SunPower (SPWR): Growth and stability

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 10/28/13 Sign up for free Cabot Wealth Advisory

You can find hotter solar power socks, and you can find younger solar power stocks, but you won’t find a solar power stock that has a better combination of growth and stability.

SunPower (SPWR) has been in business since 1985. It’s located in San Jose, California, not China. And it boasts the largest installed base of residential and commercial solar power systems, with more than 100,000 residential systems installed.

The company has been profitable every year since 2005, which is a sign of good management. After-tax profit margins in the three most recent quarters have been 3.2, 4.3% and 10.9%. And analysts recently raised their earnings projections for both 2013 and 2014.

So, you could just jump in and buy SPWR here. But I don’t recommend it. Because to tell the truth, the stock (like most solar stocks) looks a little extended here. So the odds are good for a pause, if not a modest retreat.

Instead, I suggest you take a look at Cabot Top Ten Trader, which every Monday will present you with 10 strong stocks that ARE at good buy points. Plus, when you buy those, we’ll tell you when to sell and take profits, too!

SunPower (SPWR): A leading player in the photovoltaic solar panel

By Timothy Lutts, Chief Investment Strategist and Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 9/2/13 Sign up for free Cabot Wealth Advisory

Today’s Revolutionary Stock is SunPower (SPWR), a leading player in the photovoltaic solar panel business. The stock was recommended back on June 3 in Cabot Top Ten Trader, which said this:

“San Jose-based SunPower is a leader in the rebound of the global solar-cell industry. Solar stocks were very hot in 2007, with government clean-energy mandates and subsidies for solar arrays that (especially in Europe) offered cash back for sending excess energy from individual arrays back to the power grid. The Great Recession put an end to subsidies, and excess production capacity and the Chinese solar industry undercut prices. Now, however, consolidation and bankruptcies have thinned the solar herd and the high cost of fossil fuel (in both monetary and environmental terms) has industries and governments looking at solar again. China (which has acute environmental needs for clean power) has doubled its solar subsidies to $1.1 billion and Middle East countries are reported to have $6.8 billion in projects in progress. SunPower specializes in large-scale designs and installations of its highly efficient panel arrays that feature 21.5% efficiency. SunPower is also getting a boost from rumors that giant conglomerate GE may have its sights on First Solar, the largest U.S. solar company in the U.S., as a takeover target. At this point, several turnaround trends are favoring SunPower and the entire solar industry.”

TeslaAt the time, SPWR was trading at 19, having pulled back from a high of 24, and that was a great buy point, as SPWR went on to hit 28 at the end of July. But then came the market correction, SPWR dropped back to its 50-day moving average, and Cabot Top Ten Trader recommended selling, getting out with a profit of 16% in nine weeks. It was a good result—and Cabot Top Ten Trader, as the title says, is a trading advisory—but it was nothing to write home about.

Still, I see great promise in the long run, as the world transitions from an economy built on fossil fuels to one built on renewable energy, and I think the pullback to the 50-day moving average, which the stock sits slightly below right now, presents a decent buying opportunity.

Also, since that initial buy, SunPower reported a very impressive after-tax profit margin of 10.9%, its best in years, and a clear sign of capable management given the ongoing fluctuations in industry conditions.

More information on Cabot Top Ten Trader.