Case in point: the U.S. Bureau of Land Management's recent about-face on the question of using public lands for solar power installations.
Two weeks ago, out of the blue, the Bureau announced a freeze, saying it would accept no more applications for solar power installations on public lands in Arizona, California, Colorado, Nevada, New Mexico or Utah. The Bureau had received approximately 130 applications for development on public land since 2005, and was apparently thinking about getting around to acting on them ... or not.
Its "logic" was that it needed 22 months to conduct an extensive study looking at the environmental, social and economic impacts of solar energy development. In particular, it needed to "study how to reclaim the land after the 20- to 30-year period that it is used for solar energy."
The Government Listens
Well, I'm no expert on this issue, but it appeared to me that in an era of soaring fossil fuel prices and increasing concern about global warming, the administration's increased concern over what are largely desert properties was excessive ... not to mention obstructive.
Solar power installations sit on top of the desert. Unlike strip mining or oil and gas drilling, they produce minimal local pollution and they remove nothing from the environment. And when they lose efficiency in two or three decades, you either replace them with new, improved installations, or you remove the installation and walk away.
Fortunately, a chorus of protests caused the bureaucrats to rethink their decision, and last Tuesday word came down that applications would once again be accepted. Now, whether they'll be approved is another question; the Bureau has a lot more experience approving applications for oil and gas drilling. But this does at least suggest that the Bureau has a better sense of the public mood. No one wants increased government barriers to solar power while fossil fuel costs go through the roof.
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Solar power is one of my top investing concepts for the years ahead. I think energy prices will stay high because of growing demand from India and China and a growing perception--despite new finds like the Bakken Oil Shield in North Dakota and Montana--that we are tapping into a finite vessel and supplies are running low. And I think solar (along with other alternative energy sources) will gain increasing market share in the years ahead.
As costs of fossil fuels rise, the still-high costs of solar power look less prohibitive, especially when various tax credits are factored in. Germany and Spain have been the leaders in that regard, while California is leading the way in the U.S. In the meantime, the increase in manufactured volumes means costs are coming down, particularly for the manufacturers that don't use silicon. Silicon is a major component of the traditional rigid framed photovoltaic modules, and silicon--like most commodities--is rising in price.
So which solar stocks deserve your attention ... and perhaps your money?
Solar Power Stocks
Following is my summary of all the publicly traded companies in the industry that I could find, in alphabetical order. There are now 17, and the number is growing.
Akeena Solar (AKNS 5 NSDQ) installs solar systems in California, New York, New Jersey, Connecticut and Pennsylvania. Revenues are growing--they hit $12.3 million in the first quarter--but there are no prospects of earnings in the near term and the stock, at 5, tells you risk is substantial. Akeena has the second-smallest revenues of the group, no barriers to entry, and the stock is near its all-time low. Forget it.
Ascent Solar Technologies (ASTI 9 NSDQ) designs photovoltaic system for satellites and near-space aircraft. Revenues are tiny ($300,000 in the first quarter), and there's no sign that demand is increasing. Irrelevant.
Canadian Solar (CSIQ 35 NSDQ) is headquartered in Vancouver but operates solar module factories in China ... and business is booming. In the first quarter, revenues grew 879% to $171 million, and earnings swung from a loss of two cents to a profit of $0.65 per share. The stock is just three weeks off its all-time high. Impressive.
China Sunergy (CSUN 8 NSDQ) makes silicon solar cells in China and sells them to module makers worldwide. But revenues grew only 32% in the first quarter, and the stock is six months (and 63%) off its high. Disappointing.
Daystar Technologies (DSTI 4 NSDQ) of California has been working on a thin-fill solar cell based on Copper-Indium-Gallium-Selenide. The stock is up from its March low of 2, telling us some investors think this technology has merit. Dissuading us, however, are three factors. The stock is well off its all-time high of 18, revenues are less than $1 million and the price is down in high-risk territory. Small-fry.
Energy Conversion Devices (ENER 67 NSDQ) of Detroit has a patented method of building solar cells on stainless steel that you can roll onto roofs. In the first quarter, revenues grew 155% to $70 million, while new management astounded investors with a profit of $0.23 per share. The stock hit a record high of 83 just two weeks ago. I wrote about this last Monday; it's one of our favorites in the industry. Exciting.
