Three Reasons Solar Sell-off May Be in Early Innings 62 comments
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Renewable energy had a great run over the last month when oil was seen stable at the $115 level. Suntech (STP) gained almost 50% from $32 to $49, SunPower (SPWR) gained almost 40%, LDK Solar (LDK) gained about 50% and Energy Conversion Devices (ENER) is up over 110% since May 2008. Overall solar has been really outperforming in the past year when you compare it to other sectors, such as financial and retail, as both have been down big during the same period of the year. However, solar becomes a risky investment in the current environment. Here are three reasons the solar sell-off may just be getting started:
1. Crude oil breaks below $110 and the US dollar is strengthening
Perhaps the major reason solar became a popular alternative energy resource was soaring crude prices. In the last 12 months crude prices have more than doubled. Since crude peaked at $147, the solar sector has started its pull-back. However, solar investors were betting that crude would stabilize above $115. This turned out not to be the case. The US dollar has become stronger and stronger and global demand for oil continues to drop, which has pushed crude below $110 in the aftermath of a tamer-than-expected Hurricane Gustav. Crude is likely headed below $100 in the short term. This will eventually trigger a serious sell-off in renewable energy sectors including solar and wind. In fact, many analysts are predicting $80 crude in the next 6-12 months, all but assuring a sell-off in alternative energy sources.
2. McCain/Palin likely a final killer of solar energy
Sarah Palin is known as a supporter of "drill drill drill". McCain's pick of Palin sends a signal to voters that even cheaper oil is on its way with offshore and ANWAR drilling becoming reality if McCain/Palin win the election. Recent polls show McCain closing the gap with Senator Obama, and more voters are turning to the Republican position in favor of offshore drilling. If more drilling is planned under a Republican administration, the proposed federal solar subsidy may never be passed.
3. Solar stocks are not cheap
At current valuations, solar stocks are not cheap at all. Take a look at Energy Conversion Devices (ENER), for example. The company made 23c per share last quarter with revenue of $80M; its market cap is at a lofty level of $3.3B. Based on 16 analysts covering this company, 2008 earnings estimate is for $1.3 per share, equivalent to a forward PE of 57. Similarly high forward PEs can also be seen in other solar, such as First Solar (FSLR) [FPE of 60] and SunPower (SPWR) [FPE of 41]. LDK Solar (LDK) stands out from the pack with a forward PE of just 19.
Without a turnaround in oil prices or an Obama win, valuations in the solar sector are likely to fall from current bubble levels, which is to say a long, long way from current levels.
Disclosure: None
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This article has 62 comments:
Crude will not drop to levels you are talking about.
Goldman has a year end target of $149/barrel for crude. Boone Pickens states categorically that oil will not fall below $100/barrel.
China/India demand which has been largely ignored in the oil sell-off will come into picture. Also the recent drop in pump prices is causing Americans to increase consumption. In the next few weeks you will see a renewed growth in American consumption and this will end the current oil selloff.
1. solar was growing when crude was at 70USD
2. McCain/Palin would be a disaster for the world, just as Bush Halliburton.
www.guardian.co.uk/wor...
Almost NONE of our electric is generated by oil! Only on Puerto Rico, Hawaii and Catalina Isl. does oil have anything to do with generating electric.
The only relation is that extraction and refining oil takes a LOT of electric power; but that should only increase the price of electric, and make going solar even more attractive.
Hint: oil drilliing does not result in lower interest in solar, except in the ignorant!
Electric/hydrogen cars on the increase.
You'd be a fool to short solars no matter what.
Anyway I'm personally buying more solar panels.
Vinod Khosla has been venturing in Alternate Energy when oil was at $50 and he has lots of credibility.
Value is about what a business is trading for relative to what it's really worth - even the greatest business can be overpriced and the worst underpriced. And at current and future PEs, solar profits need to keep growing at an insanely fast rate to sustain current valuations.
Second: All that short-term speculation about obama!/McCain killing or not killing solar is just dumb. sorry to say it so explicit, but that's what it is. Solar is not a replacement of oil nor will $70, $100 or $150/bl decide the fate of solar. Solar is set to arrive in a big way due to the longer term trend of switching to renewable, clean alternative energy sources.
Europe encourages solar while oil was at 30-40$/bl. that the USA completely missed the trend due to way too cheap gasoline and little incentives to develop solar is the USA's problem.
Bottom line: hedgefunds and momentum crowd may chase solar stocks up or knock them down. longer term, the most robust and best managed ones will shine big time. So to some solars, it will be resumption iof a lethal downfall. To others, it will be another correction on the way up.
With due respect to the author and all the analysts, I am surprised how little of their analysis is based on factual information gathered from the market (ie. customers).
The big players - either volume plays or technology plays - will dominate going forward and will continue to see extremely robust expansion.
Even if Obama does not win, the dmocratic majority in senate and congress is likely to increase and thus there's no reason to believe solar subsidies will not pass. I still think, Obama's going to win.
I did not see any bearish view on solar last two weeks when they are in uptrend.
Whenever they are in the bottom, bashers appeared.
we get examples like FSLR ENER..., but what about SOL WFR TSL that trade with PE's close to 10 for this year and many others that are well below?
most of this forward estimates are based on oil at 90-110. so companies that are growing well above 20% and have PE's in the teens or lower are overvalued?
let's get real and stop being like deers in the headlights. we will always get price flactuations since this is the nature of the market. read about it in articles that deal with market psychology.
are we in the first inning of major selloff? only time will tell. if it does it will be confluence of events that will drive the selloff. they will all create enough fear to make it happen.
saying that the selloff is because oil dropped to 100$ or the wrong claim of overvaluation (the wrong claim is because of the generalization, there are few that sure are overvalued), is just small part of what is driving and what will keep driving stock prices in the solar industry or in many others.
