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Contrarian Investing in Solar Stocks as Sell Side sees Solar Industry Gloom and Doom, Jeffries sees degrowth in 2013

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Jeffries analyst has said that the solar industry which has been facing huge losses and a spate of bankruptcies can only hope to recover in 2014 with volume going down in 2013 . Pichel who is one of the oldest of the solar industry analysts predicts solar panel prices of 60-65c/watt by end 2012 and sees Italy slowing down sharply after the crazy 2010 and 2011 growth.He sees market in Japan,China and USA to grow strongly while other smaller countries in South America and Africa to also pick up.

However I think that with the prices going down by such a lot , demand elasticity is rapidly picking up leading First Solar to unexpectedly start its closed German plants. With most sell side analysts giving up the industry for dead, volumes dying down and a sense of doom existing ,its time to build positions here as the major solar companies like Trina, Yingli continue to grow volumes by 30-50% .

I think that the solar stocks are starting to bottom and have given 6 reasons as to why the time to buy solar stocks is now.

1) Sentiment for buying solar stocks is at an all time low. There hardly remains a buy side or sell side investor recommending solar stocks

2) Bankruptcies amongst solar companies has started to accelerate with the weakest hands giving up. Now nobody is willing to buy the 2nd hand solar equipment which means that capacity is getting completely destroyed

3) Capacity reduction is starting to happen with the biggest solar companies like First Solar and LDK firing 20-40% of their workforces. Sunpower is idling its oldest solar cell Fab.

4) Valuations are quite pathetic with 0.1-0.2 times sales and similar low levels of other financial ratios like P/B . Given that most companies are in losses it does not make sense to consider P/E right now

5) Conglomerates are now existing these industry with companies like Samsung, Hyundai getting out or putting on hold their expansion plans.

6) Solar Grid Parity is here and Demand keeps on increasing by astounding rates each year. In countries like Italy, Hawaii , Brazil grid parity with retail electricity prices is already here . It will take time for the infrastructure to sell the solar panels in these new markets.

Companies like Trina Solar , GCL which have decent balance sheets and the lowest costs are going to survive and thrive. It might be a good time to start accumulating given these above factors.

There are only 2 Solar Energy ETFs in the Market right now – TAN and KWT.

PV Tech

Global solar demand growth has been modest at best, according to Jefferies analyst Jesse Pichel, leading the company to believe that the industry won’t see signs of real recovery until the second half of 2013 or even 2014. The second half of 2012 will see demand in Europe decline further than the first half, with 2013 volume dropping even lower.

Although lower module ASPs are in general good for the industry, demand elasticity is suffering as module manufacturers have to cope with lower than expected revenue figures. Module prices are being forecasted at the €0.51–0.55/watt range for Q4 from tier two suppliers, allowing healthy competition among project developers with most retail electricity prices.

 

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Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.

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