Exciting Solar Prospects
A Growth Stock Pick in a Booming Segment
When my wife and I bought our house two and half years ago, one of the features that appealed to us was a tree that stood grandly in the yard, its branches reaching well over the house. The problem, we soon realized, is it stood too grandly and too close, pressuring the foundation and encouraging moss on the roof.
We cut it down a little over a year ago and since then I've noticed that regardless of the season, the bulk of the sun's transit across the sky each day baths light upon the roof once shaded by the tree. One day, I figure, I'll be a good candidate for solar.
Are those days here now? Earlier this month, Lowe's Home Improvement began selling do-it-yourself solar panels kits at 21 stores in California, with plans to roll the products out nationwide next year. The second I heard of them, I considered the possibility of shifting solar from some far-off daydream to a springtime project.
The rooftop panels cost $893 a piece and are provided by California-based Akeena Solar (Lowe's also sells a $99 panel for recharging car and boat batteries). What's appealing about the rooftop panels is that they are modular, so once you have one installed, you can connect additional panels whenever you want. They include built-in inverters, thereby avoiding the expense of costlier inverters that are often installed separately.
The downside is that you will no doubt want to add more panels: One individual panel generates 175 watts of electricity, enough to power a flat screen television. The average U.S. household uses 936 kWh a month.
"People might want to put up one, see if it works. Then with their next paycheck, they may buy four more," Barry Cinnamon, CEO of Akeena told the Associated Press.
No doubt it will appeal to some DIYers like me, but Cinnamon's comments point out the fact that solar still has a price problem: To afford to buy those additional four panels with a bi-weekly paycheck, consumers need to earn nearly double the annual household income in the U.S.
Still, news of the retail sales sent Akeena (AKNS) rallying up 57% in one day, from 99-cents to 1.55 (profit-takers have since clipped off about half of the gains). It's not the sales of solar panels from those 21 stores that excites investors, but the potential for sales at Lowe's 1,700 locations in the U.S. and Canada.
As editor of Cabot Green Investor, which focuses on alternative energy, energy efficiency and Green lifestyle stocks, I know solar stocks can be very volatile. At under 2, Akeena should only be bought with true risk capital.
I do have one interesting alternative to investigate for those eager to buy into solar, however: Suntech Power (STP). Suntech is a Chinese company that actually manufactures the "Andalay" solar modules that Akeena is selling through Lowe's. Suntech shares barely budged from 16 on the Lowe's news, but look like they have finally achieved the technical conditions to turn higher after suffering a two-year-long hangover from a fantastic 2007 performance.
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Solar stocks haven't been a significant part of the Cabot Green Investor portfolio in 2009--there have been too many other compelling stocks to buy! Subscribers have enjoyed double-digit gains on many companies ranging from Green Mountain Coffee Roasters to Telvent, a Spanish company that focuses on information technologies with Green applications, like water shed monitoring and power supply regulation.
But I am excited about solar returning to its winning ways in 2010.
Why? The potential for solar is too huge to ignore for long.
All together, solar accounts for just two-tenths of one percent of all the electricity used in the U.S. Part of that is because of the high cost. According to Solarbuzz, a research firm, the average price of electricity from a residential solar panel system comes out to about 35 cents a kilowatt hour, still well above the high of 20-cents a kWh some people pay, and well above the average 12-cents kWh in the U.S.
Still, prices for fully professionally installed residential solar systems have dropped about 25% this decade and as much as 50% in some states. The appearance of solar panels in retail stores for DIYers should only push solar closer to true affordability.
Continual advances in technology will help too. Some companies offer panels that appear to perform better in areas with diffuse light common in shorter winter days and areas prone to rain and snowy weather.
Energy Conversion Devices of Michigan makes these types of systems out of stainless steel instead of glass, but alas, not for retrofitting residences like mine. They concentrate on new construction roofs for corporate clients like General Motors.
