Alternative energy industries often fall prey to 1-2 year boom and bust cycles that make the underlying stocks feel like quite a roller coaster. For the last several months we’ve been in the “bust” cycle for anything Solar. Most Solar stocks (International and US Domestic) are down 60% on average just in the last 3 months while US based Solyndra, Evergreen Solar (ESLR), and SpectraWatt have all declared bankruptcy. These three bankruptcies represent one-fifth of solar panel manufacturing capacity in the US. Needless to say if you have owned a Solar related stock the last couple months, everyday that goes by feels like another anvil is being dropped on your foot. I think the financial publications have enjoyed blasting Solar stocks as much as Chinese RTOs.
CommodityHQ wrote a great piece called, “The Ultimate Guide to Solar Power Investing,” a good overview of the industry. In a nutshell, China has invested billions into its Solar industry transforming it from a small player to the main producer of solar panels. China now accounts for three-fifths of the world’s solar panel production capacity. The increase in capacity in China has substantially driven down costs, thus making it impossible for a US or European manufacturer to compete. Solar companies that haven’t been quick to move production to China are literally being driven out of business.
Even with all the negativity surrounding Solar, job growth in the industry remains very strong. US Solar related jobs are expected to grow 24% in 2012 mostly in installations. A good friend of mine owns a local HVAC and fleet fueling company that recently expanded into solar installations, and I know many other business owners who are doing the same thing. Solar prices are coming down drastically, which is a good thing for consumers, and it is also making solar “a little” less dependent on subsidies for it to be economic.
As an investor in micro-small-cap companies, I’m drawn to these industries that have gotten killed. Here are a few micro-small caps attached to Solar that could make big returns over the next few years:
GT Advanced Technologies (GTAT), PPS $7.75, Market Cap $975m, Cash Position $473m or $3.60 per share: GT Advanced Technologies Inc. is a global provider of polysilicon production technology and sapphire and silicon crystalline growth systems and materials for the solar, LED and other specialty markets. The company's products and services allow its customers to optimize their manufacturing environments and lower their cost of ownership. GTAT has grown revenue from $60m in 2007 to $899m in 2011. The company gave guidance for $1.0 – 1.1 billion in revenue and EPS of $1.55 – 1.85 for FY2012. GTAT has $2.3 billion in backlog ($952m – Sapphire, $1.35b – Solar). 14 analysts cover GTAT with an average price target of $14.60.
TechPrecision Corp (TPCS.OB), PPS $1.10, Market Cap $20m, Cash Position $7.5m: TechPrecision Corporation is a global manufacturer of precision, large-scale fabricated and machined metal components and systems. These products are used in a variety of markets including: renewable energy (solar and wind), medical, nuclear, defense, industrial, and aerospace. TPCS has a diversified customer base with about 50% of revenue coming from alternative energy. TechPrecision’s largest customer is GT Advanced (GTAT), and when GTAT moved manufacturing of solar/sapphire to China, TPCS was quick to open its Wuxi Critical Mechanical Components subsidiary in China (started producing Q3 2011). Management has stated that the move to China will increase gross margins for the company. TechPrecision produces high temperature vacuum chambers for the solar and sapphire markets. Since announcing the Wuxi Chinese Subsidiary, TechPrecision has signed up four more tier 1 solar and sapphire customers, which is expected to contribute to revenue/income starting in calendar Q4 2011. 2 analysts cover TPCS with an average price target of $4.25. Analysts expect FY 2011 revenue of $43 million and EPS of $0.16, and FY 2012 revenue of $57 million and EPS of $0.27.
Real Goods Solar Inc. (RSOL), PPS $1.75, Market Cap $30m, Cash Position $15m: Real Goods Solar, Inc. is a leading residential and commercial solar energy integrator, having installed over 11,000 solar systems. Real Goods Solar offers turnkey solar energy services and has 33 years of experience in solar energy, beginning with the sale in 1978 of the first solar photovoltaic, or PV, panels in the United States. On June 22, RSOL merged with Alteris Renewables to form the largest residential solar integrator-installer in the US (thought to have about 11% of the market). 4 analysts cover RSOL with an average price target of $4.38. Analysts expect FY 2011 revenue of $123 million and EPS of $0.03, and FY 2012 revenue of $200 million and EPS of $0.20.
Disclosure: I am long TPCS.OB.