Is a Solar Shakeout on the Horizon?

Barron’s weighed in again March 14 on the outlook for solar stocks, and the news in most cases is not good. Under the headline “Should Solar Bulls Be Such Grumps?,” writer Tiernan Ray suggests that given the surging price of oil and the better-than-expected year-end results turned in by most solar companies, one might expect stock prices to be rising. But that’s not the case for the majority of the pack, other than the two best performers, First Solar and SunPower. With a $1.32 billion market cap, SunPower is just outside our $1 billion ceiling for smallcap stocks and of course First Solar is a solar giant with a more than $12 billion market cap.

For investors, the problems with solar stocks seem to be oversupply and the outlook for government subsidies in our current belt-tightening times. With governments all over the world ratcheting back, investors are concerned that those subsidies, which the young industry has relied on, will be among the cuts. Ray, however, suggests that might ultimately be a good thing. A global solar industry shakeout might help separate the good companies from the bad, he says.

Herb Greenberg of CNBC agrees. While solar stocks were “on fire” March 14 in the wake of the Japanese disaster and “headlines about nuclear uncertainties,” Greenberg and solar bear Gordon Johnson of Axiom Capital also warned about the expected cuts in solar subsidies. Japan had been expected to offset solar declines in Italy and France, but that may not occur given the serious issues related to the earthquake and tsunami.

Here are a few of the solar stocks we have been watching lately:

China-based JA Solar Holdings (Nasdaq:JASO, http://www.jasolar.com/) is a photovoltaic solar cell manufacturer that was up more than 6 percent March 14 on the Japan news to $6.69 but started to back off in after hours trading. JASO, with a market cap of about $1 billion, has been as high as $10.24 in the past 12 months but was one of several solar stocks downgraded by Piper-Jaffray, due in large part to concerns about future subsidies.

Marlboro, MA-based Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com/) uses its proprietary wafer manufacturing technology in its String Ribbon solar panels. ESLR has been struggling and, as noted in Barron’s, it has never made a profit and is facing a cash crunch, which prompted a recent sell rating from JP Morgan. The stock traded for more than $7.50 a year ago but has been on a downward slide ever since, closing March 14 at $1.68 a share.

The MAC Solar Energy Index (NYSEarca:TAN) is made up of common stocks, ADRs and GDRs and on March 14 had net assets of $188 million. As Greenberg notes, it was one of the solar stocks enjoying a run March 14 on the Japanese news but had fallen nearly 20 percent in recent weeks.

Ontario-based Canadian Solar (Nasdaq:CSIQ, http://www.canadian-solar.com/) manufactures and markets solar cells and solar module products in Canada and interntionally. CSIQ, which has a market cap of $461 million, was one of the “downstream” solar stocks hit by the Piper-Jaffray downgrade and it dropped 2.7 percent to $10.75 March 14. The stock has traded for as high as $26.26 in the past 12 months but is off its 12-month low of $8.99.

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