6 Solar Stocks Reacting To A Changing Market

by: Vatalyst

Solar energy has been harnessed by humans since the beginning of time. Humans first used solar energy to dry food and clothes. The sun has produced energy for billions of years, where a very small part of it reaches the earth. With the Obama administration promising to take on global warming and lessen the country's dependence on foreign oil, renewable energy may be the answer. Wind turbines, geothermal plants and bio-fuel plants will be important contributors. Ultimately, the most abundant form of energy comes from the sun.

A study by the International Energy Agency (NASDAQ:IEA) in 2011 revealed that "the development of affordable, inexhaustible and clean solar energy technologies will have huge longer-term benefits. It will increase the energy security of many nations through reliance on an indigenous, inexhaustible and mostly import-independent resource. Furthermore, solar energy will enhance sustainability, reduce pollution, lower the costs of mitigating climate change, and keep fossil fuel prices lower. These advantages are global. Hence, the additional costs of the incentives for early deployment should be considered learning investments. They must be wisely spent and need to be widely shared."

First Solar (NASDAQ:FSLR) recently disclosed that it will build two utility-scale plants in Australia, which represents 159 megawatts of production. The next day, shares of First Solar rose by 17%. First Solar also benefited from the announcement that it will delay the plant closing in Frankfurt, Germany, by about three months due to an increase in demand for solar modules in Europe. First Solar's stock value has dropped around 85% over the past year, from a 52-week high of $142 in June 2011. The company's operating cash flow has hovered around -$5.8 million.

Heavily indebted JA Solar Holdings (NASDAQ:JASO) also recently announced that it will buy back its shares before the end of September 2012. JA Solar Holdings has lost nearly half its market value in the past five months. The announcement of a buyback program of up to $100 million sent the stock up 25% within the day. Other solar energy companies, such as LDK Solar (NYSE:LDK), Yingli Green Energy Holding (NYSE:YGE) and ReneSola (NYSE:SOL), have also been buying back shares as share prices go down. JA Solar Holdings posted revenue losses for the past year as solar panel prices dropped due to declining subsidies given by different government organizations to renewable energy usage. JA Solar Holdings has 195.8 million shares outstanding, with a market capitalization of $219 million and an enterprise value of $590 million. Its first-quarter revenue declined by 56% year-on-year, which equated to a trailing twelve month (TTM) diluted earnings per share of -$1.15. The current partnership will not make a great impact in the market for the short term, as many investors see buybacks such as this as a band-aid solution to revenue problems.

Trina Solar (NYSE:TSL) recently presented its new Honey Ultra module, a second-generation model of Trina Solar's Honey technology, which generated 284.7 watts peak power when tested in May. The company also unveiled Trinasmart, a new power optimizer and monitoring solution. System performance can be monitored and controlled in real time with a web-based Trinasmart platform. The new platform can be accessed using a smartphone or an internet connected computer. Additionally, the platform improves the safety of PV systems by automatically shutting down affected PV modules in case of electrical failure or malfunctions. Moreover, in case of an external fire, the modules can be cut off via remote control. Commercial availability of Trinasmart is scheduled for September 2012. Trina Solar has over 70.5 million shares outstanding, a market capitalization of $501 million, and enterprise value of $998 million.

In the first quarter of 2012, developers installed 85% more solar panels than last year in the U.S. alone. According to the Solar Energy Industries Association, the total U.S. installations were 506 megawatts and may reach 2,200 megawatts by year end, around 11 percent of the global market.

Schools around the country are one of the many catalysts that turned to solar energy to lower operational cost. More than 500 schools have installed solar panels over the past years. The waning prices of solar panels by almost 35% in the past years made the technology more affordable. Solar power is often cheaper than the retail cost of electricity in most states. Costs have fallen because manufacturers have increased production, creating a surplus of solar panels. With surplus in production and technological advances that increased capability to generate power by almost four times in the past five years, demand for solar power has surged.

India has recently inaugurated its newest solar park in Gujarat. The solar park is expected to produce 214 megawatts, surpassing China's Golmud Park. In 2010, India decided to increase the capacity of solar power from virtually zero to 20,000 megawatts by 2022. The targets are attracting developers around the world as private companies in New Delhi are mandated to source 15% of energy needs from green resources by 2022.

Japan just this morning, June 18, 2012, announced a premium price for solar electricity, which is about three times the conventional power. Analysts say that this could spur at least $10 billion in new installations. The Japanese government desire to bring down the country's reliance on atomic energy will help the solar industry, which is dwindling in the past quarters due to incentive cuts in Europe and over production. Japanese companies such as Kyocera (NYSE:KYO) and Sharp are gearing up to supply the country, as the government eyes solar energy as an important energy source.

The solar industry has struggled in the recent years, as increased competition created a surplus in the market, which in turn forced the prices lower. The lower prices have prompted a number of U.S. solar companies to limit production or even file for bankruptcy. Last month, the U.S. imposed a 31% duty on solar panel imports to curb the increasing number of cheap Chinese products that are entering the market.

I expect the demand for solar energy in the U.S. and Europe to decline in the second half of the year mainly due to the economy, but growth in India, Japan, China and other areas could prove to be significant in the coming years. I suggest holding onto solar energy stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.