by Nick Hodge
For all the perceived evil, you have to give them credit... Goldman Sachs (NYSE:GS) knows how to make money — lots of it. In fact, they are so good at making money — for themselves and their clients — that for years they've been referred to in financial circles as 'Golden Slacks'.
It's rumored that they won't talk to you unless you've got $5 million to invest. And they only lend their name to the most exclusive high-end deals and initial public offerings. (They underwrote yesterday's Tesla IPO.)
Point is, Goldman is the best of breed of Wall Street banks. When they speak... the world listens. And this week, they came out bullish on the solar sector.
Sooner than the Street expects
In a note to clients on Monday, Goldman said it sees “benefits from large-scale projects ultimately overwhelming near-term challenges and accelerating the transition from subsidized markets towards parity.”
More simply, the mass production of solar technology has created economies of scale, making once-expensive solar panels competitive with fossil fuels. Think Henry Ford and the Model T.
While locations with high electricity rates have already reached parity, Goldman thinks it'll be widespread as early as 2012. That's “sooner than the Street expects,” according to the note, citing utility projects in the U.S. and China.
And that's not even the good part...
Tell this to the next person who questions a profitable clean energy future: Goldman Sachs' official position is that higher-than-expected demand and price declines will deliver stable returns even without subsidies.
I repeat: even without subsidies.
Those aren't my words. They're the words of an elite investment bank with a storied history and a $136 share price; a firm that guides countless millionaires to even more profits.
Speaking of subsidies...
As the solar industry matures, subsidies will slowly be peeled away. That's how new technologies get established. Already Germany is scaling back their generous solar feed-in tariff. It's already the largest solar market in the world because of it. Recently, Spain announced it too would reduce its solar subsidy program. The details should be announced later this summer. And just this week, Italy said it will reduce its feed-in tariff by 18%.
We're witnessing the coming-of-age of solar right in front of our eyes. But not every company's going to make it.
Goldman's solar calls
Attached to the Goldman client note was a list of solar stocks and their analysts' opinion of each.
Here are the stocks they initiated coverage on, along with ratings and price targets:
First Solar (NASDAQ: FSLR): Buy rating and $150 price target
SunPower (NASDAQ: SPWRA): Neutral rating, $15 price target.
MEMC (NYSE: WFR): Sell rating, $9 price target.
JA Solar (NASDAQ: JASO): Buy rating, added to Conviction List. $7.50 target price.
Suntech (NYSE: STP): Sell. Target price: $8.40.
Factors for evaluation included margins, pace of cost reduction, strength of balance sheet, customers, and many others. But this list hints at something bigger...
Last year, Suntech and some analysts were boasting it would soon be the largest solar company in the world by production. Now, its sell rating and sub-$10 price target show that high-volume production isn't all that matters. Companies have got to reduce costs, foster customer relationships, enter new markets, etc.
And with the industry growing so fast, some simply aren't able to cut it. I expect we'll see some serious consolidation in the next few years.
...Keep an eye on those solar stocks listed above. Many of them are well below their target prices.
My top pick is the same as Goldman's: JA Solar (NASDAQ: JASO).
The only difference? They just initiated coverage this week. I got in one year and 40% ago.
Disclosure: Long JASO