Evergreen Solar (ESLR 9 NSDQ) is one of the old-timers in the industry; it's been public since 2000. The company's patented string ribbon technology has been promising for years, and because it's here in Massachusetts, I read plenty of good stuff about it. But the company was unprofitable until the fourth quarter of 2007. In the first quarter of 2008, revenues grew 63% to $22.9 million, while earnings hit $0.05 per share. The stock has lost half its value since hitting 19 in November. Second-rate.
First Solar (FSLR 254 NSDQ) is king of the hill, judged by market capitalization. That's the result of the support of 232 mutual funds that own the stock and see a bright future for the company and its thin-film cadmium telluride (CdTe) technology, which has made it the hands-down low-cost producer in the sector. In the first quarter, revenues grew 194% to $197 million, while earnings jumped 714% to $0.57 per share. The stock, which peaked at 317 in May after soaring 10-fold in 20 months, is consolidating its prior gains, neither strong nor weak at the moment. The Champion.
JA Solar Holdings (JASO 15 NSDQ) is another Chinese manufacturer of silicon-based solar cells; it sells mainly to Chinese module manufacturers. In the first quarter, revenues grew 269% to $160 million, while earnings grew 133% to $0.14 per share. The stock has lost half its value since topping in April, but the main trend might still be considered up. A Contender.
LDK Solar (LDK 32 NYSE) is a Chinese manufacturer of the silicon ingots and wafers that other companies turn into solar cells. In the first quarter, revenues grew 218% to $233 million, while earnings jumped 96% to $0.45 per share. Profit margins are shrinking, reflecting the pricing pressures in the industry, and the stock has lost half its value since September. Faltering.
Real Goods Solar (RSOL 6 NSDQ) installs solar modules (and other renewable energy products) in Colorado and California. Revenues in the fourth quarter of 2007 hit $5.8 million, and the company has earned a penny or two per share every year since 2003. The stock came public in May at 10 and it's been downhill since. Small-time.
ReneSola (SOL 14 NSDQ) is another Chinese manufacturer of silicon wafers sold to manufacturers of solar cells and modules both in and out of China. In the first quarter, revenues soared 242% to $123 million, while earnings jumped 155% to $0.28 per share. As at LDK, profit margins are shrinking, but the stock doesn't look as bad; it peaked at 29 in May. Hopeful.
Solarfun Power Holdings (SOLF 15 NSDQ) is a Chinese manufacturer of silicon-based solar cells and modules. In the first quarter, revenues spiked 593% to $191 million, while earnings swung from a loss of a penny to a profit of $0.32. The stock is off its May high of 30 but may still be uptrending. Still Alive.
SunPower (SPWR 64 NSDQ) is a California company whose stock was one of the top performers in 2007. Since peaking at 165 in November, however, the stock has lost 60% of its value. Also, revenue growth has slowed. To its credit, the company makes the highest-efficiency solar cells on the market, but today the market appreciates lower costs more. Yesterday's Winner.
Suntech Power Holdings (STP 34 NYSE) is a Chinese company that makes traditional solar cells and modules. By revenues, it's the biggest company here ... by market capitalization, the second. But sales and earnings growth are both slowing--in the first quarter, revenues grew 76% while earnings grew 75%--profit margins are shrinking, and the stock is off 62% from its January peak. A Fading Star.
Trina Solar (TSL 31 NYSE) is a Chinese company that makes traditional silicon-based solar modules. Because it's vertically integrated, it's less affected by the cost pressures in the industry; in the first quarter, revenues grew 184% to $121 million, while earnings climbed 183% to $0.51 per share. Yet the stock looks terrible, off 61% from its high of July 2007. Sputtering.
Yingli Green Energy (YGE 14 NYSE) is another Chinese manufacturer of solar power modules that's vertically integrated ... and its numbers look good. In the second quarter, revenues mushroomed 310% to $227 million, while earnings exploded 1250% to $0.27 per share. Yet the stock is 65% off its December high. Third-rate.
Phew! My general advice is that all growth-oriented investors should consider investing in this promising industry. Your best prospects are in the companies with actual growth of both revenues and earnings. Also, you should avoid stocks in downtrends, and avoid stocks selling under $10; they're cheap for a reason.
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Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory