vitamin_j

Four Reasons to Expect a Solar Boom

Look, I own STP and think the company's real good. However, your assertion

"Companies like First Solar and Suntech Power are self-funded companies that have been making money all the time, and these two companies have sufficient funds to expand their businesses."

is not true. Suntech has been partially funding its Capex through debt issues, most recently this past March. First Solar does indeed fund its expansion entirely through free cash flow. This makes it almost singular among solars. Suntech is one of the best of the silicon-based companies, and unlike most goes in and out of positive free cash flow. Also unlike most other Chinese solars, it is sitting on quite a money pile at the moment, which should give investors greater confidence for near-term headwinds. However, to imply that it funds itself solely through retained earnings like First Solar is misleading.

Solar Stocks Are Now Attractive Again

This author doesn't seem to understand that FSLR, STP, and LDK are very different businesses within the solar industry. Factors that will lead one to succeed may not do so for the other.

A stock screener can tell me who has a low forward P/E and other various pretty numbers. If I'm going to decide on a company's value, I better understand their business and what variables will affect it in the future. This writer doesn't help much there.

Solar Cycles and Stocks: The Sun Also Rises

Good article about the market - enjoyed reading it. Also nice to know that someone out there doesn't see Akeena as doomed.

However, can we come to some kind of consensus about article names? Can we permanently ban all cheesy sun referencing titles for solar articles such as "The Sun Also Rises," "Here Comes the Sun," etc.? I think diversifying our metaphors will help the industry expand further into the mainstream.

Chinese Solar Stocks Present Compelling Value

I'm not hugely against Eric's thesis - he may indeed turn out to be right.

However, one thing about his "undervalued" argument (and I think Jack Yetiv's as well) is the question of when exactly the market is supposed to correctly value TSL et al. Investors in this bear market tend to overvalue bad news (share dilution, cash flow concerns, growing pains, margin compression), while undervaluing good news (example: a nice bump, sure, on today's TSL announcement, but not the 15% - 20% spike from last year's solar boom).

So there's some risk that these companies might continue with booming earning announcements, solar fundamentals keep looking great, the story is there, but that investors (especially large institutions worried about risk, credit, leverage, etc.) might steer clear of growth stocks in a highly speculative industry in an emerging market (China) as a rule. That might keep these companies undervalued until the broader market gets its legs back, I believe.

That's not to say that the thesis is void - Trina could very well be that great company ignored by the market - just that it may be years not months for it to pay. And that gets into the territory where Jack Yetiv fears to tread (right, Jack?): past the one-year horizon where industry-wide changes in technology might really shake up the game. So, if you're confident that TSL will survive and thrive for years to come, now is probably a great time to get some discounted shares. I'm more skeptical about investing for months vs. years. That might just go sideways or down further.

Also, my more skeptical case could be mitigated some by better news on subsidies and new solar markets. I personally believe that "green recovery/stimulus" is in the air here in America, but won't begin to be seriously enacted by the US government until the middle of next year.

With a one-year-plus horizon, I am long Suntech (STP) and Akeena Solar (AKNS).

Chinese Solar Stocks Present Compelling Value

Dicki - I'll admit I could have clearer re Trina's silicon supply. I am not intimately familiar with the company - I neither love nor hate it. Trina's silicon problems are more in the short term, and I have heard elsewhere about the built-in price decline you mention for next year. So we're both right, but I could have been clearer.

My main point wasn't to bash Trina, but to call out what I felt was a fatuous comparison with MEMC in the article.

Chinese Solar Stocks Present Compelling Value

I have to agree with rana. He or she is spot on - what will make WFR's price soar (continued high silicon price/demand) will make TSL's price dip (concern about silicon supply is a major factor driving recent Trina price drop), and vice versa.

Plus, WFR isn't even a pure-play solar company. Much of their revenue comes from supplying other, more traditional semi-conductor needs.

Investors be warned; comparing these two companies as the author does is just wrong.

Temporary Market Bottom? 3 Solar Stocks That Look Like Bargains

Fair enough, David. I don't know enough about LDK specifically to comment on that company in particular.

