North Coast Solar Stocks

September 16, 2009

Solar Power On Pause

Filed under: AMAT, CSIQ, SPWR — Tags: , , , , — Jason @ 3:30 pm

Peter C. Beller, 09.16.09, 03:30 PM EDT

With falling prices and scarce financing for solar panels, investors have few opportunities.

Like the microchip industry, makers of photovoltaic panels have to deal with rapidly falling prices for their latest products. Unlike the computer business, though, solar power (for the moment) lives and dies by two things: government subsidies to customers and financing for big projects. Both are on the wane, and that means investors who want to bet on the sun’s unlimited energy have few places to turn, say analysts at Deutsche Bank.

Just a few years ago, solar stocks were the hot thing. Government incentives in Germany, the U.S. and elsewhere had homeowners getting paid to install panels on their roofs. Cheap credit led to a host of projects, some of them far-fetched, to build solar arrays in deserts and empty fields. Oil’s soaring price helped, too. Nowadays, solar makers produce a commodity product (few companies can claim to make a more efficient solar cell) at a time when consumers and businesses look first at their bottom line. In that light, solar power is still too costly for too many people.

The result is that prices are falling dramatically. Even Deutsche Bank can’t keep up. In July, they thought prices could slip to $2 a watt this year and $1.85 next year. Now $1.50 a watt looks likely in 2010. That’s one reason the analysts, Steve O’Rourke and Peter Kim, have a “hold” on many of the industry’s major firms.

One of the few solar players that can actually claim a better product is SunPower (SPWRA, SPWRB), based in San Jose, Calif. SunPower charges slightly more for its panels, in part because it provides certain services to the mom-and-pop distributors that effectively retail its products to customers. O’Rourke and Kim expect the company to maintain its advantage but predict earnings of just 89 cents a share this year, less than half the profit of 2008. They have a “hold” rating on the stock, which has fallen 60% in the past year.

Another longtime favorite of Wall Street is Applied Materials (AMAT), which turned its expertise in making the precision equipment that produces microprocessors into a business supplying solar makers (both chips and photovoltaics rely on silicon wafers). Solar is only a portion of Applied’s sales, but it became a big reason to like the stock, with the booming green energy sector countering the up-then-down cycle of the microchip business. No more, say the analysts, who rate the stock a “hold” with the chip and solar segments slumping at the same time.

Canadian Solar (CSIQ) has actually fared better than many peers through the downturn, with its stock off 27% in the last year. The firm is investing in new technology that could make its panels more efficient than the industry standard and is on track to cut costs, not just for raw materials, substantially. While Canadian Solar says prices could stabilize at $1.50 a watt next year, O’Rourke and Kim have their doubts. They have a “hold” rating on the stock.

Good news for the industry is that residential customers have continued to buy, thanks to continuing, if diminished, subsidies around the globe and the social cachet of lower utility bills. Financing from banks for commercial projects is still at a trickle, but a trickle can turn back into a steady flow, say the analysts.

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