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 publicly traded
companies in the solar industry (chart at right). 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 at right, 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.
http://cleantechnica.com/2013/09/20/solar-stocks-taking/
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