TFN Special Research Report: The Three Best Solar Companies to Buy Now
Today's Financial News - Posted April 17, 2009
As Washington gears up to plow billions of dollars into subsidies for alternative energy, your TFN team of stock experts has analyzed the industry and identified the three best solar stocks to buy now: CSIQ, ESLR, SPWRA.
by Stephanie Grimmett, TodaysFinancialNews.com
Baltimore—TFN: Washington is about to fire up the printing presses and push billions of dollars into making the United States “independent” from oil imports.
Accordingly, the solar industry expects to expand 27% per year for the next four years—growing to a $70 billion market by 2012. Someone’s going to make a mint off solar soon…
The polysilicon shortage that restricted production in the solar industry has finally ended. And demand is ramping up now that supply can meet it.
New production facilities are opening, costs are moving down and solar power is growing more cost effective.
But you still have to be careful how you play this booming business. Solar companies are springing up everywhere. Many won’t survive in the competition.
But we’ve found three companies that are doing just that.
These corporations are strong businesses with a competitive advantage over their fellow solar-power players. One knows how to monetize every aspect of its business. Another is profiting from its proprietary solar cell technology. And the third is taking advantage of state clean-energy quotas to build its customer base.
And just for you, we’ve also included a special bonus pick. It’s a unique solar stock that could change the entire solar industry.
Read on below to learn how to play each one…
China’s day in the sun
China turned to the solar industry to power its steppes, deserts and anywhere else without a (relatively) large population. Even in the new brownout-haunted cities, people are privately installing solar panels in window, on rooftops and balconies.
The government has already begun installing solar panels on existing homes and new homes, as well as creating self-sufficient power grids that can operate without human oversight on a daily basis.
The passive energy production supplied by solar panels is perfect for China’s needs. And with silicon shortages no longer choking the industry, and Chinese labor attracting solar manufacturers from all over the world to China, Chinese companies will be making a mint off the PRC in coming years.
In fact, one company has already started…
Canadian Solar: Canada, China and everywhere else
Canadian Solar, Inc. (NASDAQ:CSIQ) is a Canada-founded solar company with all of its manufacturing facilities in China. This strategy has given Canadian Solar (CSI for short) the best of both worlds, allowing it access to China’s cheap labor and booming solar industry, while tapping into Western investment sources and giving its Western customers the ease of doing business with a local. And that sort of all-encompassing operating theory holds true in the other aspects of Canadian Solar’s business, as well.
The company is as close to self-sufficiency as a solar manufacturer can be. Canadian Solar produces its own silicon from quartz. It processes that silicon into wafers, ingots and cells. It builds solar panels and modules from those silicon products. And using those panels and modules, it designs and installs standard, as well as custom-made, solar-power “applications” for clients.
When the Chinese government looked around for a company to produce 80,000 solar home systems to be installed in rural areas of Sichuan province (the center of last year’s devastating earthquake), Canadian Solar was able to win the contract.
But the company isn’t limiting its client base to the Chinese government. Canadian Solar serves customers as varied as Volkswagen-Audi and Asian cellphone giant China Mobile.
And CSI isn’t just a retail solar shop. The company looks at every stage in its production as a possible profit-generator. CSI sells processed silicon (in wafer or ingot form) to other solar-cell manufacturers. And it has a successful side business marketing its cells and panels to other retail solar companies, who then integrate them into their own rooftop or ground-mounted power arrays.
Canadian Solar knows how to make money from every step it takes. And it knows how to survive a recession. The company posted a loss for the fourth quarter of 2008, but that loss was not, like most solar companies in the last quarter, due to a drop-off in orders. It was simply the result of a write-down for its silicon inventory.
And instead of starting new building projects in 2008, CSI took the opportunity afforded by a healthy cash-flow and used it to buy back $78 million in debt. It was a smart move, but also a brave one in such a trigger-happy trading atmosphere.
CSI has what it takes to thrive in the current solar market. And it’s going to take advantage of every profit opportunity out there.