@english fan - sad to say, bad spelling and typos are almost the norm these days. It's been almost 60 years since I got slapped around in class by an English teacher for mis-spelling a word twice. So, my spelling is pretty good ;-)
I agree with all those who say the USA has to encourage all forms of energy production because, gentlemen, bad times are just around the corner, IMHO.
T.C.
Solar may retreat from its recent run, but oil prices aren't the cause.
Value is about what a business is trading for relative to what it's really worth - even the greatest business can be overpriced and the worst underpriced. And at current and future PEs, solar profits need to keep growing at an insanely fast rate to sustain current valuations."
I'm sure both you and the author are aware that the P/E ratios of FSLR and SPWR are the exception and not the rule when it comes to solars, and that in terms of P/E, other solars "stand out from the pack" even further than LDK.
"McCain will win and America and the world will be better for it. "
Sorry bud, he stands no chance. He will be remembered as the last of the old white hairs of the repug party. He represents the last gasp of a morally bankrupt, decaying and biggoted old white boys club. Watching the convention last night on CNN I was taken by the sea of white faces - women with caked on make-up, face-lifts and dyed hair, men with hardened unfeeling eyes. There was no real humanity in the room, merely hollow shells without a conscience.
Take this to the bank: the dems will win in a landslide, and the repugs as constituted today may never recover. The massive do-over they require will take at least a decade.
The simple reason Solar is not taking off at the utlities is it requires subsidies from the state. NatGas at $7 is much more efficient and cheap alternative for power generation.
Surely you jest. You could not have possibly seen that in the television. "Hardened unfeeling eyes," "white faces" "no real humanity" "hollow shells without a conscious"....Your words speak volumes of the bigot and prejudicial person you are. I could have shown you the DNC and told you it was the RNC and you would have said the same.
As far as your landslide, I highly doubt it. Many NY voters, Hillary supporters, will cross the line or not vote. That is the feeling around here. NYC's last reelected Dem mayor was Koch and the Governor was Cuomo. If McCain would do a little campaining in NY he could take NY.
1: Oil and solar do not compete as pointed out by many already. Also consider last year when most solar were most higher and oil much lower.
2: Now it would be great if America would join the alternative wagon and would be a great boost, but look beyound your own backgarden. Solar has so far done great without it and countries like Japan/India/China has voiced they will increase solar and the European Union has come out with plans to have 20% alternative energy by 2020, including solar. If america came out with similar plans, then without a doubt solar would get an even higher boost, but solar can and will do without America.
3: Expensive? Dont look blindly at P/E. The sector has what? an annual expected growth of 40%?. Ofcourse if you dont believe the sector to have this growth then some of the solar companies might be expensive.
Solar has everything going for them. They are getting cheaper and cheaper and its main competitor (coal) is getting more and more expensive. solar is also getting more and more effective. There is no doubt that solar will not only reach grid parity but eventually become cheaper than coal.
authors analysis is pure speculation. polls are not tightening with mccain obama, obama just widened his lead to 8 points. foward pe on spwr is 24. ener.....nobody knows. csiq, less than 9, yge 13, solf, 14, eslr, 20 so some solars are higher privced others are not. the zealous bears in solar dont believe global warming is real and probably dont appreciate al gore. what about the exisistence of life on earth?
1) who can find another industry growing faster?
2) markets and stocks go up and down
3) there's a time to be short and a time to be long - both work
4) when the whorehouse burns the pretty ones run with the ugly ones
5) If O wins, all stocks get slaughtered to lock in cap gains rate
Please. This choice has nothing to do with being "maverick," but becoming just another party hack, knuckling under to the "base" of the once Grand Old Party.
There are just too many Paths to choose from, I would prefer All Electrics but am quite willing to go along with ANYTHING until all electrics are viable. Anything is better than nothing.
1) Even though the CEOs of several solar companies say prices will drop 5-10% the author bases his point on a drop of 15-20% drop. Even though the CEOs, many who have multi-year contracts say silicon will drop 5-10% in '09, he assumes a 5-10% increase.
2) Get off Spain's subsidy. Does anyone remember carbon credits? There are companies doing projects today just for the carbon credit sales.
3) CA has passed legislation sudsidizing alt energy and requiring % of generation
4) Anyone remember the Mojave Desert is being staked out right now. There is a lot of money being planned for solar power right there
5) How about Florida Power and Light?
6) Even McCain wants a cap and trade
7) As the US dollar drops, it will make the cost of solar panels cheaper in US dollars.
The main issue will be FOREX changes for Chinese companies
Right now in the US, Boone Pickens is the predominate player. Regardless of who wins election, we are being led to alternative energy, not because of global warming but a push for energy independence. That is a cause no one will argue.
scott
solarfeeds
Watching the convention last night on CNN I was taken by the sea of white faces - women with caked on make-up, face-lifts and dyed hair, men with hardened unfeeling eyes. There was no real humanity in the room, merely hollow shells without a conscience.
What kind of weed were you trippin on?
Here is reason No.4 for the article:
video.google.fr/videop...