Beware of the Solar Stock Fad 32 comments
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Over the last few days I have had two articles up at TheStreet.com about investing fads and my belief that the solar stocks have evolved into a fad. (The fad, or if you prefer, mania obviously started last year). I got torched in my email account many times over in a very humorous manner.
Despite my saying so repeatedly, many folks thought I had meant solar technology was the fad, when actually what I was referring to was the stocks. I, for one, hope solar catches on in a big way. I made a comment on the blog a long time ago wondering why they don't turn the entire state of Nevada into a solar panel. (Someone then said that the idea was stupid but anywhoo). I would love to cover my roof with solar film (or whatever it's called) and have no electric bill, but it doesn't make economic sense yet (does it?).
The action in the solar stocks, again I am saying the stocks, has been very typical of other fads; a lot of euphoria, huge gains and now some big drops. Like many past manias, people feel the solar stocks are different. I got a lot of emails telling me how much some of the publicly traded companies earn and what their future contracts look like and so on. That's nothing new. Past industries have started up, offered great promise AND delivered on that promise, but this all occurs with many successes and failures in the formation of the new industry.
Compaq Computer comes to mind as an example of a company that was a game changer, made a ton of money and for a while (mostly in the 1980s) was a rocket of a stock. I think the nature of capitalism is such that new things come, there is heavy competition in these spaces, and then the landscape of players looks much different a few years or so after the start.
History is littered with great companies that for one reason or another fell greatly from their peak. As one reader reminded me Cisco (CSCO) was at $80 once. While we're at it Yahoo (YHOO) was at $105 once, Dell (DELL) was $59, Microsoft (MSFT) was also at $59 and Juniper (JNPR) was $244. This has happened in other industries too, and arguing that the current crop of solar stocks will be different seems like a repeat of the same mistakes made in every other mania or fad from the past.
I'm not sure why this has fired people up so much, but so be it. The context probably makes more sense for anyone who has read my blog for any length of time: Remember, emotion is playing some role in the solar stocks, and the combination of a monster 2007 combined with being late in the stock market cycle probably means moderation is highly warranted for people who want exposure to the solar stocks.
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This article has 32 comments:
Once we have plug-in hybrid cars, and are a bit further along the curve of lowering prices for roof-top solar units, it may be possible that solar electricity for consumers will even make economic sense -- and the odds of that increase a lot if we see significant tax credits for plug-in hybrids and solar electric installations, which might happen after Big Oil loses the White House (however, they'll still have much of the Congress).
Being able to replace $3/gallon gasoline (possibly $4/gallon if things keep going the way they have been) with $1/gallon grid electric power is attractive, but nothing like the thrill of most of your driving being done on electricity collected from a garage roof solar panel. Throw in the reduction/elimination of the household electric bill, and the case for solar electricity approaches the realm of the economically justifiable -- even without the tax credits.
Of course, it's emotionally justifiable long before that.
If the author's point is that some solar stocks are overpriced, I would agree, but that is hardly a meaningful or useful observation. If the author's point is that NO solar stock is worth owning, he is plainly wrong.
If the author's point is neither of the above, then I must confess I don't know what his point is.
Jack Yetiv
The computer/.com-discours... and the alt. energy-discourse are different in theyre nature; both driven by emotions and dreams; but the two discourses have different fundamentals. The first-mentioned was dominated by an almost futuristic-like (and totally utopic) logic that almost could be compared to the 1950`s eyes on the 80`s with flying cars and robot-servants making coffee and doing dishwashes. Companies which didnt make a penny were worth billions, and P/E-s were up by the thousands.
The alternative energy is different. First; competition is gonna be harder, and new companies will come to the surface. But while .com-companies had the potential to be generated by a smart idea and a hardcore computer-nerd, and from that point up represented a serious competitor to others in the industry, the solars (for example) are built on much more complex knowledge of old and well funded technologies. In different words: a well established solar company cant suddenly be threatened by a broke 18-year old boy with a dream and a career.
Second; The computer/.com discourse was driven by a dream noone really knew what would look like (much like in the 50`s). The solar is for real, the technology is old and the fundamentals are at place. It doesnt draw an utopic futuristic picture. Its for real, and its driven by two of the strongest political discourses we have; the liberal and the conservative. The liberal will promote alt. energy (inkl solar) for sake of the enviroment, while the conservative will promote it to meet the high-growing energy demand. The only unifying answer here is promoting renewable energy, a sector where solar has the overall largest potential.
To conclude: The solar industry cant suddently be challenged by anyone, anywhere and anytime. Sure some will come and some will go, but its not going to be even close to the chaos we`ve seen earlier (.com-industry). The solars are also backed by a strong and unified political discourse, which is gonna make sure the sector get its boost and gets competitive with other energy-sectors in a few years time. If you see outside of the united states, you will see how significant this political discourse is.
So, I see your point, but I think youre forgetting to differentiate the two discourses (computer/.com VS alt. energy), which on the surface may look alike, but beneath may be far, far apart.
