Two different opinions on Energy Conversion Devices (NASDAQ:ENER) came out last Thursday (Jan. 11).
Analyst Jeffrey W. Bencik at Jefferies & Co said that ENER was one his top 2 picks in the solar industry for '07, opining that despite continued volatility, this should be a rewarding year for ENER investors. He believes that attention will "shift from company specific performance to a top-down focus on the evolution of solar incentive schemes."
Cramer argues that ENER will trade based on the price of oil, while Bencik argues that it will trade based on the evolution of solar energy incentive programs, presumably not only in the US but also in places like Europe, Japan and China. I tend to agree with Bencik here.
Oil and solar power are not substitutes, except in very rare cases. Governments will continue to forge ahead with various schemes to promote alternative energy regardless of what happens to the price of oil, and, ultimately, that is what will drive revenue growth in the sector. Profitability will be driven by a combination of revenue, scale and technological developments. ENER is doing well on all three fronts.
Alternative energy investors, as a class, are getting much better at pinning down the factors that are truly driving growth in this arena, and the days when a drop in the price of oil caused the whole sector to collapse are coming to and end. Just look at how Suntech Power (NYSE:STP) has performed throughout the latest correction in the price of oil (it is up 19% since Nov. 30, 2006).
ENER is currently trading in the mid- to low- 30s; this could be a good entry point.
DISCLOSURE: I am long Suntech Power.