Reports Of Solar Demise Are Exaggerated, Utilities Remain Big Buyers

| About: First Solar, (FSLR)

Summary

Despite falling gas prices, solar power continues to grow.

Utilities like solar power because it gives them cost visibility going out decades.

First Solar still the pick because it doesn't go out ahead of its skis and knows how to win this business.

I am 100% right on solar energy as a concept, but I'm still not very good at picking solar stocks.

If you ignored my advice in December and shorted SolarCity (NASDAQ:SCTY) you are sitting pretty right now. The company is down 63% from where it was then. Most solar stocks have been getting hammered in this market, with SunEdison (SUNE) down to $1.43/share, SunPower (NASDAQ:SPWR) trading at less than half its 2014 highs, and the big, scary Chinese competitors like Trina Solar (NYSE:TSL) all valued at a fraction of their American counterparts.

Yet solar continues to soar.

In 2015, 7.3 GWatts of solar power were installed in the U.S., and more solar capacity was installed than natural gas, despite the fall of natural gas prices. Solar installations now total over 20 GWatts, and are up 34% over 2013. Once solar is installed, moreover, the output of the panels remains online for decades - that demand is removed from the market permanently.

I know that makes you no money, but I did have one call that remains a good one. As I wrote in November, First Solar (NASDAQ:FSLR) is the only stock you should own in this market.

The reason for that is to be found in the Solar Energy Industries Association report. Utilities represent most of the market, and they are not susceptible to political pressure. They're more like the folks who put the pressure on. Consider North Carolina, home of Duke Energy (NYSE:DUK), which has been buying the concept. Despite having a Governor who is openly contemptuous of clean energy and a proud ally of the Koch brothers, North Carolina was the second-leading solar state last year, and even Texas cracked the top 10.

The reason utilities are buying solar power with both hands is the same reason data centers bought solar earlier in the decade. With one capital expenditure, they can lock in energy costs for decades. Utility scale solar adds to CapEx, something residential solar does not, and buying solar at utility scale is also cheaper, as construction, permitting and other costs are amortized over a larger contract.

Which brings us back to First Solar. First Solar's cadmium-telluride panels are thin, light, easy to install, and best suited for open field use. The company recognized this years ago, and targeted the utility market instead of the residential market. As a result, the company showed profits in 2013 and 2014, and it should report another full year of earnings when the numbers come out after the market's close February 23.

Earnings of 80 cents are expected, and the consensus recommendation on First Solar is a buy. First Solar could pay all its long-term debts with short-term investments on hand, and the company has made no announcements that might get it out ahead of its skis, preferring to do business as it has for five years now. The company is doing new business in Australia and South Africa.

This is a well-run company that is easy to understand. It's not changing the world quickly, and it won't make you rich quickly. It remains the pick of the solar litter. But you should expect the sector to grow in 2016, regardless of what happens to fossil fuel prices.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.