*** Buy Canadian Solar (NASDAQ:CSIQ) at or under $7 and hold for potential gains of 40% in the next year. ***UPDATE: CSIQ hit our 40% gain target on 05/21/2009.
Evergreen Solar: The future is now
Imagine how much money a construction company would save if it could find a way to substitute a thin sheet of concrete for a 10-inch-thick retaining wall. The sheet would be just as strong as the concrete slab, even though it was only one-fifth the weight. It would still support a 10-story building, but it would require only a small percentage of the concrete in a traditional wall. Now imagine that the technology to create that magical wall exists and it’s cheaper than conventional building methods.
That’s exactly what’s happening in the solar industry right now.
The wasteful and expensive traditional method for creating solar cells is being eclipsed by a new and cheaper process that’s energy- and silicon-efficient. And Evergreen Solar (NASDAQ:ESLR) is at the front of this new wave. The Massachusetts-based solar-cell manufacturer cuts down on cost by creating thin, but durable, silicon films to put in its cells.
Evergreen Solar starts out with the same silicon that all solar module manufacturers use. But instead of chopping up that silicon into thin slices and slapping those into a cell, Evergreen uses its proprietary String Ribbon technology to blow bubbles.
Think of dipping a bubble wand into a bottle of liquid silicon and pulling it out with a viscose, liquid skin spread across it. Now replace that wand with two parallel heated filaments and the bottle with a big vat of melted silicone and you get the idea. Evergreen drags the filaments through the vat, and, voila, it has a thin and uniform sheet of silicon spread across it.
After it cools and solidifies, the silicon suspended between the filaments looks something like a strip of very large camera film. And the company can substitute this flexible skin of silicon for the thicker, harder slices normally used in solar modules.
Evergreen’s proprietary String Ribbon technology is a much cleaner process than traditional wafer production. It uses less energy. It doesn’t waste silicon. And it’s cheaper than normal silicon processing for solar uses.
Evergreen constructs its own solar modules using String Ribbon technology and sells them to installers around the world, everywhere from Florida to New Zealand, and a few places like Slovenia and Germany in between.
The company’s modules are used to power DuPont’s research center in Hawaii. They’re currently keeping the alumni pool at MIT warm and cozy. And Germany’s Ralos installed Evergreen modules on 1.7 miles of the country’s A3 highway to build the world’s first electricity-generating interstate tunnel.
Evergreen has a stable customer base. And its cost-effective products will woo new clients away from competitors. This is a strong company with an even stronger product.
*** Buy Evergreen Solar (NASDAQ:ESLR) at or under $2.50 and hold for potential gains of 30% in the next six months.
SunPower Corporation: The sunny side of power
Last year, SunPower Corporation (NASDAQ:SPWRA) installed solar electrical grids on 28 Macy’s, Inc. (NYSE:M) stores in California.
The department store gave itself a 2010 deadline for reducing its greenhouse emissions by 25% (from levels in 2005), and SunPower was all too happy to assist. The two companies even worked out a deal where Macy’s paid for almost two-thirds of the installations through power purchase agreements, meaning a third-party lender sells the electricity generated by the solar installations back to the store until it pays for the loan. It’s the rent-to-own version of solar conversion.
Macy’ chose SunPower to build and install its solar modules because of the company’s flexibility and helpfulness. SunPower was comfortable with the power purchase agreements, and it suggested an upgrade of Macy’s stores to higher energy efficiency while it was putting the solar installations on their roofs. This made SunPower more money in the short-term and saved Macy’s a bundle in the long.
The everyman’s solar
This sort of adaptability and collaboration has become SunPower’s trademark. The company is leaving behind the eco-nuts-only image and converting the ordinary homeowner to solar power. It appeals to the pocketbooks of regular citizens, which isn’t a new idea in solar. But SunPower takes it to the next level by providing an individual-specific savings calculator and telling customers on its homepage their discounts could reach “up to 45% off solar”.