However, I would note that, when Trina canceled plans to build their own poly plant, investors and analysts applauded this move. If you believe as I do in the thesis that poly prices will be significantly declining due to major new suppliers coming online, why would owning your own poly plant and vertically integrating be such a good thing, as opposed to choosing among suppliers clamoring to give you the best price on a product? And if you do believe that poly will continue to fetch a good price, why not invest in MEMC or the Norwegian REC solar, which both use a more profitable FBR technology, as opposed to a new entrant like LDK (again, I know little of LDK, so it's an honest question)?

Finally, what is your outlook for poly price and what's the evidence for it, as this is a key question for all three companies for the next 1 - 3 years?

Disc: I am long Suntech and Akeena Solar.

Temporary Market Bottom? 3 Solar Stocks That Look Like Bargains

This article is very poor. First, it misinforms badly about Spanish subsidies. Spain may cut its subsidies significantly, true, but nowhere have I heard that it may eliminate them. Can you cite a source for this claim? Also, the consensus is that the solar industry dodged a bullet with the cuts that ended up being made in Germany - 8% in 2009 and 9% in 2011 vs. a proposed 30% cut in 2009 - it would have been nice to mention that actual information.

Then I think the author glosses over something significant in considering three Chinese companies but not talking about the dynamics of the Chinese equity market.

Finally, what is this "polysilicone"? Are these companies doing a side business in breast implants?

Which Solar Stocks Will Continue To Shine?

I think STP is currently a great company at a good but not great price. The others are OK companies at great prices. With a horizon of more than a year (outside Yetiv's range I think, to be fair to him), I'd rather own the great company. From this extended POV, I find it quizzical that Yetiv's playing a value game in a growth sector, putting it all on forward P/E as he does, and all for 3-4 month swing trades. Of course, it seems to work, so I can't begrudge him that. More good fortune to you, sir.

However, I would add to Yetiv's risks that, by following his method and ignoring industry forces and qualitative factors for a company, if unforeseen circumstances soured on your 3-4 month gain, you'll either have to unload at a loss or hold a second-tier solar through an industry shakeout that first tiers like Suntech are going to win.

Trina Solar: Best Value in the Solar Space

Hi Jack -

I'm enjoying your series of articles. Seems to be generating high quality discussion about solar, which is a compliment to your work.

I'd question your heavy reliance on PEG as the basis for picking a solar company to invest in. Don't qualitative factors such as size, technology, management, and prior execution enter into your analysis? Or, in your mind, do these factors matter only in how much they manifest themselves in the PEG, ie the proof is in the pudding and PEG is the pudding?

I can see PEG as a determinative factor for success if you believed the solar panel/component industry was purely a commodity business. There are arguments that that's exactly what it is, or what it will be in the near future. In that case, the company that can produce the interchangeable product, in this case the solar panel, with the most profit (and in a growth industry the most profit growth) wins flat out. Those arguments may be borne out.

However: Brand? Access to markets? Partnerships? Relationships? Guanxi? Diversity? Products? Record?

Do all these take a backseat to PEG?

You may poo-poo the factors I cite as too soft. I'd agree one has to look at the hard measures, the bottom line, etc. However, I'd be more comfortable hearing something like "this company has this great PEG, and here's why they're a great company that's going to continue to win in the solar industry (especially with trailing data limited)."

My point in slogan form: I'd rather by a great company at a good price than a good company at a great price.

This might depend on horizon - mine might be farther out. What's yours? Is the "value" you see in TSL a question of months? Years? A year? You seem to be limiting yourself to a year tops (2009 eps worthless except as speculation, you say) - right?

Is Solar Power Inherently Deflationary?

Supershort - I wouldn't read too much about the viability of solar energy into the overvaluation of one company, SPWR (which, while not the best investment right now, is still an excellent, growing company).

I also don't know where you get this "they say the costs of the systems are increasing." Who is this "they," and to what systems to they refer? Sunpower has laid out a plan to cut installed system costs in half by 2012. Suntech is going to do them one better. While a silicon shortage has kept panel prices high, silicon production will more than triple over the next two years, more panel makers are getting in the game, so panel prices have nowhere to go but down. Competition is going to become fierce and bloody, in fact. And that's just for traditional silicon based PV panels - Nanosolar is selling 3rd Gen CIGS panels that generate at the price of coal - their main question is, can they scale?

Meanwhile, Akeena has designed an EZ install panel that cuts other system costs like labor and racking.

