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 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.

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?

A Look at Four Polysilicon-Based PV Manufacturers' Funding

I agree with "Envoy" that one should consider cash flows when assessing solar companies. "Earnings" should be viewed with a grain of salt, or at least in context, since they're the sexy numbers everyone oohs and ahhs at (or the opposite) each quarter.

I also agree with other comments that Envoy's analysis doesn't seem to consider these as high-growth companies in a high-growth industry - these companies will need to spend lots on cap-ex, of course, but most solar investors are aware of how much silicon costs right now and take that into account.

Also, I'm still skeptical of Envoy's apparent view that silicon costs will stay high. I'd especially like to hear a reaction to the reports by several companies that long-term contract prepayments - the financial albatross that will supposedly sink these companies, in Envoy's view - have gone from 10 - 12% of the contract to 3-5% of the contract in the past year. This would indicate a trend, right? Envoy doesn't seem to think so. In my view, he is wrongfully taking a snapshot of today's environment and projecting it too far into the future. I think instead it is safe to assume declining silicon prices from 2008 on - one could argue about how fast prices will fall, but fall they will, based on the reporting of long-term contracts mentioned above.

A Missed Opportunity in Canadian Solar

It's worth noting that all but the last of the problems I cited are actually problems with the US installation market, which is centered in California, and so affect both Akeena and its competitors.

A Missed Opportunity in Canadian Solar

I own some Akeena. It has some significant problems right now (of course, if you believe in the company, you'll probably have some buy opportunities in the $5 range). The problems include the credit/mortgage crisis in their primary market California (most home installations are funded by home equity loans); the continuing high cost of panels (hits their margins, though this should improve some in 2009); the expiring federal tax credit (hits commercial jobs right now, since credit accrues on completion, so planners are being cautious); the fact that Akeena focused big-time on growth over profitability means they're being hit hard on their bottom line. They've already started layoffs and cost-cutting.

On the plus side, they have the capital and lack of debt to get them through the year at their current "burn rate" (which will hopefully decline since they're focusing more on cost discipline); their proprietary panel design is successful and should boost their margins; they're moving into new markets (Hawaii and Colorado); and their prospects are very good once Congress gets it together re renewable energy tax credits. They also stand to benefit as panel prices start to decline in 09. They are one of the major installation players in a field that also includes the private companies SolarCity, REC, and Borrego, as well as the recently public Real Goods Solar.

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?