by Jeff Siegel
So here we are... The first half of 2010 is nearly over.
We made a decent chunk of money so far this year, and even with this most recent euro-induced market slide, we've still managed to deliver quite a few gains. But that's yesterday's news. And it's not going to help us make any money tomorrow. So let's take a look ahead at the second half of 2010 — and discuss the opportunities we're going to have to profit over the next seven months.
First we'll start with solar...
Don't Hate; Participate!
Solar's been on an absolute roller coaster this year.
Back in February, following news of the German feed-in tariff cut — which anyone who follows this market knew would (and must) happen to avoid a bubble — solar stocks fell hard. And of course, the solar bashers came out swinging (after the fact). Some went as far as to claim the end of the solar industry in some cases.
They were clearly ignoring the fact that the future of solar is not in Europe, but rather in China and the United States...
China is expected to be the largest solar market by 2015, and installed solar photovoltaic capacity in the U.S. is expected to grow from about 2 gigawatts at the end of 2009 to about 11 gigawatts by 2015. Only a fool would dismiss that kind of growth and declare that the future of solar hinges only on a German feed-in tariff.
That being said, many solar manufacturers today are still heavily exposed to the euro, and some more than others. Certainly this did not inspire solar investors to do cartwheels over the last couple of weeks, as the euro took a nosedive... But there are companies that are less exposed than others — or have simply provided a better hedge than their competitors; companies like Trina Solar (NYSE: TSL) and JA Solar (NASDAQ: JASO), for instance, which are also two of the most solid players you'll find in the industry.
These companies will likely be the best rebounders from this recent slide.
It'll still be a bumpy road for solar investors this year... But we remain bullish in the long term, with a solid focus on the U.S. and China solar market — especially with Trina Solar, JA Solar, Suntech Power (NYSE: STP), First Solar (NASDAQ: FSLR), Solarfun (NASDAQ: SOLF), and Yingli (NYSE: YGE).
The Heat Below
Geothermal investors haven't had much to cheer about this year. Ormat Technologies (NYSE: ORA), perhaps the most solid geothermal play, is down about 25% for the year... Earnings are likely to be flat until Q4.
Some of the smaller geothermal players have also been struggling this year. One in particular, U.S. Geothermal (AMEX: HTM), is down about 45% for the year. But going forward, I think this is one of the most promising geothermal plays if you want the most bang for your buck. The company has more than one operational power plant and is currently working with the DOE to test the latest in enhanced geothermal technology. The Idaho Public Utilities Commission has just approved a 25-year power purchase agreement for the purchase of up to 25 megawatts from the company's Oregon project.
Anything below $1.00 seems pretty cheap if you have the patience for it... Or for something with a little less risk, Ormat's looking pretty cheap below $29. (This one will also require some patience.)
We believe that both should slowly start to rebound in late summer / early fall.
Strong Winds Remain
The wind industry is definitely not slowing down — especially in the U.S. and China, where wind farm development (and transmission to facilitate those projects) continues.
We're still very bullish on Western Wind Energy Corporation (TSX-V: WND), a small but growing wind farm developer in California.
We also see potential in A-Power Systems (NASDAQ: APWR), especially as it aggressively moves into the U.S. market, and American Superconductor (NASDAQ: AMSC), which announced just last week that it will be jointly developing a range of advanced, multi-megawatt-scale wind turbines for Sinovel.
Sinovel is the largest wind turbine manufacturer in China and the third largest in the world, based on market share. It's expected to be the world's largest within the next five years! Sinovel is also expected to go public on the Shanghai Stock Exchange later this year.
All three of these wind plays look quite promising going into Q3 and Q4.
One market we're particularly excited about — mostly because we've already wet our beaks on this one — is the LED market.
Back in March, electronics research firm iSuppli released a report that indicated the global supply of Light-Emitting Diodes [LED] will face a shortage this year, with the end of the year facing an acute undersupply. According to iSuppli, total consumption of LEDs reached 63 billion units in 2009. That's up from 57 billion in 2008.
Researchers also noted that with LED market growth forecast to rise by double-digit percentages for at least the next three years, a drastic undersupply situation could occur in 2010 unless additional capacity is brought online to meet increased demand.
Most of this shortage is based on LED demand for the backlighting of large-screen LCD TVs... But LEDs are also becoming quite valuable for residential, commercial, and industrial lighting needs, and we believe these particular applications will see the most growth in 2011 and 2012.
Two LED companies that will remain strong throughout 2010 (aside from any broader market declines) are Cree (NASDAQ: CREE) and Veeco (NASDAQ: VECO). I particularly like Veeco, which is in a very lucrative position as it is a key provider of LED equipment.
I also like a smaller and lesser-known LED player that has some very profitable government contracts already in place, as well as more than a dozen deals with some of the biggest retailers in the country. It's a smaller stock with nowhere near the market cap of Cree and Veeco... But I also think it'll give you more bang for your buck if you're looking to profit from the LED boom. And I'll tell you more about that one later.
Disclosure: No positions