First Solar (FSLR)
By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 4/19/14 Sign up for Cabot Wealth Advisory—it's free!
The best thing you can do right now is make a list of attractive stocks for possible purchase. These may be stocks with strong fundamentals or compelling stories. Or they may be showing their strength by resisting the downward pull of the market. Preferably all three! The better you are at identifying these stocks, the greater your head start when the buyers come out to play again.
My candidate for your watch list is First Solar (FSLR), an Arizona-based designer and manufacturer of solar modules that use a proprietary thin film semiconductor technology.
Photovoltaic (PV) energy has been the big hope for the future for as long as I can remember, but something has always cut the industry off at the knees, whether it’s higher cost per unit of electricity, shortages of polysilicon feedstock or a withdrawal of government support during the Great Recession.
First Solar’s big advantage was always that its thin-film technology, while not quite as efficient as conventional modules, lowered its costs and insulated it from polysilicon shortages. But the company has improved its efficiency ratings and has partnered with GE on reducing the cost of the non-PV parts of major installations.
The company has also shifted its emphasis toward large, standalone installations built to feed electricity directly into power grids. First Solar, which experienced reduced revenue and earnings in 2013 and isn’t expected to shoot the lights out in 2014 either, has a big backlog of orders for turnkey power projects and is competing aggressively for plant contracts outside the U.S., which has historically been its best market.
Management has projected an 87% jump in earnings in 2015, and investors have taken note, also noting that China’s pollution problems are likely to lead to a major commitment to PV power in that giant market.
Personally, I think FSLR, which popped higher on huge volume on March 19, is a great watch list stock for spring. It’s a good time for a hopeful, green stock with a big future.
FSLR has also been holding those March gains well and is sitting right on its 25-day moving average. It wants to go higher once the market enters a sustained uptrend.
First Solar (FSLR): Shaping up to lead the industry
Indexes are very strong, the former high-fliers are weak, and a fair amount of “dumb money” has come into the market in recent months, making sentiment levels elevated.
Now, I’ll be the first to acknowledge that trends can and do go to the extremes. Trends tend to go farther than people originally expect.
But the weak action of those former high-fliers tells me that the pros are making those newcomers pay for their tardiness. Hopefully, when they’re done teaching the message, the pros will step in and start buying again. But hope (as Mike Cintolo likes to say) is not a strategy, so my plan, as always, is to keep following the trends, paying particular attention to what’s strong.
Today, that means First Solar (FSLR), which was a big winner for Cabot back in 2007, in the first big solar wave, and is shaping up to lead the industry in the current wave as well.
But FSLR can be a hard stock to hold onto!
It’s already appeared in Mike Cintolo’s Cabot Top Ten Trader three times earlier this year (February through May), trading at 34, 39 and 51. In June it peaked at 56.
And then it took a plunge. Mike recommended selling at 41 in June, and the stock fell all the way to 36 in September before beginning a new uptrend.
Then, just last Friday, it exploded higher on huge volume after releasing a monster earnings report, in the process breaking out above that old high of 46.
To me, it’s not the news that matters, though I do like seeing revenues soaring and earnings trouncing analysts’ estimates.
To me, it’s that big-volume breakout to new highs that matters, because it tells me there’s serious institutional money climbing on board. Plus, as I mentioned before, I have very high expectations for solar power in general as efficiencies improve and costs come down.
So, you could just buy FSLR here, but then, of course, you’d be on your own. My suggestion is that you take a no-risk trial subscription to Cabot Top Ten Trader, where FSLR is almost certain to appear in the near future, and then follow the recommendations carefully, paying particular attention to avoiding problem four above. For details, click here.
First Solar (FSLR): Fell out of the public's eye
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 4/29/13 Sign up for free Cabot Wealth Advisory
My rule of thumb about investing in past big winners like Apple is that the stock needs to fall out of the public’s consciousness first. People have to stop expecting the stock to be a bargain; they have to give up on it! That takes time, and experience tells me that five years will usually do it.
For example, exactly three months ago today, I recommended buying First Solar (FSLR) at 28. Today the stock is selling at 46, up a very satisfying 64%.
