Solar Power Stocks
Solar Profits, Short- & Long-Term
You all know a global recession is currently underway.
Layoffs. Bailouts. Deleveraging. Tight credit. You've heard it all.
But as green investors, you need to know exactly how overarching economic conditions are affecting individual sectors in the cleantech space, and how you can still make a buck with all the carnage in the markets.
Solar power stocks seem to be the most sought-after cleantech destination, so let's see how that market is responding to the turmoil.
Solar Stocks Battle Falling Prices
I'm not just talking about falling stock prices, I'm talking about falling average selling prices (ASP)—a new must-add term to your cleantech vocabulary.
Average selling prices, with respect to solar, include both the price of the raw material, polysilicon, and the selling price of the finished module.
Poly prices stood at about $400 per kilogram not long ago, but have fallen to about $120 per kilogram in the past few quarters as demand for computer chips waned. All indications point to further price reduction in the near future.
The rise and fall of silicon prices is evident in a long-term chart of companies that operate in that sector:
Companies that process, refine, and sell polysilicon enjoyed extraordinary runs when their product was in high demand and short supply. But they witnessed an equally dramatic fall when demand eased and prices began to fall.
Expect this trend to continue, with Renesola (NYSE: SOL) being the earliest to rebound as the current Chinese cost advantage is magnified by continued falling prices.
The other average selling prices relevant to the solar market are those of the finished product, panels. Keep in mind that the long-term goal of the solar industry is to drive down prices in order to compete with traditional sources of energy.
While rapidly falling prices like we're seeing now help reach that goal, they also take away dollars in the short-term from the almighty balance sheet. This is because solar companies can't reduce operating costs in the short-term as fast as selling prices are falling. But solar companies will begin to make money once again as operating costs are reduced.
The companies that reduce costs the fastest will be rewarded with higher earnings and higher share prices.
Current selling prices for European manufacturers are in the €2.50 per watt range — a significant discount from just a few months ago. Established Chinese producers are selling panels in the €2.15 to €2.20 per watt range. Yingli (NYSE: YGE) has reported selling panels for €2.05 per watt to large customers.
Falling panel prices are due to reduced poly costs and reduced demand spurred by the recession. A slew of new incentives, from the U.S. and elsewhere, should begin to stimulate demand. Prices will slightly rebound when that happens, but remember, long-term overall cost reduction is the ultimate goal.
When selling prices begin to rise with renewed demand, the companies that can keep prices low by reducing production costs and increasing panel efficiencies will win.
I'm sure you don't need a chart to understand how falling selling prices for modules have affected the share prices of major solar producers.
But the deep discounts now available on solar stocks provide a few unique opportunities for profit in both the short- and long-term.
Here's what I mean. . .
Investing in Solar Power Stocks
Considering some solar stocks have lost as much as 95% of their value in the last year, as a green investor you have to assume the worst-case-scenario—other than bankruptcy—has already been priced in.
As such, any good news is enough to push stocks higher, even if it's just a bit higher.
Take the last five days for example. Solar stocks were thrashing around their lows in the second half of last week and early this week.
But a positive note from Citi this morning, coupled with JA Solar's reporting of better-than-expected revenues, was enough to send solar stocks soaring.
We're seeing 20%+ pops today just because JA Solar's earnings were mediocre instead of terrible. But that's the current state of the market. And that's exactly how you can make money on solar stocks in the short-term.
I've known for some time now that solar stocks have been way too low. So, last week I sent the following update to readers of the Alternative Energy Speculator:
Let's use today's dip to get into LDK Solar (NYSE: LDK), Renesola (NYSE: SOL) and back into JA Solar (NASDAQ: JASO).
LDK broke through its 52-week low today, trading in the $4.60 range. Renesola came within $0.04 of its low at about $2.10. And JA Solar is back down to were we bought in the other day.
I don't think they'll stay here for long. Even though we're not seeing the high valuation we're used to, these prices are simply unjustified.
As you can see from the above chart, those plays panned out perfectly, each one now standing with about a 10% gain. Readers of Alternative Energy Speculator now have that cash in their pockets.
Short-term solar gains like that are hard to come by in this market unless you have the advantage of being guided by an industry expert. So many factors are currently affecting stock prices that it's sometimes hard for individual investors to figure it all out.
In the solar market alone you have to consider not only the falling prices we just discussed, but also the harsh winter in Germany that is delaying installations, the fickle incentive market in Spain, the robust potential of U.S. and Italian markets in 2009, and a dozen other solar-specific market factors.
And you have to know about all that stuff before taking into consideration the negative financial headline du jour.
The same holds true for long-term solar profits. Prices are low now, but do you know which producers are likely to lower costs the most over time? Do you know whose panels major installers now prefer?
This is all required information for successfully investing in solar tocks.
You can get it piecemeal here for free and try to turn a profit on your own, or you can get all the information you need, including purchase recommendations with price targets, delivered right to your inbox.
Readers of The Speculator have cashed out of four winning plays in the past two days. And that's on top of the numerous other winners we've had so far this year, even as broader markets reached their lowest points in more than a decade.
Now is not a bad time to invest, provided you have all the information you need to navigate a fickle market.
Banks are once again lending to cleantech projects now that they've been made more attractive by governmental tax incentives. There's no reason to sit on the sidelines; stocks are at ridiculously undervalued levels, and I have the insight you need to profit when they pop.
You'll earn back the membership fee in no time as you turn in-depth industry reports, company profiles, and buy recommendations into easy cleantech gains.
Call it like you see it,