The Future Looks Bright for These Solar Energy Stocks
Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As I have said before, the solar energy sector is like the Internet sector in more ways than one. Both sectors have real potential to change the way we live. So they receive an insane amount of publicity, but most of the stocks in these sectors fail to provide value to their investors. The solar energy sector has seen more than its fair share of dud IPOs while listed companies saw their stocks pounded down mercilessly. The sector is also heavily dependent on government incentives including subsidies for its survival. Inventory build-up had been yet another problem faced by the solar companies. However, there are many fundamentally strong solar companies which seem poised to go up in 2013. Let me discuss some of them here.
SolarCity (NASDAQ: SCTY):
The company is backed by Elon Musk and has a certain glamor factor attached to it. It did not disappoint when the IPO opened with a bang and gained 50 percent on the debut day. While the performance was laudable given that most of the previous solar stock IPOs had left their investors disappointed, it was also questioned whether SolarCity failed to price its IPO correctly, losing loads of cash in the process.
IPO pricing notwithstanding, SolarCity has a couple of tricks up its sleeve. The company’s business is immune to the biggest malady plaguing the solar sector, which is the falling prices of Photovoltaic devices. Instead of manufacturing PV panels, the company is involved in the business of leasing and installing the panels. While solar panel manufacturers are struggling with excess inventory, there is no denying the fact the demand for the panels is constantly increasing and this will go to SolarCity’s benefit. SolarCity may have debuted on the stock exchange barely a month back, but the company has been in existence since 2006. It has been reporting upwardly mobile revenue, but the company yet has to turn in a profit. There are also some concerns about the impact of reduction in incentives as SolarCity has been accused of inflating its solar system value to garner bigger federal grants. Though these issues may make investors worry, overall the stock seems to be a good bet for the long run.
First Solar (NASDAQ: FSLR):
The stock saw a steep decline in its price last year, though lately it has been showing signs of recovery. First Solar is facing the regular industry wide problem of falling price for its solar installations. However, the company has managed to hold its own. First Solar has a comfortable cash cushion and it reported its GAAP EPS for the third quarter at $1. Despite a weak market, it also raised its full year guidance, whereby it expects to earn between $4.40 and $4.70 for the fiscal year. The company is optimistic enough to raise its plant utilization rate and has a robust order book.
First Solar also has just acquired Santiago based solar development outfit, Solar Chile. The acquisition will help First Solar to gain foothold in the growing Chilean solar energy market as it is also looking to move into developing economies like India. The company currently has four major projects in California and Arizona. The performance of these projects is likely to have deep impact on First Solar’s fortunes. First Solar is also doing well on the R&D front as its thin film panels have been received positively by the market. Overall, the stock seems attractive as it is currently trading at a big discount to its 52 weeks high price of $50.20.
SunPower Corporation (NASDAQ: SPWR):
The company single handedly revived solar energy stocks when it reported the sale of its projects in California to Warren Buffett controlled MidAmerican Solar. The deal is tentatively priced between $2 billion to $2.5 billion. It will also help SunPower to create captive demand for some of its products and thus bodes well for the company. SunPower holds premium position in the sector and thus enjoys relatively better margins. However, it had to resort to capacity underutilization and layoffs. The company is branching out in new markets in Asia and Australia. However, SunPower will benefit from the fact that more than 60 percent of its equity is held by Total SA, which provides cushion to the company.
While the solar energy industry is going through turmoil, it actually is a blessing in disguise. The downward turn has led to serious consolidation in the sector. According to a report released by IHS, there are now less than 150 global solar module companies left. Whereas in 2010, the number was as high as 750. 2013 is likely to see more inefficient companies going out of business. So, it presents a chance to pick solid stocks, designed to outperform long term.
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