That’s more than I’d expected so quickly, but I’m not totally surprised, because the potential was there.
Here’s what I wrote back in January.
“First Solar came public in December 2006 at 26, and soared all the way to a high of 317 in May of 2008, for a gain of 1,119%! (Cabot Market Letter subscribers bought in March of 2007 at 57, took partial profits on the way up at 115, 167 and 220, and sold the last bit in September 2008 at 228 as the stock started to crash.)
Interestingly, the base that was built following that crash—and which centered on 140—didn’t hold, and the stock crashed again in 2011 and 2012. It’s been less than a year since the second crash, so it’s possible the stock needs more time. On the other hand, it’s been five years since the first crash, and that’s the one that took the stock out of the limelight.”
Lesson: If you’re buying what’s popular, you might be buying near a top. If you’re buying what was popular five years ago, and what’s now out of favor, you might be buying near a bottom. For AAPL, I’d wait until 2017.
For more information about Cabot Stock of the Month, click here.
By Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 1/3/13 Sign up for free Cabot Wealth Advisory e-newsletter
Here’s another installment of my series, “Ten Stocks to Hold Forever.”
The basic idea is that if you invest intelligently in young stocks with great growth potential and never sell them, some will go bankrupt (you’ll lose 100% of those investments) but some will succeed spectacularly, multiplying far more than 1,000%, and the gains from those few big winners will dwarf your losses.
Plus, because you never sell, you’ll never pay taxes on the gains, and you’ll pass all your gains to your heirs, tax-free!
You can read much more on the concept here.
Or you can jump right into #3 of this year’s selections, all of which were chosen by the Cabot editors.
It’s First Solar (FSLR) the Arizona company that’s engaged in manufacturing solar panels, and it was chosen by yours truly.
Coincidentally, First Solar was also featured in last week’s issue of Cabot Top Ten Trader.
Here’s what editor Mike Cintolo wrote in that issue.
“First Solar is a pretty good stand-in for the fortunes of the entire solar industry. The company was a monster back in 2007, when governments (especially Germany) flush with cash were offering big subsidies for solar projects. The big limitation on the industry then was a shortage of silicon. And that shortage made First Solar’s patented thin-film technology a big winner, because it held down material costs and sidestepped supply issues. The company’s 273% revenue growth that year tells the story. That annual growth rate dwindled to just 8% in 2011. But, as frequently happens when companies can weather huge downturns, First Solar is bouncing back, with nearly half of sales coming from U.S. buyers and just 23% from Germany. Estimates are for First Solar to do $3.62 billion in sales in 2012, which will be a 31% increase. Oil prices are high enough to make solar look attractive again and the industry, after losing many weaker competitors, is in great shape for 2013. First Solar has a manufacturing capacity of two gigawatts of solar arrays, and the company’s strategy of targeting large-scale projects makes it a strong bidder for both U.S. and global business. Chinese solar stocks have been rallying since the Chinese government’s announcement on December 19 that it would cut subsidies to solar companies, allow bankruptcies and encourage mergers and acquisitions, which should cut the global oversupply of manufacturing capacity. First Solar looks to be back on the growth track.
“FSLR shot from 24 to 317 from November 2006 to April 2008, then got slammed by the Great Recession. But the biggest drop came in the 12 months from February 2011 to May 2012, when the stock plummeted from around 175 to as low as 12. FSLR has now more than doubled off those lows, and institutional support has started to revive. FSLR has been through its romance phase and a bigger correction than most. It looks now like it’s ready to appreciate on its own solid growth and growth prospects. The stock’s dip from its high of 33 a couple of weeks ago marks a decent entry, with a logical stop near 26.”
When Mike wrote that, the stock was trading at 30. Yesterday it hit 34, so short-term, it’s a success, and I think the prospects are bright for the weeks and months ahead.
But how do I justify holding First Solar forever?
First, I note that the energy industry is universal, and demand for energy is bound to grow as the developing world adopts all the tools and toys of the developed world, from cars to dishwashers to big-screen TVs.
