Which Are the Bargains In Solar Stocks?
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I think everyone can agree that solar company stocks have been volatile. There seems to be lots of disagreement on their current valuation. Some people see the stocks as having run up too much, over-bought and expensive, suggesting they should decline back to reasonable levels. Others see the stocks as cheap and are just getting started on major up moves.
All of these companies produce basically the same product. The product converts sunlight into electricity. Some of the companies use basic semi-conductor manufacturing processes to turn polysilicon into photo-electric cells. Other companies use more exotic (different) processes to make cells out of thin films.
This chart (click to enlarge) shows us that all of the solar companies are growing rapidly. They are selling at high multiples of trailing earnings, but low multiples of future expected earnings. Many of the companies reported great growth in revenue and earnings in their last quarterly reports, beating analyst expectations. I like the trend.
On my web site I did a review of solar cell manufacturers, comparing their 2007 production of 3.8 GW of power producing capacity with world energy consumption. This is a trivial amount of capacity. They could produce over 10 GW in 2008 and still be only a tiny fraction of world new installed capacity. As long a countries like Germany, Spain and the United States continue to subsidize new solar systems, there seems to be plenty of demand that can't all be met for several years at least.
I like solar stocks as an investment in alternative energy and believe the future for these companies to be bright! I think the government incentive programs will continue and these stocks are cheap based on possible double or triple digit future growth. I especially like the stocks trading at low forward P/E ratios and low 5 year expected PEGs.
Disclosure: I have long positions in CSIQ and TSL.
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This article has 44 comments:
Everyone knows TSL has the lowest P/E's and your SOLF FPE is misleading - with intention ?
So, The 8.19 earnings is actually $1.16 for 2009 and the PE isn't 3 it's 19. Yahoo lists SOLF in Yuan & everyone else in USD. Check Reuters.
I do not think P/E or any other multiple will reflect this complication. It also means there will never be a monopoly in solar industry which might be a good thing.
res
SOLF has a small market cap and that is why I am pessimistic at the current price....all had huge run except YGE...that is why they may be the safest bet and news just out should help propel it ( manuf silic )
ESLR IS THE NEXT HERE TO RUN !!!
they have to change the table and to calculate ESLR contract, things will be much different.
ESLR NEXT $18
Real
Real
STP = a China play AND a solar play all wrapped up in one profitable company. Energy is China's critical success factor, STP is a Chinese company. The Chinese are NOT stupid - like the U.S. politicians - the Chinese WILL use their own domestic company to fill their cast solar energy needs. STP has a place at the head of the table of the boutnious Chinese energy market.
ALSO agree with ESLR comments. This company will soon acheive profitability, and their connections and activity in SPain and Germany will werve them well as a profitable large global solar provider.
STP and ESLR will be the solar IBM''s of the immediate future. Both are cheap, both also leverage off the high price of oil and the current political environment.
Buy on dips, trade on bubbles, and hold hold hold core long terms positions in both stocks and IMO yo'll be looking at $200 to $400 stock valuations over the next 5 to 10 year period.
While no one will be allowed to takeover STP = the Chinese are not stupid as our American politicians are.
ESLR is a potential takeover candidate as well. Fo instance GE does not currently have a solar component in its business portfolio, GE does have a wind component and a nuclear component in its business portfolio.
So with STP you get a China play (for free)
AND with ESLR you also get a potential takeover candidate = soon as they acheive profitability (next 1-2 years)
IMO
Remember the polysilicon shortage a few years back? Its here again, ESLR will reap the benefit more than FSLR simply on a relative basis.
The comment that "everyone knows TSL has the lowest PE" may have been based on my articles when TSL was at $41. Now that CSIQ has fallen from the $40's to the $30's, and now that TSL has gone up from $41 where I recommended it to $48, I think the FPE's on these two companies for 2008 are comparable at about 15.
I think it is folly to use 2009 FPE's when the second quarter of 2008 hasn't even been reported. Too many things can change in 18 months (yes susbidies, no subsidies, ASP's, price of poly, etc).
However, CSIQ has run hard due to its recent blowout quarter, but TSL hasn't yet reported. Assuming the delay in reporting is not indicative of a problem with earnings (and my guess is, it is not), I think TSL has the better chance of running once it does report, although I think the overall DOW may be in for a rough week this week. I plan to buy more TSL if it can be bought at $45 and CSIQ if I can get it at $35.
As to ESLR--yes, the two big orders certainly put this company on the map, but we have no knowledge as to the pricing of the orders, the likely execution by this company, and hence, we have no idea what its net profit margins will be.
So this one is still very speculative in my book. Everyone had great hopes for AKNS a year ago, and what has its price done?
Finally, as to STP--although it surprised this quarter, it also hasn't done much in the past few months, price-wise. Its 2008 PE is close to 30, and I simply see no reason it deserves a PE twice as large as either TSL or CSIQ.
As to YGE, I calculate its PE to be greater than 20, and again, no greater compelling value than TSL/CSIQ.
