Solar Investing: Slack polysilicon supply gives some a license to print money...
By Ian Cooper, American Capitalist
Energy has never left center stage. Oil prices are well above normal. And there are no signs that energy demand will creep lower anytime soon, says one report released by the National Petroleum Council. “Facing the Hard Truths About Energy” reports that, energy consumption is expected to “rise by more than 50% over the next 25 years” on the heels of booming global populations. “Finding supplies to match that growth is going to be increasingly tough and will require huge new investments in coming decades.”
So it comes as no surprise that alternative energy sources have also taken center stage. Solar, for one, has been under constant watch as First Solar rocketed from a low of $23.50 to more than $119.85 -- a 410% gain. JA Solar flew from $16.17 to more than $43 -- a 166% gain. And Trina Solar has rocketed from $17.06 to more than $72 -- a 322% gain.
All the while, the solar energy market has tacked on about 30% since 2006 on the heels of Chinese demand and U.S. solar energy announcements:
- George W. Bush announced plans to increase federal government spending on solar energy to $150 million;
- Gov. Schwarzenegger pledged a million solar rooftops by 2017;
- And Gov. Pataki inked a bill offering a $5,000 tax credit for homeowners that install solar-power roofing.
But there are valuation concerns regarding solar power going forward. First Solar, for example, trades at 480 times earnings, and 42 times sales. JA Solar trades at 59 times earnings. And Trina trades at 71 times earnings, and 11 times sales.
The problem that comes into play for solar companies -- polysilicon supply. Without it, the above valuations are unsustainable. China Sunergy, for one, plunged 15% in a day on warnings that short supply of polysilicon will cut into Q2 margins.
So where’s the opportunity? One, should polysilicon supply be plentiful, the safe bet is to buy solar companies on high demand. But with predictions pegging plentiful supply as late as 2012, it’s a risky bet. The safer bet here is to buy companies with polysilicon. MEMC, for example, soared from $45 to more than $65 within a year, thanks to slack polysilicon supply.
For other polysilicon opportunities, check out Red Zone Profits’ latest article, “Classic ‘Supply and Demand’ Could Send This $13 Stock to $50 by Summer 2008, Best-Case Scenario.”
Take Care,
Ian
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