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Green picks for blue-chip investors Add to ...

Want to clean up your portfolio by shifting some money into "green" Canadian stocks? It's a tough call, especially if you're a conservative investor looking for stability.

The pickings are slim, but there are a handful of companies specializing in renewable energy, or other clean technologies, that can fit comfortably among your blue-chip bank, energy and industrial stocks.

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John McIlveen, research director at Jacob Securities Inc. in Toronto, says the Canadian clean-tech universe is divided up into two galaxies. First there is a group of relatively large "yield" stocks and trusts - most of which hold portfolios of energy projects - that are less risky and pay dividends.

Among this group are companies such as Brookfield Renewable Power Fund , Northland Power Income Fund , Innergex Renewable Energy Inc. , Macquarie Power & Infrastructure Income Fund and Algonquin Power & Utilities Corp. The largest of this group, Brookfield, has a market cap of about $2.3-billion - small in comparison to the big oil and gas companies. But it does pay out a regular distribution, yielding about 6 per cent, and the units have shown solid gains over the past two years.

Second, there is a group of much smaller "project" companies, many of which generate little or no profit but could end up hitting pay dirt with a successful venture or by getting gobbled up by a larger player. These are not for the faint of heart, but can be part of a portfolio holding for those willing to take the risk in return for the prospect of a big payoff.

Among this group are companies such as hydro power developers Plutonic Power Corp. and Run of River Power Inc. , hybrid motor maker Azure Dynamics Corp. , solar component manufacturer 5N Plus Inc. , alternative-fuel engine firm Westport Innovations Inc. , and geothermal developer Magma Energy Corp.

As a group, these smaller firms have been "beaten up badly" in the past year, Mr. McIlveen said, dropping about 40 per cent on average as investors shifted their interest towards the yield stocks in a jittery market.

Bargains

As a result, however, there are some bargains to be had among the project firms. Mr. MacIlveen said he would look for companies that will not have to raise money in the near future, further diluting the equity. His top pick is Ram Power Corp., a TSX-listed company with a portfolio of geothermal energy projects across North and Central America. "It has sufficient cash to bring hundreds of megawatts online," he said.

MacMurray Whale, an analyst at Cormark Securities Inc. in Toronto, said in the coming months some of the smaller players will be absorbed by bigger companies, or specific projects will be purchased by firms with stronger balance sheets. "We're going to see mergers and acquisitions," Mr. Whale said.

That dynamic will mean that the smaller firms' stock performance - at least on average - could catch up or pass that of the bigger companies, he said.

An alternative for investors looking for green investments is to buy one of the handful of clean technology mutual funds available in Canada. One of the most mature is the 19-year-old Acuity Clean Environment Equity fund, which has more than half its holdings in Canada. It has gained 1.7 per cent in the year to Sept. 30.

ETF in the Offing

At some point there may also be an ETF based on the S&P/TSX clean technology index, a benchmark created just last March that tracks 23 domestic firms that develop and deploy green technologies. Many of these firms have renewable energy projects, while others are "clean" for other reasons. Cascades Inc. is a paper company that makes widespread use of recycled fibres, for example, while Ruggedcom Inc. makes communications equipment for harsh environments.

Patti Dolan, senior investment adviser with Mackie Research Capital Corp. in Calgary, noted that several large Canadian energy companies have dramatically increased their own renewable portfolios in the past few years, so just maintaining a position in one of these firms can give an investor some exposure to the green sector.

TransAlta Corp., for example, bought Canadian Hydro Developers Inc. last year and absorbed its large portfolio of wind and hydro power projects into an already robust group of renewable plants.

Suncor Energy Inc., which some might shun for its oil sands involvement, also has several wind farms and biofuel facilities. And pipeline company Enbridge Inc. owns interests in wind, solar and geothermal projects.

"There has been a huge focus by some of these companies to look at alternative energy and their sustainability practices," said Ms. Dolan, who specializes in socially responsible investing.









Ten biggest companies in the S&P/TSX Clean Technology index *

company

business

market cap

recent price

52-week range

yield

Brookfield Renewable Power

power generation

$2.3-billion

$21.66

$17.76 -- $22.41

6.0 per cent

Northland Power

power generation

$1.5-billion

$15.55

$10.52 -- $15.95

7.0 per cent

Capital Power

power generation

$990-million

$18.26

$13.35 -- $19.02

9.7 per cent

Westport Innovations

alternative fuel engines

$743-million

$18.25

$9.95 -- $21.95

n.a.

Cascades Inc.

recycled paper products

$632-million

$6.67

$5.86 -- $9.80

2.5 per cent

ATS Automation Tooling

solar components

$604-million

$6.81

$5.46 -- $8.45

n.a.

Innergex Renewable Energy

power generation

$572-million

$9.65

$5.00 -- $9.94

6.0 per cent

Algonquin Power & Utilities

power generation

$447-million

$4.66

$3.25 -- $4.91

5.1 per cent

NewAlta Corp.

waste recycling

$448-million

$9.18

$7.34 -- $10.24

2.8 per cent

Macquarie Power & Infrastructure

power generation

$371-million

$7.34

$4.50 -- $7.50

8.9 per cent

* by market capitalization

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