Solar Power Plays

02/17/2006 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

Tobin Smith has long been one of the most popular Money Show speakers and one of the most successful newsletter advisors, with his exceptional ChangeWave Investing . Here, he looks at two solar picks: a recent Chinese IPO and a US firm involved in a German partnership.

"Evergreen Solar (ESLR NASDAQ) manufactures solar power products based on its proprietary, low-cost String Ribbon wafer technology. Its String Ribbon technology cuts silicon in its cells by 35% compared to most other cells, and the next improvement takes it to 50%. The company's second quarter sales came in above consensus at $10.7 million, up 123.7% year-over-year.

"But it is Germany's Q-Cells that will light up this stock. Their new 120-watt solar panel (EC-120) is the latest in Evergreen Solar's Cedar Line of photovoltaic panels. With the same physical dimensions as the company's current 110-watt and 115-watt panels, the new product delivers increased power from the same area. In solar power, cost counts. The partnership with Q-Cells AG-the ninth-fastest growing business in Europe in 2005- is creating the biggest European 30-MW solar wafer, cell, and module manufacturing plant in Thalheim, Germany.

"The plant is being constructed by EverQ, a strategic partnership between ESLR and Q-Cells AG. To give you an idea of the demand for these cells, EverQ announced that they have contracts for the anticipated silicon needs for both Evergreen and EverQ for the next 18 months. Remember, Germany consumed more than 40% of PV in 2005 and will keep the honor as world's largest generator of solar energy for some time. Germany's Clean Energy target is for renewable sources to make up at least 20% of the country's overall energy requirement by 2020. Buy ESLR under $15.

"Suntech Power Holdings (STP NYSE) is a double play- both on solar and on China's energy demand growth. The company is among the world's top ten manufacturers of PV cells based on production output, and its products are used to provide electric power for residential, commercial, industrial and public utility applications. Again, the cost-to-performance advantage is the key here as STP has developed an advanced process to manufacture PV cells cost-effectively at a large production scale with high conversion efficiencies (i.e., how much sun energy is converted to electrical power).

"STP has increased its manufacturing capacity by a factor of 12 in less than three years and plans to double capacity by the end of 2006. But they are NOT satisfied. Suntech will invest $20 million in R&D during the next two years to improve the energy conversion efficiency of solar cells.  In addition, Suntech plans to increase its domestic sales from 20% of its total production currently to 50% in five years to meet expected demand for solar cells due to China's enforcement of laws and incentives regarding utilization of renewable energy. With STP, we get it all- value, growth, and innovative technology. Buy STP under $37.50."

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