Other companies promise more exciting developments in coming years. For instance, an Australian company named Dyesol is testing solar cells infused with dye that mimics photosynthesis. Essentially, light strikes the dye, exciting electrons that generate electricity. It offers the possibility of being far cheaper than photovoltaic cells.
But, for me, with the state of technology now and the costs involved, odds are a solar system for my house won't be on my New Year's list just yet. For one, it's an unappealing image Cinnamon offers up, signing my paycheck over to a clerk at the home improvement store, lugging a few 46-pound panels up a ladder and drilling holes in my roof. Maybe it's easier for now just to cut back on the electricity I use.
This brings me to my stock recommendation for this issue. It's not in solar, but in a related area where lots of energy can be saved--lighting. By one estimate, lighting in the U.S. commands 22% of electricity usage.
Shifting to CFL bulbs helps, since they are three times more energy efficient than incandescent bulbs. But because they use mercury, which has dire consequences on wildlife, CFLs are seen as simply a stop-gap measure until the next wave of lighting matures.
This next generation technology is LED, or light-emitting diode. Like the name suggests, LEDs aren't bulbs like we think of them, but a collection of small silicon chips-like instruments that emit a certain color of light. They use so little electricity that when Prince Charles of England switched Buckingham Palace's exterior lighting to LEDs, illuminating the palace at night takes as much energy as one of the electric teakettles that are so common in his country.
LEDs have the added bonus that they rarely need to be changed--the expected lifespan is 20 years. That holds great appeal to municipalities, who spend a lot of money on streetlight and parking garage electricity and maintenance. Los Angeles is retrofitting 140,000 streetlights with LEDs for just these reasons. San Jose, Anchorage and many other cities are performing smaller retrofits with their federal stimulus funds.
Corporations see the benefits, too. Walmart recently installed LED lighting in 638 of its stores' electronics departments and has found an 82% reduction in electricity costs in those departments as a result. It may roll out LED usage chain-wide.
A North Carolina McDonald's restaurant installed LEDs throughout its location and found a 78% drop in electricity costs. Other quick-serve restaurant locations from Yum Brands and Friendly's have found similar savings.
But such cost efficiency and lifespan comes at a cost. LED retrofit lights can costs hundreds of dollars each, compared to a dollar or so for a traditional incandescent bulb.
Still, costs are destined to come down and it's cheaper to install LEDs in new construction. Today, LEDs are still just 1% of the $120 billion worldwide lighting market. Because of their inherent advantages, one major LED manufacturer, Philips, predicts the LED market will grow 1,000% in the next 10 years. My stock pick isn't Philips, but a North Carolina-based competitor we detailed to Cabot Green Investor subscribers this month, Cree Inc. (CREE).
Half of Cree's $597 million in 2009 sales (which generated 34 cents a share net earnings) came from municipal and residential LED products. This is an area largely ignored by many LED makers who prefer to sell to cell phone and laptop makers, which Cree also does.
In addition to supplying LEDs to Walmart's conversion, the company recently bought a major Chinese LED manufacturer, which is accelerating sales in China and also providing a lower-cost manufacturing base. By one estimate, the achievable LED market in China would provide energy savings equal to the power generated by the Three Gorges hydroelectric dam project.
Trading at 52 a share, Cree is pricey at 100 times trailing earnings. Still, history tells us the best growth stocks are often expensive. Wait for shares to back off a few dollars into the high 40s before buying.
Merry Christmas and may the new year continue the bull market.
All the best,
For Cabot Wealth Advisory
Editor's Note: Brendan Coffey is the editor and analyst of Cabot Green Investor, which focuses on alternative energy, energy efficiency and Green lifestyle stocks. Cabot Green Investor subscribers have enjoyed double-digit gains on many companies ranging from Green Mountain Coffee Roasters to Telvent and Brendan expects great things for 2010. Click below to start profiting from the enormous opportunities in the Green sector today!