Solar Stocks Won't Stay Down for Long

Solar stocks may go down in the short-term. There, I said it.

With that out of the way, let's analyze how lingering recession fears and an arsenal of overpriced solar stocks in a recession could provide savvy investors with a huge long-term upside.

The solar market, as a whole, has been on a joyride for the past year or so, with many stocks gaining value in the face of lackluster earnings and, in some cases, with lackluster products.

It seemed any company with solar or sun in the name was a sure bet. But now, all bets are off.

This year will undoubtedly turn out to be a transitional year for the solar industry. It will be the year when clear winners are chosen and losers are exiled.

Don't get me wrong, solar, in general, is clearly a winning technology. But, right now, the playing field is simply too crowded. And until the field is leveled out, it will be harder for investors to rake in profits as they have been.

With that in mind, what will happen to solar stocks in the face of a recession?

First of all, a drop in oil demand that usually associated with recession will produce a corresponding negative effect in solar stock prices. And while the demand for oil will have absolutely no long-term affect on the solar industry, it could have a negative near-term influence.

Secondly, the solar industry has been weathering a silicon crunch for some time now. But as production expands, as it's doing now, manufacturers are seeing increased inventories. And that means decreased margins.

Just look at one of the main players in that market, Cypress Semiconductor Corporation (NYSE: CY), over the past two months:

Even a stalwart in the silicon industry, MEMC Electronic Materials, Inc. (NYSE: WFR), has had a tough time in the past month. But those fears subsided after its earnings report two weeks ago. Take a look:

If you're looking for a less expensive way to play the silicon angle of solar, I'd suggest Hoku Scientific, Inc. (NASDAQ: HOKU). It's a stock I've been bullish on for a while and one that's on sale anywhere below $12.

Lastly, if the government was hesitant to reissue the solar tax credit before there were fears of a recession, you can bet they'll be even less likely to do so now--especially with this administration. The postponement of the solar tax credit until 2009 or beyond would be a major blow to our domestic solar market.

Go Long on Solar

So, what then, is a solar investor to do?

Well, the long-term outlook for solar is extremely bullish. I'd be using the recent market sell-off to amass shares of stocks that are now bargain priced.

Some stocks in that category include:

· China Sunergy Co., Ltd. [ADR] (NASDAQ: CSUN), a Chinese play and a bargain at $10.00.

· Spire Corporation (NASDAQ: SPIR), which recently announced its entry into the concentrating solar arena and

· SunPower Corporation (NASDAQ: SPWR), which has seen a rapid devaluation over the past few weeks, but boasts highly efficient solar cells and plans to cut costs in half by 2012.

Disclosure: Long SPWR, SPIR, CSUN, HOKU, WFR and CY.

Comments

[David Schrader:]

In my humble opinion, solar is not "clearly a winning technology" by any stretch of the imagination. It's a relatively expensive technology at the moment and there doesn't seem to be any tech advances proving otherwise that I've read about. I did hear of a firm looking to withdraw solar rays from space and beam them down to their plant - which apparently allows for a much stronger power generation but even that is not a guarantee. The expense of doing so and inconsistency of oil prices will cause solar to fade off for longer than a little while. The main issue here is that people adjust to pain too well and they forget too quickly (think frog in boiling water example). Oil has spiked to "record levels" before and these alternative energies were jumped into just as they are now. Well, the cycle continues. I expect eventually we'll need to rely on solar power but I doubt it will be any time in the next ten years, and my money is not getting locked up in something with minimal potential ROI for a decade or more.

2008 Jan 29 11:00 AM

[jay brebner:]

IMO - It won't be the price of oil that will determine solar adoption - it will be catastrophic weather events including severe drought related to greenhouse gases that will scare the world into adopting cleaner energy.

2008 Jan 29 11:57 AM

[smokey:]

I think Nick Hodge has solar energy appraised about right. While some are still skeptical about its growth here in the USA, the fact remains that much of Europe has been -- and continues to be -- very aggressive in adopting solar technologies, as well as wind and other "alternative" methods of energy production. Coupled with an aggresive efficiency ethos, Europe will undoubtedly continue to lead the US for awhile.

While Asia, particularly China, is aggresive in producing solar and wind products, their actual rapacious consumption is unfortunately eating up the burgeoning gain from their production (in regard to the environmental benefits). However, that might change in the next year or two. Not many are left that remain blind to the obvious fact that not only are we all in trouble in regard to the environmental concerns, but in addition the world is desparately in need of new, cleaner energy sources.

I only wish we had more enlightened voters and representatives. There is the true key to success -- or failure. But you can only get intelligent government when you have intelligent people -- people who are not only superficially smart, but who understand and are in tune with nature herself.

2008 Jan 29 02:08 PM

[Harold Kramer:]

Why the chart on CY when it's really Sunpower (SPWR) you're talking about? CY is a semiconductor company which owns a large part of SPWR.

Off topic - Just think what might happen with solar (and other alternatives) when we get a new administration next year. China and India say they are waiting for us to get on the global warming bandwagon before initiating their own alternative energy programs. If they get on the bandwagon, say 1-3 years after we do, there will be a huge global bonanza in alternative energy companies. Hopefully, solar will reach grid parity in the same time frame or shortly after.
I'll be long on solar after the elections.

2008 Jan 29 07:41 PM

[NancyofInve...:]

So, you did not mention FSLR!?

2008 Jan 30 12:43 PM

[Harold Kramer:]

That's because he doesn't own FSLR. This is another in a long line of self serving Seeking Alpha postings by a number of contributors.

2008 Jan 30 01:24 PM

[Smart Look:]

Solars like WFR and SPWR should be portfolio mainstays, thin plays like DSTI, ASTI are late 2008 stories you need to be in now.
OEGY.ob is another to take a look at. So many players and why? Because there is an energy revolution taking place and solar is sexy.
Take a look at Germany and Spain and how they view solar.
Then look at the oil rich Arab nations... They are investing in the industry like it's the second coming.

2008 Jan 30 06:44 PM

[jmmx:]

Yes - The Republican Recession will set back solar adoption here in the US. But the Iraq war, by reducing production, has been a major cause of the run up in price.

Of course if Reagan had not cut the alternative energy tax credit
we would be a ot further along by now.

2008 Jan 31 04:57 PM

[Vince Sanchez:]

You didn't mention LDK as the leader in High volume manufacturer and price cuts for the next 3 years. They are building a new PolySilicon plant to create a new supply of basic resource for the Solar Industry.

2008 Jan 31 06:10 PM

[counter11:]

The big problem with solar stock is a company named Nanosolar (private). Nanosolar is producing CIGS based solar with a printing press and selling them for about $1.00 a watt. Other solar companies will have to compete with them. I doubt many will succeed. Concentrators look the best but produce little when even the thinnest clouds cover the sun.

2008 Feb 01 06:14 PM

[datechman:]

Dude... In my view you are the alpha dogg. At a time when no one predicted oil will drop, you actually predicted the demand destruction and recession. I think you have a good insight on this current situation. Keep it up and I kind of liked the post.

2008 Oct 23 02:46 PM