Monday, August 31, 2009

Green Stocks Still Waiting for Stimulus Money

“The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place and wield technology's wonders to raise health care's quality and lower its costs. We will harness the sun and the winds and the soil to fuel our cars and run our factories.”

These words from President Obama’s inauguration speech were followed by a string of appointments applauded by environmentalists, including Stephen Chu as Energy Secretary and Lisa Jackson as head of the EPA. And then we had the American Recovery and Reinvestment Act, the stimulus package, signed into law last February. Socially responsible investors were excited – finally, our time to shine. We were ready to make money investing in what we believed in. Blog entries with titles like ‘These stocks will soar on Obama’s infrastructure plan’ were popping up everywhere. Now, six months later, we are still waiting.

“The idea behind the government's economic stimulus package was to get money flowing through the system, boost economic activity and create jobs. But an review of the latest federal spending data shows that the money is flowing at a trickle. According to our calculations, roughly $53 billion or one-third of the $150 billion in fiscal stimulus money available for this year has been spent as of June 19. As a percentage of the $479 billion in total stimulus funds, that represents only 11.1 percent.”

New Flyer Industries (NFI.un)is a manufacturer of hybrid transit buses based in Winnipeg, with a couple of facilities, and a whole load of contracts, in the US. It’s a good example of a company whose share price should be on the move in this environment but isn’t. In a press release last month, New Flyer said that production of 140 diesel-electric hybrid articulated buses ordered by a major U.S. customer has been deferred indefinitely as a result of delays in the customer receiving funding. The share price, which had been just above the $10 mark, has tumbled 20% in recent weeks over concerns that more contracts may be deferred.

Ray Steele, the manager of the Mavrix Sierra Equity Fund, owns New Flyer and continues to like it. On a fundamental basis it has a low P/E even after reducing future earnings forecasts. However he cautioned that more order delays will be negative for the stock and may lead to a significant cut in yield. He listed some of New Flyer’s positive investment attributes, “The order book is huge and is stable compared to most manufacturers, the buses are mostly hybrid or extended buses which are in greater demand and are better for the environment than a traditional bus, mass transit spending can be delayed, but not eliminated and stimulus spending will benefit mass transit spending when it does eventually flow.” He reiterated that so far there has been little to no flow of any stimulus spending.

We’ll keep investing in green companies, but for green stocks to take off, we may be waiting till 2010.

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