Solar stocks are trading at valuations that would appeal to almost any value investor. Many solar stocks are reporting solid profits and are now trading below book value. These stocks have pulled back significantly from their highs and are trading at levels that could make them attractive buy out targets, or likely to see major stakes purchased for investment purposes from other companies. When an entire sector gets this cheap, it is very possible that the industry consolidates and deals get made. This possibility is further supported by the fact that oil and energy giant Total (NYSE:TOT) of France, recently bought into Sunpower (SPWRA). This sent Sunpower shares surging. Also, recent news that the China Development Bank has decided to purchase a stake in LDK Solar indicates further large scale investment interest in the solar sector. You can read more about that here. Just today, the CEO of Q-Cells, a German solar cells manufacturer stated, "If we find the right partner or the right partner finds us, I would not be opposed” to selling the company ..." You can read that quote here.
As solar gets to grid parity sooner than most people think, this could hasten the deals. There are major energy and other companies that are getting into solar or already have solar divisions. Energy giant BP (NYSE:BP) has a division called BP Solar. General Electric (NYSE:GE) recently made new investments into solar which you can read about here. Other major corporations that may have an interest in solar investments and acquisitions include BASF, and Siemens. There is an excellent article on the Total-Sunpower deal which you can read about here.
Here are a number of solar companies that could see either investment interest or even a buyout deal in the future due to the low valuations and continued expected growth in this sector:
GT Solar (SOLR) shares are trading at $12.36. GT Solar is a leading maker of manufacturing equipment used in the solar industry. The 50 day moving average is about $11.03 and the 200 day moving average is $9.67. Earnings estimates for SOLR are expected to be $1.18 for 2011 and $1.41 for 2012.
Why GT Solar could be an attractive target: SOLR might be an interesting target for a major company to buy. Some believe that perhaps Applied Materials (NASDAQ:AMAT) or MEMC (WFR), could be a potential suitor. Some believe that SOLR will buy other companies and grow through acquisitions.
Hanwha SolarOne Company (HSOL) shares are trading at $5.08. Hanwha SolarOne is a leading maker of wafers and solar modules and is based in China. The 50 day moving average is about $6.39 and the 200 day moving average is $8.77. Earnings estimates for HSOL are expected to be $1.32 for 2011 and $1.34 for 2012.
Why Hanwha SolarOne could be an attractive target: This company used to be called Solarfun Power Holdings Co., but they changed their name to Hanwha SolarOne after Hanwha Chemical of Korea bought a 49.9% stake in this company last year. Some believe that they will eventually buy the remaining 51.1% of the company one day. You can read more about this deal here.
LDK Solar (NYSE:LDK) has pulled back to about $6.58. The relative strength index is about 32 which is very oversold. The 50 day moving average is $9.84 and the 200 day moving average is $10.78. LDK has very strong earnings and based on guidance from the company, it appears they could earn over $3 per share in 2011. This puts the PE ratio at about 2 which is extremely low for one of the leading solar companies.
Why LDK could be an attractive target: LDK has been rumoured to be a buyout target in the past, and at these levels it's even more attractive. As noted above, The China Development Bank has decided to purchase a stake in LDK Solar and this indicates major investment interest in this company. This company is likely to see more major investments in the future. I would not be surprised to see a company like PetroChina (NYSE:PTR) follow in the steps of Total (which bought into Sunpower) and buy into LDK Solar, especially since the Chinese government has shown strong support for solar and LDK.
ReneSola, Ltd. (NYSE:SOL) has pulled back sharply and trades at $5.69. The relative strength index is about 26 which indicates the stock is at extremely oversold levels. The 50 day moving average is $8.35 and the 200 day moving average is $9.89. SOL is estimated to earn about $2 per share in 2011. This puts the PE ratio at about 2.5 which is extremely undervalued for one of the leading low cost solar companies.
Why SOL could be an attractive target: SOL is very cheap right now and has a strong balance sheet and good management. Again, we could see the Chinese energy giant PetroChina (PTR) look to purchase a stake in a major Chinese solar manufacturer like Renesola.
JA Solar Company, Ltd. (NASDAQ:JASO) has also pulled back sharply, to about $5.16. The relative strength index is about 32. These shares have fallen, from a 52 week high of $10.24. The 50 day moving average is $6.18 and the 200 day moving average is $7.21. JASO has earnings estimates of about $1.40 per share for 2011. This puts the PE ratio at about 4.
Why JA Solar could be an attractive target: JA Solar recently announced a major joint venture with MEMC Electronics (WFR) which you can read about here. In the future, it might make sense for MEMC to acquire JA Solar and this initial joint venture could be a prelude to a larger deal.
I strongly believe more deals in this sector is just a matter of time, but even without a deal, all these stocks are trading at bargain levels. There is too much focus on the short term in the stock market and in particular with solar. After the correction solar stocks have seen, this looks to be one of the best buying opportunities since the lows of the financial crisis. I'm buying!
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I am long SOL, LDK.