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Dana Blankenhorn
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Dana Blankenhorn http://www.danablankenhorn.com has been a business journalist since 1978, and a futurist all his life.He warned about the coming Houston oil collapse in 1979. He began making a living on the Internet in 1985. He launched the first e-commerce daily for CMP in 1994, warned of the... More
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  • Playing The Coming Solar Gold Rush

    So long as solar panels have to be "sold," through incentives, you want to be in stocks like SolarCity (NASDAQ:SCTY), Vivint Solar (NYSE:VSLR) and Sun Edison (NYSE:SUNE), which are in the business of selling panels to homes, or in First Solar (NASDAQ:FSLR), whose business model is based on selling panels to utilities.

    You want, in short, to be in the channel.

    But once the cost of installing solar falls below the cost of other grid energy, a point sometimes called solar grid parity, you will want to be on the other side of the trade. You will want be in a solar panel producer like Trina Solar (NYSE:TSL), SunPower (NASDAQ:SPWR) or Yingli Green (NYSE:YGE). And you want to be looking for IPOs from private companies like ITEK Energy in Washington.

    The analogy is to what happened in the computer business 40 years ago. Once PCs made it possible for everyone to buy a computer, sales channels changed rapidly. By the 1980s minicomputer makers with dedicated sales staffs, like Digital Equipment and Data General, were dead money walking. Thinner margins meant stores like ComputerLand had the business. But this turned out to be only temporary. They were replaced by super-stores such as Fry's and, eventually, consumer electronics retailers such as Best Buy (NYSE:BBY) as channel margins were continually crushed.

    The same thing is going to happen in solar. Solar parity will put a premium on margin compression. In 20 years your best solar bet may be a stock like Home Depot (NYSE:HD) or Lowe's (NYSE:LOW). But compression is an ongoing process. Smart investors will understand the pattern and move as the economics changes.

    Vishal Shah of Deutsche Bank, who has been bullish on the solar sector since joining the company in 2011, and made waves recently with a report on Vivint Solar which predicted solar parity by 2016. The company's investment bankers will be able to start reporting on the company next week as its quiet period expires. The company reports its third quarter earnings on November 11.

    Note, however, that Vivint is in the business of selling and installing panels, not in making them. It's like urging people to buy Digital Equipment stock in 1974.

    What's far more likely to start happening, as parity is reached, is that the low-cost module producers will expand rapidly and, while the resellers will do well for a time they will eventually fall back. Even if Shah is right a better place to be might be in a panel producer like SunPower, or even a beaten-down Chinese name like Yingli Green, whose domestic market is already exploding.

    The underlying lesson, however, is that solar investors will have to be nimble as parity is achieved. Don't bet that an ETF like the Guggenheim Solar ETF (NYSEARCA:TAN) or Market Vectors Solar ETF (NYSEARCA:KWT) is going to offer you maximum profit as we push through solar parity. And the figure you'll want to use to manage your new solar portfolio will be margins, both the margins of producers and those of everyone in the channel.

    So far this year, both the ETFs, and U.S. stocks that are tied to them, are hugging the flat line, up or down less than 10% in either direction. (TAN is up 3%.)

    But Yingli Green, down 44% so far this year, is continuing to grow, its results impacted negatively by the falling Chinese Yuan. Its customers are too large, too scaled, and too close to the Chinese government for the stock to go down much further, and there's tremendous upside. It's scaled operations that can sell at the lowest cost that are going to be in demand once solar parity is achieved, and fashions could quickly change in its direction.

    In other words, this is a stock picker's market. Look for margins, look for visibility, but don't be blind and try to buy the whole market. There are going to be losers here as well as winners.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

    Nov 07 5:31 PM | Link | Comment!
  • Are We Hitting Peak Google?

    No one sees a tech stock's peak before it happens.

    No one saw Microsoft (NASDAQ:MSFT) losing its battle with the U.S. Justice Department so decisively. No one saw Apple's (NASDAQ:AAPL) deep dive last year. No one, except those who did.

    Well, it now appears we're hitting peak Google (NASDAQ:GOOG).

    To this must be added the growing balkanization of the Web and the rise of "national" search engines like Yandex in Russia and Baidu in China, the increased pushback in Europe on privacy and other issues, and the firm's continued trouble with patents, where it recently lose decisions to both Microsoft and Apple .

    It's not definitive, but the cracks coming before the fall never are, until after the fall comes.

    In order to justify its P/E of nearly 28, Google needs to maintain its 25% top-line growth rate, and grow the bottom line by at least 10% this year. That would mean gross revenue of $62 billion this year with profits near $12 billion - so far it's on $28 billion in revenue and net of $6.5 billion. The assumption is that the second half of the year, especially the fourth quarter, will deliver the goods, but eventually the law of large numbers catches up with everyone.

    What does Google have right now that will move the needle, a lot, in a positive direction? Just as Microsoft remains a Windows-driven company, and Apple remains a device-driven company, Google remains, essentially an ads-driven company. Increased sales of devices through its Motorola unit don't deliver the bottom-line results of its ad sales, and their profitability on all fronts pales in comparison with Apple.

    Plus the natives are getting restless. Samsung continues experimenting with non-Android operating systems like Tizen. Amazon says its devices are based on Android, but Google is making nearly nothing from them, either before or after the sale. And then there's the anti-trust issue, where it still hasn't settled with the European Union over last year's charges and is practically daring the U.S. to open another case against it.

    It all smells like drift. Is it time to take some Google dollars off the table?

    Disclosure: I am long GOOG, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: GOOG, short-ideas
    Sep 18 10:12 AM | Link | 2 Comments
  • YELP And Its Claimed Push Into Delivery

    YELP (NYSE:YELP) began as a social site for chow hounds.

    It's had a controversial run at that. The system can be gamed. Often, it is. When it is, people stop using it. Usage peaked in January and is not rising

    Remember. This is a company that's never reported a profit, since it went public last year. Quarterly revenue is up 75% in that time, but expenses are also up. Cash balances have been declining steadily. Cash flow is barely breakeven. And none of the analysts following the company expect that to change in the current quarter or for the fiscal year.

    The only way this company can survive to profitability is to toss new ideas into the air and hope one sticks. So they're now calling the company and planning to do food delivery. Actually, two partners will do food delivery in limited areas.

    What the company is promising, through its blog , is that spas, yoga studios, salons and dentists - all sorts of professionals - will start booking appointments through its service. Why? Isn't this OpenTable (NASDAQ:OPEN) for other niches? And how is it that Yelp missed its home niche but is somehow going to out-do a company that knows how to do reservations in other niches?

    That's not to say OpenTable is great shakes, either. But it is profitable, and revenues are rising, albeit with declining margins over time. Still, I'd be a lot more willing to bet that OpenTable can execute a program of reservations for other purposes - since that's its business - than that a failing recommendation engine can do it.

    I hold no personal animus in writing this. I don't own YELP stock. I don't own OPEN stock. It's just that I've seen companies manage themselves through press releases many times in my 30 years as a tech reporter, and the story almost always ends in tears.

    That's the way to bet this time, too.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jul 10 2:49 PM | Link | Comment!
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