I keep a regularly updated watch list of 30 or so alternative energy stocks. The top half of my list receives the majority of my research hours. Among them I organize a top 5 which are the stocks I would currently consider buying if certain conditions are met, usually technical. Over the past 12 months this research has been mostly fruitless as I have held mainly only First Solar (FSLR). However, I am now looking for the "next FSLR."

First Solar: I have owned this stock since Feb 2007. I have continued to buy since then and have often had a "portfolio" which consisted of 100% FSLR heavily margined. However, after a disappointing quarter when cost/watt was flat and no new manufacturing was announced, I have decided to hedge my bet with Applied Materials (AMAT). Until AMAT introduced their Sunfab line, FSLR had no major competition. Still, FSLR's capex/watt is half that of AMAT. The vast majority of my investments remain in FSLR, at least for now.

Right before announcing Q4 2006 earnings of 7 cents First Solar (FSLR) had a market cap of $2.5 Billion. But how do you value a company with no earnings? The same way you value a company with earnings. Anyone who values companies based on earnings, assets, and growth alone is missing a large piece of the puzzle. Surely companies like Coca-Cola (KO), Nike (NKE), and McDonald's (MCD) didn't invest billions into advertising purely out of stupidity. Quite the contrary, they were investing in building a brand, yet another form of intangible asset. This intangible asset accounts for why you have to pay more for the six pack of Coke at Safeway than for the six pack of Safeway brand.

One might wonder, if First Solar's proprietary technology was worth only $2.5 Billion is Feb. 2007 why is it worth around $10 Billion now? This shows the speculative nature of intangible assets. When first solar was supposed to lose 7 cents in Q4 2006 and instead earned 7 cents, this was a sign of things to come. Speculators rightly bid the stock up over 30% the following day. Keep in mind that 7 cents a share is only a few million dollars, but it had a billion dollar effect on the stock.

First Solar and SunPower are leaders in their respective industries. I say "industries" because FSLR and SPWR are as different as can be when it comes to PV manufacturers. SPWR's strength are FSLR's weaknesses and vice versa.

FSLR's business is almost primarily in Germany, whereas SPWR has a growing U.S. business which includes heavyweight customers such as WalMart (WMT). FSLR's panels are low-efficiency low-cost whereas SPWR's are high-efficency and carried a 10% premium/watt over Suntech (STP) and Kyocera (KYO) products at Akeena Solar last time I visited.

First Solar and SunPower are leaders in their respective industries. I say "industries" because FSLR and SPWR are as different as can be when it comes to PV manufacturers. SPWR's strength are FSLR's weaknesses, and vice versa.

FSLR's business is almost primarily in Germany, whereas SPWR has a growing U.S. business which includes heavyweight customers such as WalMart (WMT). FSLR's panels are low-efficiency low-cost whereas SPWR's are high-efficency and carried a 10% premium/watt over Suntech (STP) and Kyocera (KYO) products at Akeena Solar last time I visited.

After being beaten down badly along with the rest of the solar stocks and general market, First Solar (FSLR) has been one of the first major names to bounce back clearly through previous resistance Wednesday in the 280 range to all-time highs. When examining the strength of previous moves this appears to be the middle of the third major rally. The first was from 33 to 123. The second was from 75 to 280. This latest rally started at 140 and judging from the previous two will probably continue to 400, perhaps as soon as the mid-May earnings report.

I'm no expert in techical analysis, but as a full-time investor I have to know the basics. I tend to only use techinal signals when they can be explained through fundamentals. This latest run-up can be justified through higher energy prices, new renewables legislation in the U.S., and a sense of optimism in the general markets.

There are currently three major thin film players (defined as the three companies with over $1 billion in thin-film assets): First Solar (FSLR), Sharp (SHCAY.PK) and Applied Materials (AMAT). There are numerous other thin-film startups that are in such early phases of development that it's difficult to analyze potential production and capex costs if their technology ever matures. These are mostly CIGS companies and include Nanosolar, Miasole, Heliovolt, Ascent Solar (ASTI), DayStar Technologies (DSTI) and countless others. Most have struggled to get manufacturing efficiencies over 6% for industrial usage. This doesn't include the aerospace panels which can achieve 20% but are incredibly expensive.

One of the most common money management blunders made by retail investors relates to when to take a loss vs. when to take a profit. My opinion for the long term investor is that you should cut your losses quickly but be far more reluctant to sell your winners. When personal financial matters intervene, such as a child going to college or meeting retirement goals, you may have no choice but to sell. But ideally, you only want to sell when something about the stock has fundamentally changed. In First Solar’s (FSLR) case it could be a CIGS startup such as Nanosolar commercializing a product at much lower cost or a dramatic decline in the price of polysilicon. I don’t expect either of these to occur in the near future.

