It is hard to find an uglier sector for performance over the last year than suppliers to the solar industry. Government debt problems have sharply curtailed subsidies worldwide. In addition, domestically the Solyndra scandal froze government loans across the alternative energy space. However, the selloff in these stocks appears to be overdone. I have noticed that my investment in supplier GT Advanced Technologies (GTAT) over the last few weeks looks like it has finally bottomed and is starting to move up (see chart). And this morning, MEMC Electronics (WFR) absolutely crushed beaten down estimates and is soaring in pre-market trading. The shares are speculative but given they are down more than 60% from where they were a year ago when insiders were heavy buyers, they may be worth a gamble for aggressive investors as the market putting little value on the long term prospects of the firm if the solar industry recovers.
Key highlights from MEMC's earnings report:
- Adjusted profit was 14 cents per share. Consensus estimates were calling for a loss of 2 cents per share.
- Non-GAAP revenues rose 20 percent to $933.4 million, above estimates of $749.5 million. Revenue figure did include $125.0 million in deals related to real estate and leasing back of sold assets
- The company's solar has been doing better and the company said in July it closed contracts to sell four projects in Bulgaria and Italy totaling 98 megawatts.
Four reasons WFR might be worth a flyer at around $2.50 a share:
- Insiders bought millions of dollars worth of shares last summer in the $5 to $6.50 range.
- Analysts expect the company to rebound in FY2013 with EPS of 36 cents a share.
- The stock is selling at just 73% of book value and the median price target for the 14 analysts that cover the stock is $4.25.
- Like GTAT, MEMC looks like it could have recently bottomed (see chart).
Note: Given the uncertainity in the solar industry and the company's large debt load, aggressive investors might want to consider buying long term call options as a strategy.
Disclosure: I am long GTAT.