Two Chinese Solar Plays

10/05/2010 12:15 pm EST

Focus: GLOBAL

Timothy Lutts

Publisher, Cabot Heritage Corporation

Chinese suppliers JinkoSolar and Renesola have soared in New York trading and their future remains bright, write Timothy Lutts and Brandon Coffey of Cabot Wealth Advisory.

Recently, word came out that the United States is no longer the world’s largest energy consumer. That [distinction], held by the US since at least the first decade of the 20th century, now goes to China, which used a total of 2.25 million tons of oil equivalent energy in 2009. The US used 2.17 billion tons, according to the International Energy Agency.

The US used five times more energy per person than China did last year, a whopping 7,700 kilograms. What happens to energy usage as Chinese GNP continues to grow and the average person there gains the comforts of the Western lifestyle, from flat-panel televisions to cars to fully heated homes? The answer is obvious: China’s energy usage [will] continue to grow sharply.

China’s government recognizes this, too. By 2020, China is expected to import as much oil as the US, a significant shift considering that less than 20 years ago, China was a major oil exporter.

[Among] stocks that are already experiencing the initial wave of all that investment, JinkoSolar (NYSE: JKS) [is] a Chinese company that claims to be the “world’s leading vertically integrated PV manufacturer of high quality mono and multi-crystalline modules, cells, wafers and ingots.” (Translation: It makes the photovoltaic cells and other hardware used to convert sunlight into electricity—Editor.]

JinkoSolar stands out for these reasons.

1. It’s small, with a market capitalization of [$661 million, as of Monday—Editor].

2. It came public in May of this year, so it’s still fairly unknown, which means most potential owners don’t own it yet.

3. The company turned profitable in 2007 and today it’s growing like a weed. In the second quarter, revenues grew 310% from the prior year to $133 million, while earnings surged from nine cents per share to $1.18. After-tax profit margins were 20.1%.

4. The stock is strong! After coming public at $11 in May, it dipped to a low of $8, and then began a rocket-ship ride that took it to a high of $32 last week.

[Our other pick] is ReneSola (NYSE: SOL), a solar wafer maker that is vertically integrated, meaning the company controls its product line, from sourcing its own polysilicon through fashioning its own solar panels. It’s a fast-growing company that has gone from its founding in 2005 to being the third-largest maker of solar wafers in the world this year.

Margins are improving as the cost of the raw material for panels has been falling sharply. Its other costs are dropping, too, thanks to manufacturing efficiencies (it’s producing larger wafers) and more energy-efficient factories (slashing high electric costs). ReneSola expects to hit record sales this year of $795 million, and we expect it to do even better at around $1 billion in sales for 2010.  (The stock closed at $11.72 Monday—Editor.)

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