Secondly, Solar energy is abundant energy for the next 2 million years and companies that can capture this energy efficiently will be worth 10x XOM and create a vast new lifesyle and industry that will enhance our productivity and heath for a very long time...and Finally, I believe Solar energy is the only way out of our cuurent deteirotating enviromental catastrophe.....
As I understand, Silicon Valley is now heavily investing in the future of Solar Energy with the idea that solar efficiency and now being mirrored into Moore's Law....
Fact is fact, my utility and gasoline bills continue to go up and up..we need to do something and something big....sooner rather than later
More than a fad, we’re witnessing "technology rotation". Going back in history, this is the industry that claimed that nuclear would make "electricity too cheap to meter", then got hyped up on Cold Fusion, which passed the baton to Fuel Cells, which handed off to heavily subsidized Wind, which was eclipsed by Ethanol, and now heavily subsidized Solar PV have created a perception of project economic viability that regrettably just isn’t there.
Unfortunately the technology rotation only serves to obscure the real analysis and work that must be done to solve our energy and environmental problems. Industry insiders wince at the ‘hype to substance’ ratio in much of what is being promoted.
There are things we can, and should be doing right now. Like Grid reactive power adjustment (which increases transmission efficiency), like conservation, like lighting retrofits, like basic PV research vs. implementation of today’s low efficiency PV cells, even like programs to educate people on the value of proper tire pressure!
The good news is that the triplet issues of energy reliability, environmental impact, and economic price impact have come to the nations’ consciousness. The bad news is that this awareness has brought bubblicious responses and current PV (vs. PV basic research) will end up joining their brothers before. Great time to short or buy puts!
Disclosure: I own puts on one or more of the current Solar Plays
Take a lesson from history and buy the winners now. FSLR, STP, and WFR will be around many years to come b/c we need their products as the real earnings growth is showing up on the balance sheets.
It is not rocket science, nor a fad, and getting people fired up is a sure way to get them to your blog to read more stuff. We all love a controversy.
Some of the leaders in this industry like STP is trading with a forward p/e of 12, expected to earn 2B in 2009, growing 86% year over year with a diversified global market from Germany, Spain, Italy, Japan, Korea, China and US. The market cap of STP is currently 6B only. SO would you believe this author that this company is a fad. Can you find another company any cheaper than this in any other sector with a sustainable growth at 80% and not dependent on any single economy, probably not.
So it is worth checking the credibility of any article before you take a decission based on that. Obviously there were analyst who kept on saying AMZN will file bankruptcy next week, next month, for sure not last a year when the stock was 7 bucks. Result being, poor investors like us lost a lot of money because market as a whole believed those so called pundits. So why care about people those who do not see a real picture and not sure about what is going on the planet.
Unlike the solar sector they have their BILLIONS in contracts to proof it. Solar energy is growing in every region of the world. Investors staying long in this sector will be rewarded handsomely
Not to mention greener environment.
Solar and wind require no water for cooling. They are unconncected to commodity prices. There are no coal mining accidents and there are no nuclear waste problems.
My Pennsylvania Power and Light electric bill averages about $40 per month or $480 per year. I figure a solar installation will cost me $36,000. The payback period is 75 years. If the installation price could be reduced to $20,000 the payback period becomes 41 years. I am frugal on electric usage, heat with oil and use very little hot water. Twenty years ago I did the same analysis for my home in Connecticut and came to the same conclusion. Lastly, I have found that my own conservation measures have saved me money with little or no financial outlay.
I would not buy any solar company's stock. They do not pay a decent dividend and some, if not all, have high P/E ratios and high Price to Book ratios and even higher Price to Tangible book ratios. I am a value investor and I do my own research on Seeking Alpha and other sites.
I would bet that solar is cheaper right now, if the real costs of fossil fuels were included. I know, most conventional power plants are gas or coal, not oil. But hear me out.
You mentioned covering Nevada with solar panels. We have the technology right now to do better than that.
Here's an article from Scientific American, describing how we could have 65% solar grid by 2050 and nearly 100% solar by 2100. The public money spent over about 20 years to achieve this is about 1/4 what we now give oil companies in subsidies, and about 1/40 the total hidden costs of oil.
Scientific America Solar Grand Plan
www.sciam.com/article....
I know of seven solar thermal companies already operating in the U.S. Green Wombat website has several articles about what is already happening in California.
blogs.business2.com/gr.../
Here's what one of these companies, Ausra has to say.
"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."
"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."
Solar thermal power plants can store energy during daylight hours and generate power when it's needed. Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."
Too much disinformation, too many naysayers. We just need political will to do what's right.
While many of you americans are driving on high oil consuming SUV's and just waste energy as it's no big deal, atleast here in europe were atleast 10 years ahead in saving our energy with all sorts of measures. Someone here mentioned this energy effeciancy, other ligtbulbs and that kind of stuff. Well i can simply say to them, it doesn't work like that over here in Europe.
