|BUY OR SELL-Are solar stocks too cheap to pass up?|
Mon Oct 20, 2008 4:09pm
By Nichola Groom
LOS ANGELES, Oct 20 (Reuters) - Shares of solar power companies had already been battered when widespread turmoil in the financial markets prompted a bigger sell-off over the last few weeks.
Solar stocks were among the top performers last year as rising fossil fuel prices and mounting concerns over global warming pumped demand for alternative energy sources.
But this year, most solar stocks have lost about half their value on concerns that falling oil prices, a weakening global economy and pullback in government subsidies for solar projects in Germany and Spain will dampen demand for the clean technology.
So, are these stocks cheap enough to buy? There are two opinions.
CREDIT: THE HAVES AND HAVE-NOTS
Mark Bachman, solar analyst with Pacific Crest Securities in Portland, Oregon:
"One of the differentiating factors is trying to find those stocks that are not dependent upon the credit markets right now for additional financing. A name strictly comes to mind in First Solar Inc (FSLR.O: Quote, Profile, Research, Stock Buzz). Here is a company that is 100 percent self-funded ... And then if you want to look beyond that, take a look at a company called Solarworld AG (SWVG.DE: Quote, Profile, Research, Stock Buzz) out of Germany that is integrated ... from (its biggest raw material) polysilicon all the way through end market distribution ... it doesn't have to rely on the capital markets as much, as well.
"Of the stocks I cover, I would have to be most concerned about Evergreen Solar Inc (ESLR.O: Quote, Profile, Research, Stock Buzz) ... in order to meet their manufacturing targets for 2010 at least through 2012 they need to build additional factories. And the only way that they are going to do it is to go back and tap the capital markets.
"Akeena Solar Inc (AKNS.O: Quote, Profile, Research, Stock Buzz), that's another company where they are going to have to figure out how to go back in and figure out how to do some funding next year.
"Q-Cells AG (QCEG.DE: Quote, Profile, Research, Stock Buzz), out of Germany, does have a lot of debt that needs to be renegotiated this year. Rates are higher now, especially on the short term. Here is a company that could be looking at increased interest income."
COSTS ARE KING
Carey Callaghan, manager of the Lebanon, New Hampshire-based American Trust Energy Alternatives Fund:
"It's looking to us like it could be a difficult couple of years, and the financial picture doesn't help because it will hit people's pocketbooks and residential customers or government programs as well. But it could be explosive on the other side, and the way to get in would be with the low-cost producers.
"First Solar, which was north of $300, closed Friday at around $140. To us, that starts to look quite intriguing. It was too expensive for us previously, but at these levels it's now a significant holding of our fund. It's got by far the lowest cost position in the industry ... Margins could come down, but the stock is half of what it was.
"The other place to be is the highest efficiency, so SunPower Corp (SPWRA.O: Quote, Profile, Research, Stock Buzz) is also one that we like. A more efficient cell and module translates into lower system cost. There are going to be people who are willing to take a lower return if they can expand the power by 50 percent or more. That's the other end of the spectrum.
"Some of the suppliers, like Meyer Burger Technology AG (MBTN.S: Quote, Profile, Research, Stock Buzz), that market is going to really grow nicely over the next couple of years. I met with Meyer Burger last week, and they are seeing no slowdown in sales ... It has no debt, so that's one that looks to be very well-positioned."
(Reporting by Nichola Groom; editing by Susan Kelly)