Green Energy Stocks

Playing the Solar and Cellulosic Perfecta

Written by Brian Hicks
Posted March 4, 2008

Our last mention of solar was an article about building integrated photovoltaics (BIPV) that ran in early February.

But with a recent sell-off occurring throughout the entire sector, I thought a broader snapshot of green energy stocks was required to unearth some bargains and to see where the industry is headed.

A Close Look at Three Green Energy Stocks 

The best place to start is probably with the stock that garners the most attention from Wall Street: First Solar, Inc. (NASDAQ: FSLR). In the last three months the stock has seen highs of $281 and lows of $165—a 41% discrepancy.

first solar

That 41% sell-off occurred in the four weeks spanning late December to late January. First Solar then traded flat for two weeks before regaining some steam. And since the first week in February the stock has actually gained 25%.

But if you pull the chart out to six months, you'll see the stock is still on a strong uptrend, going from $103.75 to $207.50 for a 100% gain. Take a look:


All of a sudden solar doesn't look so bad. But that's just a façade put on by a stock that gets the most investor and PR love. If you dig deeper you'll see many great companies that, despite good gains from September to late December, have actually traded flat or lost value in the past six months.

The first such case is Suntech Power Holdings Co., Ltd. (NYSE: STP):

fslr vs stp

And the second is SunPower Corporation (NASDAQ: SPWR):

fslr vs spwr
What this presents is a serious buying opportunity. Suntech recently catapulted to the third largest manufacturer of solar cells in the world—based output numbers for 2007—taking over Japan's Kyocera. And SunPower's cells boast the highest efficiency of any widely available on the market.

Of course, there is a negative as well. SunPower and Suntech use silicon, which is currently in short supply, as a raw material. First Solar does not.

This has led, in my opinion, to a case of investor jitters that is reflected in the recent undervaluation of these companies.

But folks, the silicon supply crunch is a short-term issue that shouldn't and won't be reflected in long-term stock price. New silicon suppliers are coming online and existing suppliers are ramping up production. The shortage, by most estimates, won't outlast 2009 and won't drastically affect output until it's over.

As for the other metrics commonly used evaluate solar companies, including driving down costs, SunPower and Suntech are right on par. Both companies have the executive expertise and manufacturing know-how to lower cost per watt and continue the journey toward grid parity.

If you can stomach the volatility inherent in this type of market, it may be worth taking a look a these two companies. When the solar energy tax credits get passed—and they eventually will—buying these companies at current levels will prove to be a smart investment.

Plus, the solar industry is still expected to enjoy at least 25% annual growth rates through 2012.

More Green Energy Stocks

I told you some time ago that forestry companies would start to see some investment dollars flow their way for the development of cellulosic ethanol. And while we have seen scant evidence of that occurring, the most relevant news in this arena came just last week, when Chevron Corporation (NYSE: CVX) and Weyerhaeuser Company (NYSE: WY) announced the creation of a joint venture to develop ethanol from wood-based feedstocks.

The aim of the 50-50 venture, called Catchlight Energy LLC, is to research and develop cellulosic ethanol and to produce it economically viable way.

We're continuing to see a transition toward cellulosic ethanol as demand for the corn-based variety has perpetually driven up prices for its feedstock. Those rising prices have led to increased food costs and to hard times for livestock ranchers who must purchase the grain to feed their animals.

There's no word yet if Chevron and Weyerhaeuser will take their venture public but, either way, there are plenty of ways to invest in the cellulosic ethanol boom.

Some stalwart corn-based manufacturers are actively researching ways to enter the cellulosic market through university partnerships. And a handful of other smaller companies have been receiving Department of Energy grants to bring cellulosic up to a commercial level with a variety of feedstocks.

Another Emerging Green Energy Play 

Enzyme companies are also emerging as a way to play the green industry because one of the keys to driving down cost is finding an enzyme that can digest multiple types of sugars efficiently.

To date, no such enzyme has been discovered, but I have my eye on a few companies that are getting very close.

If you're interested in these types of speculative renewable energy plays, my new service Alternative Energy Speculator may be just for you. That service, coming out later this month, will take aim at delivering hefty profits from the renewable energy sector for those who have the stomach for a little more risk than we're usually willing to take.

The payoff will be huge, so keep an eye out for that service to debut in the coming weeks.

Until next time,

nick hodge