"One of the dumbest inventions would be a solar-powered flashlight. One of the dumbest investments is chasing a trend that's nearly ended." Anonymous
The purpose of this article is to call attention to what's happening with these solar energy related stocks, and to suggest an alternative.
Of the 3, I find SUNE the most compelling story. SunEdison is a global leader in semiconductor and solar technology.
SunEdison's semiconductor business has been a pioneer in the design and development of silicon wafer technologies for over 50 years. With R&D and manufacturing facilities in the U.S., Europe and Asia, SunEdison enables the next generation of high performance semiconductor devices.
SunEdison's solar business develops, finances, installs and operates distributed power plants, delivering predictably priced solar energy and services for its commercial, government and utility customers.
Here's a 1-year chart to illustrate how hot these 3 stocks have been in the past 12 months. As you can see SPWR is up about 500% and SUNE has soared over 300% from its 52-week low of $2.15.
First Solar looks like the only one that has the kind of financial fundamentals and a balance sheet (as of the beginning of 2013) that still makes it appear to be a compelling investment.
With a trailing PE ratio of less than 12 and a forward (1-year) PE ratio of around 13 it suggests that FSLR is a profitable company that will only become more so in the quarters ahead.
FSLR is a leading global provider of comprehensive photovoltaic (PV) solar systems, which use its advanced module and system technology. The company's integrated power plant solutions deliver an economically attractive alternative to fossil-fuel electricity generation today.
From raw material sourcing through end-of-life module recycling, First Solar's claim to fame is that its renewable energy systems protect and enhance the environment. If that's a fact, I want to own some shares.
For more information about First Solar, please visit its website page that provides news releases direct from the company.
SPWR and another sizzling solar company, SolarCity (SCTY) have exposure to the growing residential market, which has given enough reasons for investors to be very bullish. But is the current stock price action a form of "irrational exuberance"?
Investors need to recall the massive potential for solar energy to benefit the utility market. This sector has not accepted solar energy like the residential solar market.
The utility market is where FSLR and SPWR "shine," making the majority of their earnings. As coal and nuclear energy become less tolerated, solar energy should begin to catch up with natural gas in popularity.
Where's The Dividends and Shareholder Benefits?
Obviously the solar sector is more for speculators than it is for investors who want to experience both capital gains and shareholder income. Other energy plays are more congruent for the investor seeking "total return."
An example is independent downstream-midstream energy company Phillips 66 (PSX). Offering a 2.6% dividend and with both trailing and forward PE ratios of 8 to 9, PSX looks very promising.
In the company's own words, "Built on more than 130 years of experience, Phillips 66 is a growing energy manufacturing and logistics company with high-performing Midstream, Chemicals, Refining, and Marketing and Specialties businesses.
"This diverse portfolio enables Phillips 66 to capture opportunities in the changing energy landscape. Headquartered in Houston, the company has 13,500 employees who are committed to operating excellence and safety. Phillips 66 had $50 billion of assets as of June 30, 2013." For more information, visit its user-friendly website.
PSX will release its third-quarter financial results on Wednesday, Oct. 30 at 8:00 am. EDT. Later that day, Phillips 66 executive management will host a conference call webcast at 11:00 am. EDT to discuss the company's third-quarter performance and provide an update on strategic initiatives.
The company has $6.4 billion of trailing-12-month operating income. Its $1.56 current annual dividend represents a meager 15% payout ratio, suggesting plenty of room for raising the dividend.
There are other energy companies like PSX that offer plenty of upside potential and adequate incentives for shareholders to buy shares. I'll save those names for a future article.
In the meantime, although the solar sector has been on fire (and could move higher on shorts covering their positions) only FSLR really looks rationally priced.
SUNE has a diversified business model with a long history of semiconductor innovation and profitability, but it is also more of a speculative play.
The solar sector may be over-extended after this amazing bull run. That's why it appears too late for newcomers to dive in. If you're one of the fortunate who hold shares of these companies, consider selling enough to recapture your original investment amount.
Also use a stealth, trailing stop loss alert system such as TradeStops to protect your gains. Remember, what goes up irrationally fast can start plunging in a New York minute.