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Renewable energy stocks have taken it on the chin over the past year as cutthroat competition among equipment manufacturers, slashes in government subsidies, and a dramatic decline in prices for power-producing fossil fuels have brewed a perfect storm for the solar and wind energy sector.

But with sector ETFs TAN and FAN trading in a range which could possibly mark a bottom for renewable energy stocks, now is a good time to sift through the carnage for survivors with sound fundamentals whose stocks will recover during the next growth phase for renewable energy. Here we highlight cyclical small-caps Amtech Systems (ASYS) and Power-One (PWER) as two undervalued stocks with the characteristics to survive and thrive in the next cycle:

1) Both have fortress balance sheets with plenty of cash and no debt.

2) Both are trading near or below book value.

3) Both are free cash flow positive with limited capex needs.

Amtech Systems is a supplier of capital equipment used in manufacturing solar panels and semiconductors. The company's stock is no stranger to ridiculously low valuations, having traded as a net/net play below $3 in 2008. Amtech's revenue nearly quintupled to $247 million during the latest solar industry cycle between 2009 to 2011, and its stock traded as high as $30. Today at below $9, Amtech is left with a market cap of about $82 million despite holding nearly $62 million in cash with no long-term debt. Tangible book value of $94 million exceeds Amtech's current market cap.

2012 revenue could fall below $100 million, while the company has already warned of a second consecutive loss in the coming quarter due to higher R&D expenses. It's entirely possible that ASYS could revisit net/net territory again in the event of a serious market correction, although the higher level of investor awareness of Amtech over the last two years mitigates those chances.

Power-One markets inverters for use in producing solar and wind energy, as well as power supply products for a broad range of industries. The company entered the solar/wind inverter market in 2007, but used its existing expertise in power solutions to quickly capture market share among the industry leaders by 2011. PWER has long been a favorite of short-sellers who noted the company's dependency on specific European countries with high government subsidies for solar projects.

With the European sovereign debt crisis putting an end to generous subsidies, Power-One's stock has retreated from its $13 peak to just above $4 today. Notably the current price is comparable to where PWER sat at the start of 2010. The difference between now and then? Power-One tripled its book value and doubled its cash balance in the intervening two years while shares outstanding rose 40%, resulting in a book value per share 160% higher than in January 2010.

Currently PWER trades with a market cap of $535 million, and sits on a cash pile of $205 million with no debt. Management has forecast the coming quarter's revenue to fall 20% YOY, however Power-One should remain solidly free cash flow positive.

As the shakeout in renewable energy reaches its climax, the stocks of both Amtech and Power-One present favorable risk/reward propositions. The downside is limited due to their strong balance sheets and free cash flow positive operations, and dramatic upside could be realized when the sector approaches grid parity and resumes growth on a self-sustaining basis.

Source: 2 Cash-Rich Small Caps For The Next Renewable Energy Cycle