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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Three Stocks To Consider in Energy Tech

Investors with a willingness to invest based on secular trends that will shape the future would be wise to consider a very important area of the market, but one that gets very little press: energy technology companies.

Big firms like Haliburton and General Electric provide a lot of the technology used in the modern energy industry today, but there are also many small firms in the space. And these small companies are the ones that have greater return potential if they can hold their own against the bigger players over the long-term.

A few companies stand out as particularly worthy of consideration from investors. Related: Spanish Government To Tax Solar Power

First up is Ameresco, trading in the U.S. under ticker symbol AMRC. The company provides energy efficiency infrastructure related products which help businesses save money. The Framingham, MA company is profitable and while the stock has languished over the last year, the business is growing if recent sales trends are any indication.

AMRC’s basic business model is providing customers with energy-efficient equipment at no up-front cost, which is then paid for out of energy savings. The model works particularly well in high cost energy states like MA and CA. AMRC is essentially an industrial version of SolarCity, and that approach should become even more popular with business clients around the world as more and more taxes and regulations are imposed to drive up the cost of energy consumption.

The second name worth highlighting is a company that is, quite literally, one of a kind. South African small cap MiX Telematics is arguably one of the very few investible names in that geography for most investors. Add to this the unique nature of the firm’s business, and it adds up to a highly unusual company. First, the firm is profitable, and while the Price to Earnings ratio might be a little high (~20x), that valuation is actually pretty reasonable given the company’s industry: software. Related: OPEC Still Holds All The Cards In Oil Price Game

Trading in the U.S. under ticker MIXT, MiX provides fleet and mobile asset management solutions delivered as a Software as a Service (Saas) product to customers. This includes the stolen vehicle recovery products (highly popular in South Africa), and products to help fleet operators manage their vehicles and control their drivers.

The basic idea is that controlling vehicles helps to prevent not only theft, but also save fuel, reduce extraneous vehicle use, and ensure more efficient fleet operation. This type of system could be exactly what new unconventional entrants into the fleet operations market need.

Imagine for instance if Uber or Lyft required all of their drivers to use this type of technology. Not only would it let Uber and Lyft make optional suggestions to drivers for ways to improve their own work (e.g. spend more time in this area picking up customers, and less time in that area), but it would also reduce the risks associated with the less experienced and less well-vetted work force that both firms rely on. Related: Top 5 Oil Producing Countries Could See Production Peak This Year

As an international firm, but a small cap company, MiX has many opportunities in this vein around the world, any of which could catapult the company’s earnings higher overnight.

Finally, small-cap U.S. company FutureFuel, trading under the ticker symbol FF, is one of the best investment opportunities for those investors looking to bet on an eventual rise in the price of oil combined with increased global concern over fuel-related pollution.

FutureFuel’s best known products are its biofuels, but the firm also has a specialty chemicals division. The biodiesel part of the business is necessarily political, as a lot of demand is based on mandates from the EPA for biodiesel volumes. The stock has moved higher of late on positive news for the industry overall and a key catalyst for the stock will be the coming biofuel quotas that are supposed to be established by this fall. The EPA has been horribly delinquent in setting these quotas, even as the oil price collapse has hammered demand for alternative fuels like biodiesel.

Despite this negative macroeconomic backdrop, FutureFuel is still profitable, carries a very reasonable valuation, and even pays a pretty decent ~2 percent dividend. For investors looking for value and an opportunity to take advantage of the biofuels trend, the company is definitely worth considering.

By Michael McDonald of Oilprice.com

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