The casual web surfer is much more likely to begin considering solar power when he learns that government rebates make the installation nearly half price in his state and his new energy source will begin to pay for itself in less than 10 years. Of course, those are just one person’s results. The calculators can be individualized with 14 variables such as annual electric costs or roof slope and direction.
SunPower makes it easy and cheap for private citizens or companies to go green. Macy’s power purchase agreement was not an anomaly for the company. It will build you a solar grid for free and then find financing to sell you back the electricity at a fixed rate. No hassle about financing or arranging for payments. Macy’s and many other businesses and homeowners simply pay their electric bill each month until their grids are paid off. Call it the “if we build it, they will buy it,” principle of alternative power. But whatever you call it, it’s an elegant system that will appeal to commercial customers trying to cut costs.
And SunPower has some pretty hefty commercial customers. The company has constructed solar grids for the likes of Johnson & Johnson (NYSE:J), Microsoft (NYSE:MSFT), Lockheed Martin (NYSE:LMT), Japanese cosmetics powerhouse Shiseido (OTC:SSDOY) and Tiffany & Co (NYSE:TIF).
But recession thinking has it that consumers won’t try anything new during bad economic times. So how will SunPower turn a profit until the economy turns around? With your electric bills.
The company will not only build a custom roof installation for a client. It will construct, operate and maintain an entire solar power plant for him. SunPower plants currently electrify Nellis Air Force Base in Nevada and cities in Germany, Spain and South Korea, among others. It’s Nellis installation was the largest of its kind in North America when it was built in 2007, and although the company isn’t trying to compete with itself, SunPower is currently building the largest high-efficiency solar plant on the continent.
Utilities soak up the sun
SunPower is teaming with Xcel Energy (NYSE:XEL) to construct a 17-megawatt solar plant in southern Colorado. The plant will use SunPower’s Tracker systems, which rotate the panels to follow the course of the sun, a tactic that increases efficiency by 30% over their stationary rivals. But this plant won’t be the biggest thing on SunPower’s plate.
That would be the 25-megawatt power plant SunPower is building for Florida Power and Light in southern Florida. The plant will easily be the biggest in North America when it starts up next year, but not for long. SunPower has also signed a contract to build a 210-megawatt plant for Pacific Gas and Electric Company in California, which should come online in the next three years.
As you can tell, SunPower is going to be busy, with or without a recession. The company is a popular choice for municipal and private energy companies, especially when they’re looking to fulfill those new renewable energy quotas enacted in states across the country. It operates a thriving commercial solar power purchase business. And it gives homeowners a great incentive (or five, or six) to switch to solar energy.
*** Based on its healthy and growing project list and its ability to weather an economic blizzard with profits and customers intact, buy SunPower Corporation (NASDAQ:SPWRA) at or under $27 and hold for potential 30% gains in the next three months.
Bonus stock: Not for the faint of pocket.
Here at TFN, we try to keep our stock picks within the reach of every investor. So we won’t be recommending this next stock officially. But if you’re committed to solar companies and you want a good one, check out First Solar (NASDAQ:FSLR).
The price tag is daunting (at more that $140 per share), but First Solar has proprietary technology that allows it to skip the solar industry’s biggest cost driver, silicon.
Instead of using solar’s go-to semiconductor, First Solar opts instead for cadmium telluride, which is what physicists call a direct bandgap semiconductor. Silicon is an indirect bandgap semiconductor. And in simplest terms this means that silicon solar cells don’t absorb much light compared to First Solar’s cadmium telluride modules.
First Solar can use a much thinner sheet to absorb a larger amount of light than its competitors. A thinner solar cell means cheaper production. And because of this, First Solar says it has the lowest manufacturing cost in the industry. So it can sell its products at a lower rate than its competitors, which is always an appealing advantage, whatever the current economic situation.
The company likes to brag that it’s brought solar down to the price-level of fossil fuels. And First Solar tells customers they could be spending as little as $1 per watt.
As for a catalyst, First Solar is opening its residential branch this year. For the first time, individual homeowners will be able to buy systems from the bargain solar company.
Next Article: Take over 20% gains on Isis Pharmaceuticals (ISIS)
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