For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...
Bright Future for These 2 Solar Stars
03/28/2011 1:46 pm EST
Amtech Solutions and LDK Solar are basking in the strong demand for alternative energy, writes Elyse Andrews, editor of Cabot Wealth Advisory.
If you believe in Peak Oil—the theory that we’ve passed the point of maximum global petroleum extraction, and that getting oil will be increasingly expensive from here—or even just watch the news to see how unrest in the Middle East has caused oil and gas prices to skyrocket, you know that we’re going to need alternatives to fossil fuels to power our future.
So today I’m going to discuss two solar stocks that have very bright futures.
One stock in this area that caught my eye is Amtech Solutions (ASYS). Cabot Green Investor Editor Brendan Coffey recommended it in September, writing this:
“Amtech Systems is the market-share leader in a niche in the solar-cell production stage of solar panels. While Amtech makes its products in Europe (and some in the US), the company sells the vast majority of its products to Asian customers, with roughly 85% going to top-tier solar makers.
“That’s important because some analysts project the leading solar-panel makers will continue to grab market share from smaller players as pricing pressures increase.
“In the most recent quarter, Asia-Pacific accounted for 92% of revenues, the US 6% and Europe the rest. For the last full year, Asia was two-thirds of sales, North America 19% and Europe 14%.”
Note that ASYS was sold from the Cabot Green Investor portfolio in late February to preserve profits after a secondary share offering. But Brendan noted in his sell bulletin that he thought the stock still had great long-term prospects, especially with oil prices rising.
[And indeed the stock has recovered from that spell of profit-taking of late, climbing back above its 50-day moving average in today’s trading. For another of Coffey’s recent ideas, see “A Green Play on Rising Gas Prices”—Editor.]
LDK Shines Amid Slump
Another stock that caught my attention is LDK Solar (LDK), recommended by Paul Goodwin, editor of Cabot China & Emerging Markets Report, in January:
“LDK Solar got its start in 2005 and came public during the glory days of 2007—the stock nearly tripled from its IPO in June to its top that fall. The company’s claim to fame was its polysilicon and ingots, two of the base supplies needed to make most solar cells and modules.
“Of course, when the bust occurred, it hurt everyone, LDK included—the firm lost a whopping $2 per share in 2009, as pricing declined and demand dried up.
“But LDK didn’t just circle the drain while the industry was having rough times. Instead, it planned for the future, positioning itself as a low-cost provider in the industry, and as a complete, vertically integrated firm (giving it more control over those costs). Today LDK produces its own silicon, ingots, wafers (it’s the world’s largest wafer company), cells and modules.
“Already the world’s largest wafer producer, LDK recently reached 3 gigawatts (GW) of annual production capacity, and is set to hike that to 3.6 GW by year-end.
“For polysilicon, capacity is leaping from 6,000 metric tons in the first half of last year to about 15,000 today to 18,000 by year-end. And for solar modules, it’s looking to boost capacity to 2,500 megawatts (MW), up from 760 MW at the end of the third quarter.
“The company is now on record expecting a whopping $3.6 billion in revenue in 2011 (up from $2.4 billion in 2010), as well as meaningfully bumping up all of its key metrics, from silicon sales to cell production to gross margin.
“Official analyst estimates call for about $2 in earnings next year, but that looks to be very, very low (assuming management’s forecasts prove correct).
“Put it all together, and you have a burgeoning low-cost, vertically integrated leader in the solar sector with a global, top-notch client base. Throw in the fact that investor perception of the solar sector might finally be ready to tick higher, and you have the ingredients for a winner.”
Solar stocks have had a tough time in recent years and with the recent threat of declining subsidies in Italy, the industry could struggle some more. [And, indeed, LDK had a rough month before rebounding notably in today’s action—Editor.]
But at least one research firm believes worldwide demand for solar products will grow from about 13.1 GW in 2010 to 37.1 GW in 2014. Clearly, this is still a growth industry.
Related Articles on STOCKS
We hold three biotech stocks in our growth portfolio — Biogen (BIIB), Bioverativ (BIVV), and R...
Under the guise of clamping down on “widespread corruption,” Prince Mohammed bin Salman ...
Leading value investor and money manager John Buckingham sees upside potential in two banking stocks...