Reprinted from MarketWatch:
THE GURU’S CORNER
Here comes the sun: Energy spike heating up solar shares
By Timothy Lutts, Cabot Market Letter, October 17, 2007
SALEM, Mass. (Cabot)—It’s October in Salem, Mass., famously known as the “Witch City,” which means tourists are everywhere, clogging the downtown streets in a process that culminates in a massive traffic jam on the night of Oct. 31.
Most Salem residents tolerate this annual incursion, knowing that in November, these folks will be gone, while the dollars they’ve spent in our hotels, restaurants and gift shops remain behind. To me, living and working on the edge of town, it hardly matters.
October to me means getting ready for winter. I’ve already done my fall pruning and replenished the woodpile in the garage, and this past weekend I tackled the storm windows—a task that, though tedious, will pay off in spades in the months ahead.
Why? Because the price of oil is going through the roof! And if you heat with gas instead, you won’t fare much better.
The roots of this long-trend trend are numerous, and include the increased appetite of China and other developing nations for energy of all sorts, the increasing cost of procuring oil and gas from less accessible locations, and the increased demand for energy sources that pollute less. Yesterday’s spike in energy prices was credited to friction between Turkey and Iran!
So, while I was buttoning up my house for the winter, I was also thinking about investments that benefit from the long upward trend in the price of energy, particularly my favorites... the solar power companies.
The fact is, the solar energy that hits the earth in one minute is sufficient to supply all our energy demands for an entire year; the trick is harnessing that energy. An increasing number of public companies are doing it, however, and as the technology improves rapidly in this industry, and economies of scale kick in, the cost per watt continues to fall.
In some sunny locations, the cost of solar is nearing parity with the cost of traditional fossil-fuel electricity. And it’s pollution-free!
There are over a dozen young stocks to choose from in this space, but the leaders today are First Solar (FSLR), JA Solar (JASO), SunPower (SPWR) and Yingli Green Energy (YGE).
These are growth investments of the first order. Every one of them is growing revenues at a triple-digit rate. (That’s proven to be one of our most successful stock-picking criteria through the years.) Every one of them is a profitable company. And every one is being accumulated by institutional investors who want to get their foot in the door of the next big thing.
Admittedly, these stocks are expensive when looked at from a static valuation perspective. But when you consider the growth potential, these valuations make sense.
First Solar, based in Phoenix, is the leading provider of third-generation “thin-film” solar cells, which means it’s far less dependent on increasingly expensive silicon for its products.
SunPower, based in San Jose, Calif., makes an aesthetically attractive all-black solar cell for both residential and commercial installations and is building new manufacturing plants in Malaysia to increase capacity.
JA Solar, nominally from the Cayman Islands but actually operating in China, is a specialist. It makes solar cells, but then sells them to other manufacturers who incorporate them into finished power-generating products.
Yingli Green Energy, also in China, is vertically integrated, and produces complete systems for home, business and industry.
All four have strong charts today and all four are recommended for growth-oriented investors who know how to manage risk.
Content found in The Guru’s Corner is subject to the terms and conditions found in the Disclaimer and does not represent a recommendation of investment advice. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.
Cabot Market Letter
More Cabot in the News
Cabot Home
Sign up for free Cabot Wealth Advisory e-newsletter