Taking a Bullish View on Clean Energy

by: Mark Biondetti

French adventurer Andre Malraux once said, "To understand what the outside of an aquarium looks like, it's better not to be a fish." In other words, if you want to know what's really going on, it helps to have some perspective.

On February 14, I wrote a column entitled "5 Leading Solar Energy Stocks That Have Already Begun Long Term Uptrends." The gist was that the real money on Wall Street is made not by trying to finesse short-term swings but by taking a stand and being on the right side of a major move that lasts for months or even years. As indicated by its title, the column named five solar energy stocks that I believe have already made their long term lows and embarked on new major uptrends, despite the fact that general skepticism and negativity surrounds the industry.

The five stocks were First Solar (NASDAQ:FSLR); LDK Solar (NYSE:LDK); SunPower (SPWRA); JA Solar Holdings (NASDAQ:JASO); and Solar Fun, which has since changed its name to Hanwha SolarOne Ltd (HSOL).

SunPower Soars 40% in One Day on a Partial Takeover

On Friday, April 29, SPWRA jumped 40% on news that French oil company Total SA (NYSE:TOT) would buy 60% of the company for $1.4 billion at $23.25 a share, a 47% premium to SPWRA's previous closing price. Total also said that it would extend $1 billion in credit to SPWRA in order to fund accelerated growth of the company.

There are several interesting things about this 40% one-day move in SPWRA. First, until last Friday you could have looked back at my February 14 recommendation of SPWRA and legitimately thought that this advice was not working out very well so far. Second, this out-of-the-blue windfall could not have happened if you owned a solar energy ETF like TAN or KWT. Nobody is going to acquire an ETF at a 40% premium, after all. This demonstrates that, as old-fashioned as it may seem, there really is something to be said for buying an actual stock once in a while.

But here is the most important lesson to be gleaned from the big move in SPWRA: Total made this takeover bid at a 47% premium despite all of the well-known concerns surrounding solar and other renewable energy stocks that have recently shoved them into disfavor among momentum players and Wall Street chatterboxes, who seem to measure their investment time horizons in nanoseconds.

Short-Term Concerns vs. Long-Term Investment

TOT's takeover bid for SPWRA demonstrates that there can be a huge disconnect between a Wall Street speculator's obsession with short-term concerns and the attitude of people who run actual businesses that must made strategic decisions based on a longer-term outlook.

We all know the reasons why solar and other clean energy stocks have been under the gun lately, don't we? They include government subsidies being cut back and overcapacity that is reducing solar system prices. And don't forget the growing clout of the Republican Party, which is not exactly enamored with clean energy technology.

These concerns are so well-known, in fact, that at last report a total of 18 million shares of SPWRA had been sold short as of the day of the takeover bid, up from 16.2 million shares the previous month. That represents around 20% of SPWRA's oustanding shares. There had also been net insider selling in SPWRA totaling 262,000 shares over the previous 12 months, which gave solar industry skeptics further ammunition and illustrates how misleading insider selling can be as a gauge of a company's actual value and long-term prospects.

The mindset of a trader is totally different between the mindset of a long-term investor. Short sellers and others who are negative on the clean energy sector certainly seem to have plenty of justification for that opinion. But huge energy companies like General Electric (NYSE:GE), TOT and others looking beyond the horizon and making major investments in solar energy, wind energy and renewable energy storage technologies.

And, as I said, the long-term charts of most clean energy stocks are telling me that these short-term concerns are overblown and have been fully discounted by the market -- and that these stocks have already made their major lows.

Buy These Solar Stocks on Recent Weakness

The other four solar energy stocks I wrote about on February 14 are below their February 14 prices:

FSLR, recommended at $166.11, closed Friday at $139.57 and is right in the midst of what should be a solid support area. The move above $150, which appeared to be a short-term breakout, obviously fizzled. FSLR has lately become a favorite topic of discussion among short sellers who are pointing to heavy insider selling. But as we learned from SPWRA, insider selling can be very misleading and does not necessarily have negative implications for a stock or a company.

In the case of FSLR, the vast majority of the insider selling has come from two sources: Founder and former CEO Michael Ahearn, who left the CEO position in 2009, and the estate and trusts of the late John Walton, who along with Ahearn was FSLR's co-founder. Walton (who was the son of Sam Walton, founder of Wal-Mart (NYSE:WMT)) and Ahearn formed a venture capital firm in 1999, True North Partners, that was the original investor in FSLR. The fact that Ahearn and the heirs and/or trusts of Walton have been selling some of their stake in the company should not be a shock to anybody, and to my way of thinking probably has little or nothing to do with the company's prospects.

LDK, recommended at $12.92, closed Friday at $11.55. LDK's long-term chart picture hasn't changed one bit, and I still think the stock is sketching out a base that will eventually be completed with a breakout over $15.

JASO, recommended at $7.73, closed Friday at $6.85 and is now sitting within its $6.50-7.50 support area. JASO has already broken out of its major base and looks like it's testing the breakout level now before resuming its long-term uptrend. This is a good buying point.

HSOL has been the worst performer of the group so far, down from $8.79 to $6.83. HSOL appeared to have broken out crossing $8, but has slipped back below that level again. The $6-6.50 area looks like a solid support zone, however, and the long-term base is intact.

Clean Energy Is Still An Early-Stage Growth Industry With Massive Upside Potential

I firmly believe that renewable energy and technologies that support the growth of clean energy is a long-term growth story that will unfold over the next several years. As climate, geopolitical, economic and even national security concerns converge to argue against continued over-reliance on fossil fuels, I believe clean energy technologies will be in increasing demand.

I also believe that large energy companies as well as other companies seeking new avenues of growth will increasingly seek to investor in renewable energy technologies, just as France's TOT did last week: By taking major stakes in solar, wind and other clean tech-related companies or by acquiring them outright.

The list of potential winners would also include small companies that are developing new ways to manage and store renewable energy and to reduce peak electricity demand on the grid.

One example is WindTamer Corp., which I own shares of and which I have previously written about. The company, which on May 18 will change its name to Arista Power, Inc., has developed a renewable energy/power management system designed to reduce peak electricity demand at the customer level and a mobile renewable energy system for military and other applications. WindTamer recently received some attention in an artlcle on Forbes.com.

Disclosure: Long WindTamer Corporation