Let the Sunshine In

01/12/2007 12:00 am EST

Focus:

Gregory Spear

Editor and President, The Spear Report

Always on the cutting edge, Gregory Spear finds much to like about segments of the alternative energy industry. In his latest missive to subscribers, he analyzes the solar sector, recommending a couple companies, including this offering...

"SunPower (SPWR NASDAQ GM) is a crystalline solar cell manufacturer based in Silicon Valley that is raising the roof on the solar business. The company is headed by Richard Swanson, who received the 2006 Becquerel Prize for his outstanding contributions to the development of high-efficiency solar cells. Dr. Swanson is one of only two solar scientists to win both the Becquerel Prize and the William R. Cherry Award, which he received in 2002 from the IEEE for outstanding contributions to the photovoltaic field.

"In our view, SPWR has the smartest and most aggressive team of scientists and managers in the field today. We expect the company to be able to maintain its leadership position and drive technological advancement year after year. In terms of management, SPWR is a company growing production 100% a year and is likely to be able to sustain that growth rate for many years to come.

"Over the past year, SunPower increased its share of the California residential solar retrofit market by a factor of seven. Currently, the company accounts for just 14% of the solar panels installed in that state, but we expect SunPower to continue to take market share. Why? The company's solar panels are twice as efficient as the competition, operating at an incredible 20%-22% efficiency, and therefore require half the roof space of other models. The all-black appearance is also esthetically pleasing, so retrofits are easy on the eye.

"SPWR has a large, highly efficient factory in the Philippines, adequate supply agreements for polysilicon from three manufacturers, and is working on developing its own ingot forming capabilities, which will vertically integrate the company to some degree.

"The company tripled solar cell manufacturing capacity in 2006 and expects to more than double that capacity by the end of next year, and then again, the year after that. For the third quarter ended September 30, revenue was $65 million, up 19% sequentially and up 198% from the third quarter 2005. Technically, the stock has formed a large "cup and handle" pattern, which is a bullish configuration. We think it makes sense for long-term investors to enter a position in SPWR at this time. We will be adding SPWR to the A-List, a mid-term portfolio, when we see a good buying opportunity."

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