Final note: The solars have run nicely during solar earnings season, so do NOT be shocked if they slide back and consolidate, especially if the markets retest their March lows. Also, these stocks are EXTREMELY volatile (sometimes for good reasons, often not) and if you can't handle that, this is not the space for you.
Conclusion: Although there is some risk of downside moves, to me, TSL and CSIQ, at $45 and $35, offer the most compelling values in the solar space today.
Jack
trader
ESLR is a bargain ay any price below $16 until they bring their new manufacturing facilities to 100% capacity.
FSLR, Suntech, and most other solars are grossly over priced. All the talk about FPE is humorous and tragic. The market has not been driven by fundamentals for over 10 years. There is way too much stupid money in the market for fundamentals to matter.
The analysts are no help either. They are driven by a desire to for 15 minutes of fame and rarely have a clue what makes the market move. Consider the recent roller coaster market. One day the market moves down. The analysts proclaim it is due to oil futures hitting $118. The very next day the market posts a very nice gain and the analysts proclaim it is due to oil futures hitting $121. The analysts need to do the world a favor and put away their magic eight balls.
The dirty little secret of the market is that only a privileged few have access to true market momentum data. Until the exchanged are forced to publish this data free of charge, the real strength or weakness of equities prices will remain hidden to the masses and the stupid money will continue to flow into the pockets of those that are in the know.
Agree FSLR is overpriced, but I would be fascinated to learn how you arrived at a fair price of $16 for ESLR.
As to the "stupid" money--that was much more true 2 months ago than it is now. What I have seen is that the low PE stocks (CSIQ, SOL, SOLF) have run and the high PE stocks (FSLR, SPWR and STP) have not. Seems to me the "stupid" money is getting smarter.
TSL hasn't moved as much because it hasn't reported. I expect good things from TSL.
Jack
I have made my methodology clear--I use consensus which I find on Schwab Earnings Reports, for all companies. My own analysis calls for $4.50 on TSL in 2008, and $2.75 on CSIQ. I do not project 2009 because I believe that is witchcraft--waay too many unknowns.
Using my own estimates rather than the consensus does yield a lower PE for TSL than CSIQ. However, I will only be comfortable with my $4.50 estimate once TSL announces.
Jack
Over the last several months I've purchased roughly equal amounts of CSIQ, TSL, JASO and YGE. Combined, they account for about 5% of my portfolio. I'm willing to ride out the volitility and see how things play out in the next few years. Any thoughts?
Would you suggest adding SOL or SOLF?
Thanks!
Over the last several months I've purchased roughly equal amounts of CSIQ, TSL, JASO and YGE. Combined, they account for about 5% of my portfolio. I'm willing to ride out the volitility and see how things play out in the next few years. Any thoughts?
Would you suggest adding SOL or SOLF?
Thanks!
Over the last several months I've purchased roughly equal amounts of CSIQ, TSL, JASO and YGE. Combined, they account for about 5% of my portfolio. I'm willing to ride out the volitility and see how things play out in the next few years. Any thoughts?
Would you suggest adding SOL or SOLF?
Thanks!
More at: finance.yahoo.com/q?s=...
Disclosure: I have long positions in: STP, LDK, YGE, and 0757.HK
As always I agree with you on most things...But that STP doesn't deserve a higher valuation than the likes of CSIQ or TSL is in my opinion not true...the company is the greatest producer of solar panels(overtook Q-cells and I think Sharp)....and I think that size is ,and will be, quiet important in the coming years when it comes to lowering ASP's...(bargaining power, faster learning etc.)...does it justify twice the PE of CSIQ or TSL no probably not but what does it mean?Does it mean that STP is overpriced or that the other two are underpriced?My guess is the latter, these companies are trading at levels that Blue chips usually trade at(but with earnings/revenue growth very much unlike Blue chips)...I think STP will break out in the near-term....at the latest when they will announce a hugh poly deal that is rumored to happen soon....$1 Bil. in short term cash flow certainly speak for that scenario....
Also i started building a CSIQ position, again, but quiet slow....jumped in @$38 and now waiting either for lower prices (gap close)...or just earn some money either way I am quiet comfortable with the investment at that price in the short term(less than 1 year)....with kind regards from across the pond CW
Long ABX, CSIQ, STP, TSL
PS this week in Germany they are meeting to discuss the future of incentives...(EEG)We'l... see what happens there...if anything unexpected happens I would get myself ready for the solar stocks getting pummeled...but nothing extraordinary is expected but who knows....
You have all your estimates for SOLARFUN incorrect. check out the businessweek website
2009 Earnings=$1.21
investing.businessweek...
I am long long with TSL, and CSIQ just now.
Can you give me your opinion of DSTI?
Wandable
I know a relative in China that is pretty well off himself. He had install a complete solar system for his home 2 years ago that met all his electricity needs. The system broke down half a year ago, and he decided it wasn't worth the hassle and the money to repair it.
Don't get me wrong, I believe in the future for the solar industry and have encouraged many friends and family to look into the whole industry as a investment, but it remains to be see if China, India, Brazil, etc could become big markets for solar.
-Scott
solarfeeds.com
Warming
Examiner