vitamin_j

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.

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.

Semiconductors: Is the Glass Half-Empty or Half-Full?

I'm bullish on solar but don't know where you get the idea that solar subsidies are likely to pass this year. Bush has indicated that he will veto the bill currently under consideration (it raises taxes on hard working money managers' offshore income streams), and I really doubt that the Senate will have the override votes needed.

I think we in the US market (especially those of us who hold Akeena) are in for a tough rest of the year, with prospects improving in '09.

If you know something I don't about the legislation, do share.

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?

3 Reasons To Be Bullish on Solar Stocks - Cowen

Well, we give the oil companies billions in direct subsidies each year, and I hear they're at least breaking even. And you don't see us spending 500 billion per year, plus 150 billion in supplementals, on a military and navy in order to secure silicon. So at least some of our huge defense spending is an indirect subsidy. You also don't see us placing any value on carbon emissions - how much do you want to bet we're going to keep that policy in place?

Right now solar is a victim of its own success. Once the industry actually has the refined silicon to supply it, not just the semiconductor industry, then grid parity's getting close. The industry talk is generally 12-18 months for the silicon, and three to five years for grid parity pricing. There's your horizon.

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.