First Solar: A Brilliant Turnaround Story in the Making

Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Solar energy could be the way of the future, but right now, solar energy stocks are not looking so hot. First Solar (NASDAQ: FSLR) is down around -84% over the last year, and EPS remains negative this year. Nonetheless, I believe that this stock is going to turn around, not only because the industry is slowly catching on, but because First Solar is getting involved in community life in ways that will likely garner favor among potential buyers.

In some areas, solar power supply is outweighing demand. This is true in places like Pennsylvania, where government incentives made installing solar panels financially attractive for businesses. Although the demand shot up at that time, the nature of this type of energy makes it sustainable, which means very little new work needs to be done once it is set up. This is great for the environment, of course, as well as the people who no longer pay high electric bills every month, but the solar industry seems to have forgotten to account for this predictable change in the layout of the market.

However, I believe that this bleak outlook is a mirage, and the fact that oil and gas companies continue to dip their toes into the solar energy industry tells me that they see it as a viable alternative, once their primary resources run out or become too expensive. The privately held company Tenaska has hired First Solar to build and operate one of its new solar energy projects that will supply power to users in San Diego. Tenaska has a second project in the works as well, and this could be the way forward for solar companies like First Solar. Teaming up with larger companies just might end up paying off for First Solar investors.

Meanwhile, MidAmerican Energy Holdings, a subsidiary of MidAmerican Energy Company bought up Topaz, a 550 MW solar panel farm in California, from First Solar last December. Exelon (NYSE: EXC) is also working closely with First Solar on a solar photovoltaic endeavor known as the Antelope Valley Solar Ranch One project. This project has received the first installment of a guaranteed government loan and aims to be one of the world’s largest production of its kind. If these types of companies are getting into the solar industry, I think investors have reason to believe that its current slump will not hold.

While First Solar is making what I see as smart maneuvers in the world of alliances, it is also making friends on the ground. In Malaysia, the company is involved in education programs to build up schools in the areas where it operates. I believe that this could have a strong positive impact on the company’s image, both within the country itself and on a global scale.

Other solar energy stocks are also holding their ground. GT Advanced Technologies (NASDAQ: GTAT) has one foot in solar and the other in LED developments, both of which save consumers costs down the road. This company recently sold $12.6 million additional sapphire growth furnaces to a buyer in China.

Elsewhere, SunPower (NASDAQ: SPWR) has setup a referral program that gives out $200 to both the referrer and the referred. It looks to me like this company understands who modern marketing works and is putting social networking and word of mouth to good use. As its customer base grows exponentially, I expect to see its stock value rising up again as well. The company seems to have similar expectations, with projected EPS growth of 6,200% next year. SunPower has just started commercial production of cells with the energy’s highest conversion rate, namely 24%. Once these become readily available, I expect to see more consumers jumping on board the solar energy train, as yields begin to rival fossil fuels.

Some companies have even figured out that leasing solar panels to potential users saves money for both parties. HSC has done exactly this with SunPower’s panels, which I think will add to consumers’ awareness of the product, along with increasing effective cost management by the company. Even if SunPower decreases its output, it will probably continue to bring in revenue through programs like this one, which means that profits might very well skyrocket.

The moral of the story is that even though solar energy stocks look a bit dark right now, it is very likely that they are going to turn into gold, so to speak. I believe that management at First Solar and SunPower in particular has what it takes to keep the companies afloat while the market wakes up to what their companies have to offer. As First Solar works to improve its reputation as a responsible and caring company, SunPower builds up connections among its potential consumer base. At the same time, First Solar is getting involved in the projects of others, which is smart, in my opinion, because it takes on fewer costs for large operations and yet it can still gain some of the profits.

Investors do not usually like to support stocks that look like they are going to die, and this sector has been declining overall for nearly half a year. But I think that some people have the wrong impression; this is not a traditional sector and growth and new projects are not necessarily the most profitable way of life for these stocks. Rather, I believe that reaching into new markets is important, but once those markets are set up, the real money will come from maintenance, joint endeavors, and leasing ventures, like those mentioned above.

In fact, I think now is the perfect time to buy into these stocks. Even GT presents good opportunities, and its diversified income stream might help convince those investors who are still on the fence about the future of alternative energy. My first choice would be First Solar though, because it seems to have the most going on these days, which to me is a sign of a vital stock.


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