Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Solar Stocks Rebounding on Oil, Obama Prospects

Posted on | November 4, 2008 Time: 3:32 pm |

The solar stocks have faced a brutal, early winter environment the past few month; the crushing of their equity along with a frozen debt market has effectively removed their medium-term funding. Meanwhile, the much lower price of crude oil has driven a move to broadly lower energy costs, which takes away from solar energy’s cost effectiveness.

Now that most of the solar stocks are down 75% or more, I’m trying to pick out a member of this group that has sights on hitting the important marks first… $1/w in cost per unit, and critical mass production capacity that can be achieved with at least a 10% operating margin. After (finally) finishing my read of SunPower’s (SPWRA) Levelized Cost of Electricity white paper, I’m intrigued by their vision, and they have the capitalization to make a good run at it.

There seems to be a bit of an Obama Push sending the group up 10% & higher this morning; even so investors shouldn’t get into a panic about “missing the boat” on this industry. If these truly become “Revelation” stocks, their market caps will be well, well, (1 more for good measure) well above current levels. JA Solar (JASO), for example, still trades for less than it’s cash & equivalents. Yingli Green Energy trades for about the same ratio of cash, as well as run-rate P/E of 1.4 times. 1.4?!?

Over the next 18 months the key drivers affecting industry growth will be future government subsidies (such as California’s Proposition 7, Obama’s Plans for $150 billion over 10 years towards alternative energy) and the possible supply glut in silicon wafers and other solar substrates. Pricing is already expected to fall about 15% next year, and it could be much worse as thousands of MW in capacity come on line, with no buyers in sight.

disclosure: Author does not hold positions in the stocks mentioned.

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Category: Basic Materials, China, Solar
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