Were 10 years ahead in energy saving, but living in brussels i have this very keen sense that the EU will actually expand subsidies to renewables, having read article's from top euro politicians here who all seem to hammer on solar/wind, and who all hate biofuels for the rediculous pricesurge it creates in food and such.
And it's perfectly reasonable from an EU perspective, way to many euro's flow out from the Euro zone to oil producers. And we have emmerging markets to compete with i general economics. If the EU wants to survive as an economic powerhouse in the future then it has to remain on the edge of many technoligies, and alternative energy is one of those technoligy's were were doing quite well in. It's creating jobs for us, we can make an export product of it, it lowers our energy bill, win win win situation. European wind energy is miles ahead of the rest of the world, we have all the top wind turbine manufacturers.
And it's quite simple to piont out that Europe is the largest market for all renewables, Germany on top. In fact America's own solar company's have ther majority sales in Europe. And if europe increases renewables funding then yioure point vanishes into the drain.
it only shows that Americans don't take their energy problems to serious. How else could they have lagged just so far behind Europe. The posters article here just shows that sentiment.
And to US politics. No renewal of renewables funding? Go for it! by 2020 Europe and china will dominate the renwables market. Heck youre own wind farmers aleady buy European turbine's. Keep fooling on!
Also, do not negate what is happening in the southeast with an insufficient amount of water to cool coal-fired electric generation plants and nuclear power plants. Solar and wind have little water requirements for operation.
As for me I am planning to install a 10,000 kw solar PVC system on the roof of my house. The ROI on this investment will be terrific - I am making a better world for my children. This is the same reason why I drive a hybrid vehicle -- as does my wife.
Why are we importing $400 billion a year of oil when we could all drive plug-in hyrbids connected to a solar/wind energy grid that is disconnected from commodity prices?
And yes, I have most of my portfolio in wind, solar, agriculture and advanced drug companies. Oil is not the future for Americans or for other developing countries with limited quantities of natural oil reserves.
Look at Germany - one of the world's top, if not top, user of (I believe) wind and solar power. Who would have thought? If anything, biomass for those guys! (all those rusks from the grains from the hops for the beer, etc.)
tech became 30% of the SPX and brought the whole market down. The market cap of solar adds up to be quite small and so a further meltdown in solar stocks could happen without hurting the market or being an all encompassing thing...assuming i right about any of this.
If I am wrong then this is just a big dip. To be clear I have no positon and no plans to allocate to the space, I have my opinion but of of course any opinion can be wrong.
Of course you are entitled to your opinion. But the timing of the article is quite suspicious. At least I myself suspect that you were trying to create additional fear regarding solar stocks before LDK's earning release. (The whole solar sector has crashed down a lot.)
As a writer and researcher, I spent a lot of time in archives. I read a lot of microfische, and they don't even record that much on microfische anymore. Even the microfische is outdated.
While reading the NY Times 1890 (the whole series starts in 1855) I got a preview of what was to come from emerging technologies of the times. Somebody was stringing electric wires all over NY City, and there was a big backlash about it. The wires were dropping and people were worried about being electrocuted. Electricity was a new emerging technology.
So the writer of the article said "Electricity will never be in widespread use. People will always rely on coal stoves to heat their homes. The people putting up all these wires need to stop".
That's how it starts. Huge backlash, lots of pooh pooh-ing. Once a technology gets a griphold, it's here to stay. Those who invested in early electricity, own the NY banks and some of their descendants are still in Congress. Whole dynasties start from the natural progression of technologies.
I have a Da Vinci screen saver that reminds me every 10 minutes that airplanes and cars had a wooden version of the same concepts 500 years ago. Even Da Vinci and his colleagues mulled it around.
Solar cells were developed in the early 1900's. I read that on Wikipedia. Lots of people know that we are in a turning point in human history. We're off the planet with the new technologies. Huge hulking steaming and venting utility monsters are over for any kind of future. It's over. It's as dead as the ancient civilizations that brought us this far. Even the Egyptians had a primitive battery.
My daughter and I were talking just this morning, that when she's 80, she can tell her grandkids, she grew up when there were no solar panels.
I grew up when we went to the dairy and bought the milk in bottles. Milk was delivered because it would spoil. Nobody bought milk at the store. My kids wouldn't drink milk unless it came out of a carton, they thought bottles were "icky".
As we get older we get stuck in our ways. Don't stand around flipping your switches to some electric company when you can upgrade. Pretty soon when you're grandkids come to visit, they'll be laughing about grand-dad doesn't have solar panels because he's too old fashioned.
When I visited my grandparents, on their farm, my grandmother still heated her house with a coal stove. One day my grandfather dragged it outside and gave her an electric stove. If my grandfather had the opportunity to generate his own power, he would have at least been up on the roof with the solar panels. It's absolutely stupid not to hang it up, and go get panels. In fact, it's just plain old fashioned and idiotic to cling to a past that is entirely dead.
That is why Europe is laughing at the United States. We look like a bunch of total idiots.