Finding Hope in the Alternate Energy Morass
Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is extremely difficult to find an alternative energy company that is not solar, and is trading on a major exchange. Alternative energy is all about switching from expensive, dirty, and limited sources to cheap, clean, and renewable ones. The price objective might be wishful thinking, but it must be cheap eventually.
Alternative energy sources are pretty risky, usually because they are not convenient, economic alternatives to common energy sources. The cost-effective ones, like nuclear power, have their own risks ranging from safety to political. The rest are not efficient enough for every dollar spent, such as solar and wind. Solar is getting there though. One could argue that wind is there already, but they are ugly monstrosities and are not practical in all locations.
Starting Inside the Box
First Solar, Inc. (NASDAQ: FSLR) should come as no surprise as the leading stock in this article. Want an American alternative energy stock not in the OTC? First thought is First Solar. The easiest course of action is to run away from solar. That being said, I am a sucker for green energy, and I think solar will become a long-term winner. Notice I did not say "solar is a long-term winner." Solar needs to be cheaper and more efficient. Look at the possibilities of graphene to boost solar cell efficiency, though for now moderate efficiency will have to suffice.
Before considering any position in solar familiarize yourself with the new anti-dumping tariffs. I say new, but it is old news. I might consider waiting until any bump from the tariffs disappear. If enough time passes and the bump does not disappear it means that the tariff has helped change the fundamentals of the company.
Also, wait till the net income TTM becomes positive. It may take a few quarters, but showing either strong earnings or consistent positive earnings should be a threshold requirement. If you are already in First Solar you can hold on, but for those contemplating an entry wait till it earns it. It might be more expensive, but if the solar industry can get on its feet it will be good for years to come. Why take the risk of investing in a company losing money?
At least debt to equity is 0.1544, meaning that the option of using leverage is available. Perhaps First Solar can use leverage to scale up production if demand gets high fast. First Solar would not want competitors gorging themselves on revenue that it could grab for itself if it could just fill demand. The only other good thing to note is that the price to book ratio is below 1, suggesting it is undervalued according to its assets. I think it deserves to have a P/B ratio below 1 right now so I would not get too excited. For now, I want to take a more wait and see approach for First Solar. I do like the solar industry long-term, so this is definitely one for me to watch and keep up to date on.
A Revolutionary New Idea that has been Around Forever
This might seem like a cop-out, because I cannot really find another pure alternative energy company that would offer me any kind of peace if I owned it. The revolutionary idea that has been around forever I am talking about is being more energy-efficient. Honeywell International Inc. (NYSE: HON) is an extremely diversified company providing appliances to jet turbines.
Honeywell also has an energy management services arm, which aims to save companies money on their electric bills. The website claims 20% savings and up, which is pretty substantial. For those of you that have worked for companies that did a round of cost cutting you know that lowering energy usage is seen as the lowest hanging fruit when trimming variable expenses. The changes that need to be made are barely disruptive. Examples include keeping less lights on at night, turning off monitors and computers when not in use, and efficient climate control. I do not know if the energy management services unit at Honeywell will double the stock price, but at least the company is trying to take the initiative in energy efficiency.
Things that will impact the share price are contained in the financial metrics. First, the margin needs to go up. I know manufacturing is a competitive business that can have paper-thin margins, but with a name like energy management services I think it can offer services that offer a better margin to bring the overall profit margin a bit higher. I would want 12-15%. The only thing is that the debt to equity ratio of 0.66 has been the level of choice for a few quarters. I always like to see debt paid off.For now, it seems like Honeywell would be a good purchase if I was looking to shore up on lower risk investments.
I know Honeywell is not really an alternative energy play, but energy efficiency is an alternative to using energy. The point is, that unless you want to invest in some wind turbine creator on the pink sheets, or a foreign company with either little oversight or traded on only a foreign exchange, then you have the handful of solar stocks in the US. Of those First Solar is probably the way to go. When risk is prevalent go with the juggernaut of the industry. First Solar is far from safe, but if the solar industry ever recovers First Solar will be part of it. Honeywell avoids energy all together, but a lot of the products offered factor in the expense of energy. It might be a tangential investment to alternative energy, but it is close enough if it can offer safety.
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