Solar Installations, Farms Catching On with Investors Big and Small

Don’t feel too badly if you are having trouble understanding the ups and downs of the solar industry. Take the Dec. 15 Business section of the Los Angeles Times, for instance. Right above to the headline “Grand Jury Investigating Solyndra,” and yet another story outlining the high-profile bankruptcy of the Fremont, CA solar panel maker despite $535 million in federal aid and $1.1 billion in venture capital backing, was another headline “Record Gains for Solar Industry” and a story noting that “solar power is a booming business in the U.S. ” along with statistics demonstrating the truly staggering growth of solar installations across the U.S. (http://www.latimes.com/business/la-fi-solar-growth-20111215,0,5390004.story).

But then you flip forward a few pages and there’s another report about solar panel maker First Solar, which fell 21.4 percent to $33.45 on Dec. 15, its lowest level in four years, after announcing its second restructuring in six weeks. First Solar, long considered a solar success story and the world’s largest solar company based on market cap (although its market cap has fallen almost 75 percent this year), released an earnings warning Dec. 14 suggesting that “downward pressure on solar panel prices and profit margins will continue ‘indefinitely,” according to the Financial Times.  The company’s basic problem is that there are too many solar panels on the market and countries in Europe, where solar is very popular, are cutting subsidies and will continue to do so.

“If you’re making solar modules, it’s very dicey out there. The prices keep going down, down, down,” said Philip Lawes, chief executive of Laguna Beach, CA-based Insoltech Solar.

But just go back a few weeks and you can read the reports about Google investing millions in solar power, and then there was last week’s news about Warren Buffett getting into the solar business for the first time. MidAmerican Energy Holdings, a unit of Buffett’s Berkshire Hathaway Inc., purchased the Topaz solar farm in California’s San Luis Obispo County from First Solar. Terms were not disclosed but the Wall Street Journal suggested Topaz was worth “more than $2 billion. If you scan the news further, you’ll see that Buffett isn’t the only one jumping into the solar farm business. First Solar and SunPower Corp. have been unloading their solar farms to some of the U.S.’s biggest utilities, including NextEra Energy, NRG Energy and Exelon Corp.

Lawes said the big investors like Buffett see long term income in the large solar farms.

“These solar farms, they aren’t glamorous, they aren’t going to be a home run, but they create a steady cash flow over the long term,” said Lawes, adding that Buffett’s company will enjoy that steady cash flow by selling the energy produced in the farms to a utility. “The utility companies aren’t going anywhere.”

Google and KKR must agree, since they recently announced a joint investment in four solar farms south of Sacramento, CA. The deal allows the solar farm developer and operator, Recurrent Energy, to raise cash and fund future solar farms. Recurrent has a 20-year contract with Sacramento Municipal Utility District to supply electricity to power 13,000 homes, according to a story in the Wall Street Journal.

There’s also opportunities for small investors, Lawes added. Entrepreneurs are approaching owners of commercial buildings offering in some cases to pay 15 cents a square foot for the use of their roofs. The entrepreneurs then install solar and sell the power to utility, just like the big guys with the big farms. “Typically, they just need a flat roof,” he said.

So, other than the big guys like First Solar, how are the smaller solar companies faring? Not that well if you are in the solar panel business.

China-based Suntech Power Holdings (NYSE: STP, http://www.suntech-power.com/), a smallcap that has boosted its market cap up to $423 million market cap in recent weeks, makes photovoltaic products and provides construction services. This stock closed on Oct. 20 at $2.07. By mid-day Dec. 23 it was trading at $2.34.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/), which sells a variety of solar products, continues to decline. Back in late August it was trading for $6.74. At mid-day Dec. 23 it was trading for $2.85.

China-based LDK Solar Co. (NYSE: LDK, http://www.ldksolar.com/)) manufactures solar products and silicon materials. It, too, has bounced back from lows in late October of around $3. At mid-day Dec. 23 it was trading for $4.91, much closer to the highs of nearly $6 in late August.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/)) designs, manufactures and sells photovoltaic modules worldwide. It’s now trading for less than half its Aug. 31 close of $15.88. By Oct. 20 it had declined to $7.15. It’s up from there, but not much. At mid-day Dec. 23 TSL stock was trading for $7.39.

Shanghai-based JA Solar Holdings Co. (Nasdaq: JASO, http://www.jasolar.com) makes solar cells and other solar

 

products and has hit by the downturn. On Aug. 31 its stock closed at $3.66; by Oct. 20 it closed at $2.14; at mid-day Dec. 23 it was trading for $1.39.

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With Solar Power’s Future So Bright, Which Solar Stocks Are Oversold?

All the noise about the bankruptcy of privately-held Solyndra, despite the reported $535 million federal loan guarantee, could lead some to think that the solar industry is in trouble. That would, of course, be spectacularly wrong.

While shares in the publicly-traded solar equipment makers have been falling since Aug. 31, the day the bankruptcy was announced, the future of solar power has never been brighter, according to many experts including NRG President and CEO David Crane. He told Jim Cramer on CNBC Sept. 20 that while price of solar panels has dropped “precipitiously…within three to four years, the cost of solar power in at least half of the states in the U.S. will be less than drawing power off the grid.” Crane also added that solar panels represent “a billboard for what you stand for as a business owner. NRG is working with the Washington Redskins to build a 2 megawatt solar installation and solar plug-in stations in the parking lot of their stadium.

As has been noted recently, the problems Solyndra experienced were unique to the company and solar panel equipment makers in general. Basically, its solar panels were too expensive and cost more to install than its competitors. Yahoo News reported that the price for solar panels has dropped by about 42 percent this year alone due to, you guessed it, competition from China.

The problem with picking solar stocks, particularly the solar panel and equipment makers, will be finding which of the group will survive and enjoy the promising future of solar power. Let’s take a look at the stocks of several solar equipment makers and see what they have done since Aug. 31, the day the long anticipated Solyndra bankruptcy became official. They have all fallen sharply, but have they been oversold? If so, which ones?

One of the larger solar companies Tempe, AZ-based First Solar (Nasdaq: FSLR, http://www.firstsolar.com/), the world’s largest maker of thin-film solar modules with a $6.5 billion market cap, hit a four-year low Sept. 22, dropping all the way down to $66.85, then “rallied” on Sept. 23 to $70.24. First Solar’s most immediate problem is apparently its own federal loan program, which is facing new scrutiny due to Solyndra’s problems. FSLR sold for more than $100 as recently as Aug. 31 but has been mostly falling since that day when it lost $1.95 and closed at $99.98.

China-based Suntech Power Holdings (NYSE: STP, http://www.suntech-power.com/), which makes photovoltaic products and provides construction services, was trading for $5.25 on Aug. 31. On Sept. 23 it closed at $2.64, down 7 cents for the day.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/), which sells a variety of solar products, was trading for $6.74 on Aug. 31. It closed Sept. 23 at $4.72, up 31 cents on the day.

China-based LDK Solar Co. (NYSE: LDK, http://www.ldksolar.com/) manufactures solar products and silicon materials. On Aug. 31 it closed at $5.71 and by the close of market Sept. 23 it had dropped to $3.40, down 7 cents on the day.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/) designs, manufactures and sells photovoltaic modules worldwide. Its closing price Aug. 31 was $15.88, while on Sept. 21 it closed at about half that price, or $7.69, up 25 cents.

Shanghai-based JA Solar Holdings Co. (Nasdaq: JASO, http://www.jasolar.com) makes solar cells and other solar products. It closed the trading day Aug. 31 at $3.66. On Sept. 21 it closed at $2.20, up 10 cents on the day.

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.