Sunday, January 4, 2009

Solar Stock Review

As 2009 commences, some of those who were bearish on solar late last year, appear to have seen the light. 2008 saw solar stocks slide. The early part of 2008 hit solar hard, then after recovering in the spring, the summer saw government involvement reducing solar's demand in Germany and Spain with state incentives in Japan and the US. Then there was the evaporation of credit with the housing and financial crisis, culminating in the failure of Lehman Brothers. After November's solar deflation, there appears to have been a trend of laying off temporary workers, and 'right-sizing'. The year ended with the fallout of a 50 billion dollar corruption story of alleged broker fraud.

The market is volatile enough without having to contend with the additional uncertainty of corruption. It is easy to understand why many investors worry about the integrity of brokers and express concerns about the agendas of investment firms.

Investors are looking for ways of protecting their money. A recent U.S. Energy Department report may offer some clues. The report said that total electricity use will increase and much of this increase will come from renewable sources such as solar. From its inception early in 2007, The Green Market has been a champion of solar as a Green-good and a sound investment. Late last year while the pundits were sharing their fear of the light, The Green Market began advocating buys in undervalued solar. As predicted by The Green Market, solar shares have rallied on higher oil prices.

However, sector funds are volatile and there are several concerns for prospective investors in solar, not the least of which is a recent report alleging that certain Chinese wafer-makers are dumping their production on the market. The evaporation of credit and tougher underwriting requirements, are also serious concerns for the solar sector, as are a growing reductions in production and sales outlooks.

There are several convincing factors that should lead to solar's rise. An eight-year extension of solar incentives and a one-year extension of wind tax credits is setting the stage for scores of new large-scale power projects. The realization of President-elect Obama's pledge to invest $15 billion each year during the next decade to support private sector efforts toward clean energy. Ernst & Young's Muscat said "governmental incentives will continue to drive demand, and the positives in the [solar] industry will eventually outweigh the negatives. The sector might see some mergers or buyouts in the short-term, but the companies that emerge should be stronger. I do believe that the cleantech renewable energy sector will be the first to emerge when the market stabilizes."

With this in mind, here are summary reviews of 4 of my 5 solar picks: SunPower, Evergreen Solar, Canadian Solar, and Suntech. (I will explore FSLR in my next post).

SUNPOWER (SPWRA): In anticipation of the President-elect's bold subsidizes and a windfall tax on oil firms, an Oct 5th 2008 article entitled "Obama Stock" radiated praise for SunPower. SunPower manufactures and sells photovoltaic (PV) solar panels for the residential, commercial and utility-scale markets. Late last year, SunPower won a contract with Florida-based utility FPL to build the largest photovoltaic plant in North America, a 25 megawatt utility-scale plant in Florida. "SunPower's main advantage is that its cells have an average efficiency of 22% compared to an industry average of just 15% -- SunPower's cells are the most efficient in the industry. That means that SunPower can generate the same amount of energy as competitors' cells using a far smaller panel."

EVERGREEN SOLAR (ESLR): Hurt by the failure of Lehman Brothers, Everygreen solar cut its outlook through 2009, citing financing difficulties among its customers. On December 8, 2009. EverQ kicked its IPO and took a new name. The joint venture of Q-Cells, Renewable Energy Corp, and Evergreen Solar, is now known as Sovello. Q-Cells caused a commotion early in December, driving down leading shares including industry leading First Solar by double digets. Evergreen Solar develops and manufactures solar power cells and panels using their proprietary crystalline technology, called String Ribbon.

CANADIAN SOLAR (CSIQ): Relatively smaller companies like Canadian Solar saw their stocks get cut in half late last year. The company provides solar power solutions beyond residential and commercial panels. Most notably, Canadian Solar's use of a low-cost alternative to polysilicon incited considerable interest. As an important module-maker for companies who only manufacture cells (ie: JA), Canadian solar may benefit from price concessions. To its credit, Canadian Solar has a geographically diversified customer base.

SUNTECH POWER (STP): Stock prices fell alongside other solar stocks this fall. Fourth-quarter revenue is being guided down around 40%. The failure of Lehman hurt and it appears customer credit is behind Suntech's decline. Approximately 35% of expected sales have been delayed, and the "vast majority" have been shifted to 2009. Due to macro concerns, Suntech has put a temporary hold on its 2009 expansion plans. However, with raw material prices plummeting and spending going toward better efficiencies rather than expansion, Suntech is on the fast track to grid parity.

Although 2009 may see a couple of Solar casualties, the ongoing strong demand for solar products is trumping price adjustments. Despite the bearish predictions of the pundits, smart investors are glowing as solar offers short profit opportunities and a bright future.

Next: First Solar

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