And that ten-year payoff you describe for a system (I assume your "investment" refers to a solar system, not a solar stock)? It's well worth it for a system that is guaranteed for 25 years by panel companies (and may last even longer, given past panel performance). It also assumes that electricity rates in a place like California remain flat going forward vs going up more - not too likely, right?

Yes, I have skin in the game (long Suntech and Akeena). Yes, I believe in solar from an ecological perspective. Yes, it's not going to be a fix-everything energy solution for the next five years (more nuclear could be needed too) - still a lot of growing for the industry to do. And yes, it may change a lot from its current form. Or perhaps not change, but diversify into a wider package of solutions.

However, I think that you really can't dismiss solar at this point. The subsidies needed to get the industry to grid parity (in the 2012 to 2015 realm) are nothing compared to the money our government already gives oil companies, not to mention the billions in defense spending for maintaining security in our Middle Eastern and now African filling stations. I think, long term, it's also the best single energy solution running - think of it as the real, original nuclear power, fusion energy at last. The sun is a giant reactor; all we have to do is find the best way(s) to plug in.

Solar Technology: Cutting Costs the Unsexy Way

Thanks for the response. I am definitely watching those SGA expenses - I don't see how they can improve much in Q4, however I think they will improve over the year. Taking the Q3 call at face value, about a million of their loss (working from memory, not reference) resulted from their mispricing - they expected panel prices to drop over the year, and panel prices did not. Forgive my inexperience, but is that an ERP problem, or just an unfortunate economic call on their part? They also had problems with sales commissions and with installers working overtime - essentially, too much business, too few installers = lots of overtime. Also stock compensation for their departing CFO, among others. Growing the business in that state is a recipe for growing losses, I agree, but I tend to attribute it to growing pains, a temporary state, etc. I believe more "steady state" quarters are on the way that will show better results.

I will take a look at those inventory figures - that's very interesting, and a question I hadn't considered enough, or perhaps not in the right way. I'd also note that they are clearing inventory to make way for their new panels, so I expect that to also weigh on Q4.

I hold some AKNS, so I tend to believe that they made good investments for growing the company long term - they opened a lot of offices in '07. They say each office takes 6-12 months to really get up and running, so I anticipate that those 6 or so offices will stop dragging and start showing more results. I also think that they've got a marketing/sales operation that's sized for the larger company they anticipate being, say by the end of this year. It's an aggressive approach, for sure, but I knew I was buying aggressive when I bought this one.

I also tend to buy into their story about the Andalay panel - it will reduce costs, time, and bring licensing money that will bolster the bottom line. I do however wonder if it's the competitive advantage they claim - after all, REC Solar has come out with a "Solarak" system that also reduces installation costs - so once everyone has an efficient system, then where is Akeena? But I don't know any more about that REC system than what the PR says right now. Maybe Andalay is still the best design out there. At the least it will help Akeena get installation costs down.

Also - is Andalay the "vaporware" you're talking about? I'm about as far from the Valley as you can be, so maybe the term is lost on me. But Andalay exists and is going into the OS, so to speak. Or do you mean the "patent pending" aspect of it? Or some larger metaphorical usage of "vaporware"?

Finally, longer term, I think Akeena will do best if they focus more on being a design company, and not stake their business solely on the "hardware / construction" aspect you mention. That's the way they're trending with Andalay, and they need to keep that up if they're going to make it longterm (or get bought by someone with that view). For example, before someone installs a system on their house, have a thorough energy audit, do everything possible to boost efficiency, so you install the Kws you reasonably need (maybe that's already industry practice). Or with coming things like plug-in hybrids - they need to (maybe they are) get an integrated/plug n play/andalay style carport charging station. Partner with General Motors on it. Basically, diversify, partner, license - think there's a lot with efficiency, monitoring, allocating (a non-technician talking here), financing, carbon-auditing, consulting, and more that would go hand-in-hand with small, distributed PV systems - and that could help buffer them against the ups and downs of the installation business.

Thanks again for your previous response.

Solar Technology: Cutting Costs the Unsexy Way

Mr. Whitehill, I found your comment very interesting.

I'm wondering: are you implying that Akeena is, in your opinion, a "top heavy" company? If so, could you elaborate on why you believe this? Is it specific to their "inventory problem," or general to the company as a whole (sales, marketing operation, etc.)? Thank you very much for your insights.

-A small-time Akeena investor