By Harris
Roen
The market is starting to notice that solar
investing has been extremely profitable in 2013. As of the
middle of September, the average solar stock is up over 50% in the
past year, and over 15% in three months (that’s over 60%
annualized!).
These returns are taken from a broad list of about 60 publically
traded companies in the solar industry (see chart above). Though
all are involved in solar, solar may not be the primary business
of many of these companies. For example, Panasonic (PCRFY)
produces photovoltaics, but it is only a small part of the
company’s much larger consumer product focus.
To get a better sense of what is occurring in the mainstay of
solar stocks, 16 companies whose primary business is solar were
analyzed. In order to weed out the most speculative players, only
companies with over $50 million in annual sales were included.
As can be seen in the chart above, these pure play solar stocks
have performed spectacularly. On average they are up 164% for the
year, and 41% for the past three months (SolarCity (SCTY)
has only been trading since December 2012, so annual gains are
shown from that time). JinkoSolar (JKS),
SunPower (SPWR)
and Canadian Solar Inc. (CSIQ)
have by far outperformed the rest. STR Holdings (STRI),
a Connecticut-based company that provides encapsulants used in the
production of solar panels, is the one down stock in the group.
By comparison, the S&P 500 is up 16% over the same annual
period, and gained only 3% in the past three months. The tech
heavy NASDAQ did a bit better, up 18% for the year and 8% in three
months. These returns still pale in comparison to solar.
Why the outsized solar stock gains? The chart below shows net
income for the top three solar stock performers, and the average
for all solar pure play stocks. Clearly, net income improved
markedly over the past four quarters. The three companies had
extremely negative earnings at the end of 2012, but all have
rebounded nicely, with JKS and SPWR solidly in positive territory.
When all solar companies are graphed, as shown by the blue line,
it clearly shows that the carnage in the solar started to correct
itself in late 2012.
This next chart gets a bit complicated, but is instructive in
telling the story of recent solar gains. The chart below shows
earnings per share (EPS) estimates for solar companies for the
next three years. These are the consensus assessments, averaging
projections from firms who cover these companies. The dark blue
shows estimates for fiscal year 2014, the medium blue FY 2015, and
the light blue FY 2016.
The company with the most consistent, and most promising earnings
estimates, is First Solar (FSLR).
EPS are projected to remain high for FSLR over the next three
years. CSIQ shows the greatest improvement, much of the reason why
the forward-looking stock market has generated huge gains for this
China-based solar cell and module company.
Even the companies that have negative earnings show marked
improvement in their EPS projections. While some of these may be
good long-term investments, companies projected to have negative
consensus earnings three years out look quite speculative.
Overall, I believe solar as a sector will continue to outperform
in the medium to long term. Positive developments include:
- a continued secular decline in the overall cost of photovoltaic production
- the blossoming of innovative solar financing options, ranging from small homeowner installs to utility-scale projects
- the maturing of solar technologies
The sector will probably remain volatile, though, due to the
following limitations:
- continued low electric prices, chiefly driven by cheap natural gas
- likely consolidation of Chinese photovoltaic producers
- complex and indefinite government support for renewables
I believe the best strategy moving forward is to vary investments
through the sector in as many ways as possible. The mix should be
done through a range of company sizes, locations, technologies
employed and the like. Diversified investors who are in solar for
the long haul will should benefit greatly from their patience.
DISCLOSURE
Individuals involved with the Roen Financial Report and
Swiftwood Press LLC owned or controlled shares of TSL.
It is also possible that individuals may own or control shares of
one or more of the underlying securities contained in the Mutual
Funds or Exchange Traded Funds mentioned in this article. Any
advice and/or recommendations made in this article are of a
general nature and are not to be considered specific investment
advice. Individuals should seek advice from their investment
professional before making any important financial decisions. See
Terms of Use
for more information.
About the author
Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by
Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT
05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved;
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Remember to always consult with your investment professional before making important financial decisions.
Remember to always consult with your investment professional before making important financial decisions.
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