Solar’s Resurrection

09/24/2008 12:00 am EST

Focus: GLOBAL

Nick Hodge

Founder and President, Outsider Club

Nick Hodge, editor of Energy and Capital, thinks bargains are to be had in the solar industry.

Even the best solar stocks have taken a hit, primarily because of the financial industry’s chaos, but also due to more nuanced catalysts that are largely unknown to retail investors.

These include a possible oversupply of panels in 2009, which would drive prices down, resulting in lower margins and revenues. At a recent industry conference in Spain, many solar manufacturers forecasted a 5% to 10% decline in prices over the next year. However, most said demand will remain healthy.

Other variables include the all-but-certain extension of the federal solar energy investment tax credit (ITC), whose fate has weighed on traders’ minds. But energy analysts at Piper Jaffray expect several bills to be introduced shortly, and all include the ITC extension.

Piper is also optimistic that political pressures may allow solar support to gain momentum, and lastly, if the above-mentioned bills fail, there appears to be support for at least a one-year ITC extender, at which time the new administration would likely introduce a more comprehensive energy bill with solar support.

I believe when the solar ITC is extended, numerous solar companies will surge 25% or better—a day that I believe isn't too far off.

Another variable that has been glossed over is the “feed-in tariff” debate in Spain. Germany used this tariff—which forces a utility to buy excess electricity generated from solar systems at a higher rate than retail electricity—to initiate its now world-leading solar program.

Spain’s feed-in tariff has been so successful that the government wants to cut the amount of eligible solar systems by more than 66%, from one gigawatt to 300 megawatts per year. But the Spanish Energy Ministry recently submitted a draft proposal calling for a 500-megawatt cap on projects available for the feed-in tariff. The official decision won't be made until October.

What you should be doing is picking up some of the best solar stocks on the cheap, especially the big boys, in anticipation of the return of favorable conditions.

SunPower (NASDAQ: SPWR) and Suntech (NYSE: STP) are incredible bargains. LDK Solar (NYSE: LDK) is also ripe for a nice move, after announcing an 11-year deal with industry leader Q-Cells (XETRA: QCE) for the processing of solar-grade silicon.

That's how the solar situation is shaping up. Be sure to get some shares now, while they're still trading at an incredible discount.

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