Second, I note that there’s growing demand for non-polluting sustainable energy solutions, mainly solar and wind. Both have their advantages, with location often dictating which is the better solution.
Third, I note that First Solar has continued to grow revenues every year—even through the 2008-2009 crisis—and it’s remained solidly profitable every year, too, including north of $4 per share in 2012. Those are the signs of a well-run company in a good industry.
Fourth, I note that while FSLR was adored by investors back in early 2008, there’s no love for it today. Back then, it was the market’s biggest gainer, and traders were riding it to the moon!
Today, revenues are more than double what they were then, and earnings are comparable, yet the stock’s valuation is immensely lower, as the stock is trading at less than a tenth of its price back then.
In short, the company has enormous growth potential and its stock is cheap!
The one caveat I have about the “forever” play is this: I think FSLR could roll over sometime in the months—even years—ahead to retest its low at 12. My reasoning for this thinking is simply experience. Generally, stocks need many years out of the public eye for the old love to fade. With over four and a half years of correction under its belt, FSLR may have had enough time, but more would be better. Furthermore, stocks usually need a couple of bottoms—typically diminishing in severity— to shake out stubborn shareholders before a true recovery can begin. Ideally, these retests happen at higher lows and lower volumes. FSLR has not had any retests of its June bottom, so the potential is still substantial.
If such retests are in the cards, there might be a better entry point in the months—even years—ahead.
Of course, I could be wrong. So the best way to play it is to buy now (or on any near-term pullback) and hold it as long as it climbs higher.
Even better, take a no-risk trial subscription to Cabot Top Ten Trader and stay on top of Mike Cintolo’s latest recommendations about FSLR and other great growth stocks. Click here for more information.
But that doesn't mean these companies are great investments. Consider First Solar (FSLR).
Back in 2007, First Solar was our biggest winner and the company is still king of the hill in many ways. In 2009, its revenues grew 66% to top $2 billion. Earnings were $7.53 per share, up 78% from 2008.
And how did FSLR perform in 2009? The stock finished right where it started, at 135. Today it's still in the same neighborhood, and a stock that's going sideways is not attractive to me.
But why does a company growing this fast have a stock that's not going up?
In short, because investors previously expected even faster growth. First Solar's growth is actually decelerating at a rapid rate now. The company has gone from being a Formula One race car (sales grew 273% in 2007) to a BMW 3-Series, and the stock's price is still adjusting to the change. I recommend that you continue to avoid it until investors put the stock in an uptrend again.
And note this: It's not just because First Solar was the leader that it's being held down now. The vast majority of stocks in the solar power industry look even worse, because their businesses are doing less well and because money is leaving the sector.
On my survey of the alternative energy sector, I ran into old friend USEC, Inc. (USU), which operates the only uranium enrichment facility in the U.S. (in Paducah, Kentucky). It's the executive agent for Megatons to Megawatts, the U.S. government's program for converting uranium from Russian warheads into enriched uranium for electric utilities. And it's deploying the American Centrifuge, a next-generation enrichment technology.
But the business isn't growing, and the stock hasn't been in a real uptrend since early 2007. Even President Obama's mention of nuclear power in his State of the Union Address failed to strike a spark. To me, that's reason enough to ignore it.
So which alternative energy stocks do I like? None today. I had high hopes for EnerNOC (ENOC) recently, but the market told me I was wrong. Bottom line, most alternative energy stocks are not attractive today. (When they are, you'll read about it first in Cabot Green Investor, our earth-friendly but still profit-minded publication that is currently winning with some revolutionary new technology stocks. Click here for more information.)
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
|First Solar (FSLR)
350 West Washington Street
Tempe, Arizona 85281-1244
|Index Membership: N/A
Industry: Semiconductor - Specialized
Full Time Employees: 5,600
11/4/13 First Solar (FSLR): Shaping up to lead the industry
4/29/13 First Solar (FSLR): Fell out of the public's eye
1/4/13 First Solar (FSLR): A stock to hold forever
3/1/10 First Solar (FSLR): Solar power industry not looking well