When I was playing high stakes poker I met a winning player who told me he was such a great player he has never left a table "stuck," or losing. At first I thought he was full of it and probably not a winning player at all. After a few hours of watching him play I realized he was indeed a good player. I began talking to him. It turns out his longest sessions was 40 hours of poker without sleep in order to eke out the tiniest of gains. I thought to myself, "wouldn't he have won more if he had gone home and gotten some sleep." He seemed more concerned with his ego and having a “1.000 batting average” than actually winning money. Just as in poker, in investing it’s not how often you win but how much. It seems obvious enough but some people go their entire life without realizing this.

Each year the Nasdaq 100 is reorganized to include most of the 100 largest non-financial stocks from the exchange. Market underpeformers which are no longer among the top 100 Nasdaq stocks by market cap are removed from the index each year in December and replaced with new large caps.

For example, in 2005 Google (GOOG) was added to the QQQQ on Dec 13th. In 2006 Infosys (INFY) was added on Dec 11th. Assuming about 10 stocks are removed this year, any non-financial with a market cap over about $8 billion should make it in. This would make First Solar (FSLR) nearly a lock and SunPower's (SPWR) addition is probable barring a major selloff within the next few weeks.

Last week I wrote an article entitled First Solar's Rapidly Expanding Economies of Scale in which I detailed the various advantages which have led to FSLR astounding returns this year.

This week I will delve deeper into capex costs. On Monday, Sharp (SHCAY.PK) announced a thin film plant costing 380 billion yen which will start producing in March 2010.

I've never been a fan of analysts, but their coverage of First Solar (FSLR) has been sub-par even by their own lackluster standards. Every analyst's estimate has been too low every quarter. In other words, every analyst has been wrong every quarter. I understand the game of underpromising and overdelivering, but this has been too extreme.

Just as an example, CIBC initiated coverage with a "sector perform" on FSLR back on Nov 5th and Merriman Curhan Ford initiated with a "sell" on Oct. 23rd. On Nov. 8th upon trading 35% higher upon a stellar earnings report, both tried to save face by upgrading the stock. Does three days really change your entire outlook on a company? Only if your outlook was unjustified to begin with.

I've been reading repeatedly since First Solar (FSLR) reported their first earnings 9 months ago and traded up to $40 that the stock is "priced to perfection." The truth is there is no such thing as a stock "priced to perfection." Stocks don't trade in the confines of some arbitrary ranges such as $30-40 or a Price Earnings Growth multiple of between one and two. They simply trade between a price of 0 and infinity. A stock priced to perfection would by definition be infinitely valued. Laughably oversimplistic statements such as "what goes up must come down" can easily be refuted by slightly less foolish statements such as "objects in motion tend to stay in motion." Throughout the year I've witnesses numerous shorts who may have less than a week's experience with FSLR appear and disappear. Much like the reinforcements for a losing army, they've joined to battle too late to witness the carnage of their fallen comrades. They cheerfully charge head on into their own demise.

There are numerous reasons to be bullish on solar right now. Global warming and 5-6% average annual price declines per watt are often cited. These factors alone would make solar stocks a solid investment. Yet the potential for skyrocketing energy prices is the one factor that people often overlook. I've never even seen it mentioned in solar stock quarterly reports where grid parity goals are solely calculated based on in house cost cutting.

Peak oil is what makes the solar stocks an opportunity of a lifetime. For those unfamiliar with peak oil theory, Dr. M. King Hubbert famously predicted in 1956 that U.S. oil production would peak in 1970. His theory was that when half of any given location's reserves were extracted production would begin to fall at about 2% annually, which is the same rate production has typically increased at.

I've recently been reading a book titled Solar Revolution written by Travis Bedford, a fund manager and corporate buyout specialist. He has an interesting perspective on economies of scale among solar panel manufacturers. We all know the price of PV is falling by 5-6% annually. The author deals with it in a different way. He considers that each time PV doubles the volume it's manufactured price goes down 18%.

Looking at economies of scale in this way, I'm more bullish on First Solar (FSLR) than ever. Winners keep winning because they're able to grow economies of scale and therefore cut costs faster. Losers like China Sunergy (CSUN) and Trina Solar (TSL) keep falling behind. People consider FSLR 2-3 years ahead in technology. This means it would take Suntech Power (STP) 2-3 years to produce at FSLR costs. For example, in 2010 STP will probably have utility scale installations of over 1 MegaWatt at $4 watt, which is what FSLR costs now. By then FSLR will probably cost $3 watt, which may take STP until 2015 to reach. FSLR is lowering costs much faster than the industry standard of 5-6%, since cdte has a steeper "learning curve."