal runaway is when a lithium ion battery in an EV basically explodes cuz it can't, it can't dissipate the heat away enough from, from the battery. Uh, when it's damaged, Aspen arrow gels is, is really the one maker of these there others, but they're the primary maker of these things that, that they instantly the EV batteries and really their primary purpose is to prevent thermal run runaway. Um, but they also have other characteristics such as, uh, they're better formed to battery packs and, and provide actual physical cushioning in, in a difficult, in the difficult environment of, of cars. And that's a company I quite like. And I think it, I think it's one of those that's, it's come off its highs and it's getting down back to, you know, to, to evaluation where it'd be worth going into. I think it's, it's getting close to its 200 day moving average too, as so as long as, as long as it holds the 200 day might be time to get back in.

Kate Stalter
Host

22:22

Now let me ask you something about the fundamentals, cuz I'm looking at this, this company is not profitable. We do have some pretty good revenue growth in recent quarters. Is that what you're more interested in on something that's in a fast growth industry like this Brendan?

Brendan Coffey
Guest

22:37

Oh yeah. I mean I'll take top line, I'll take revenue growth with, with a loss most days, as long as eventually there's a, there's a path to profitability and I think Aspen has it, you know, the whole EV you know, I think we maybe take it for granted because Tesla's been so successful, but the whole EV market is, is really just getting underway. Uh it's in two years, three years, many automaker will have half or more of their product line being EVs. And, and that's that, we're only starting to see that now. Right. GM is only just starting to roll out. Um, it's EVs and, and forward with the, with the E Mustang, um, you know, fast growth now as with any tech stock really, uh, you know, you expect, you expect profits later.

Kate Stalter
Host

23:22

Yeah. Now this is really interesting. And thank you for these names. Thank you for sharing how some of the listeners might be able to look at the green tech industry and what kind of stocks they might wanna be adding to their portfolio. Now, along those lines, how can the listeners find you if they're interested in learning more about green tech and what you're doing?

Brendan Coffey
Guest

23:43

Oh, thanks. Well, yeah, I'm the, I'm the founding editor and chief analyst of the sector express green tech advisor at C wealth, uh, which is a Salem based publisher. That's been around for about 50 years and quite, uh, quite reputable. So yeah, that, that's where I exclusively publish my, my, uh, investing my green tech investing advice these days.

Kate Stalter
Host

24:02

Thank you so much, Brendan. Appreciate your time today.

Brendan Coffey
Guest

24:05

Hey, thank you, Kate.

Kate Stalter
Host

24:08

All right. That's a wrap on this week's episode. Thank you so much for listening. Don't forget to subscribe. So you don't miss a single episode. You'll find the show on all your favorite podcast apps, Spotify, Stitcher, Google, Apple Podcasts, of course, anywhere else you get your Podcasts and you can always find us on marketbeat.com. And please, if you're enjoying the timely market insights, we're bringing you each week and finding them valuable. Please give the show a five star rating on Apple Podcasts that will help others find the show so we can bring these investing ideas to an even wider audience.

Brendan Coffey

Brendan Coffey, Guest

Editor, Cabot SX Greentech Advisor

Kate Stalter

Kate Stalter, Host

MarketBeat Contributor, MarketBeat

Kate Stalter is a Series 65-licensed asset manager, with more than two decades of experience in various areas of financial services. As an investment advisor and financial planner, Kate personally manages client portfolios, with a focus on successful retirement, including asset allocation, income generation and tax strategies. Kate also serves as a capital-markets contributor at Forbes.com, and is an expert columnist for the investment advisory channel at U.S. News & World Report.

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