Who wins?
Here’s the hard part. A handful of companies will emerge from the industry when it’s all said and done, but investors can still feel the scars from plunging stock prices in recent years.
My top pick for more than a year now has been SunPower. The company makes the most efficient panels in the industry, and as costs fall, efficiency becomes more important, because it gives you more power in the same space. Second on my list is First Solar, the low-efficiency and low-cost company. First Solar has remained profitable through the hard times, but it is falling behind on efficiency and may soon become a project company only.
Finally, SolarCity Corp (NASDAQ:SCTY) is a dominant player in residential and commercial project building, the major growth venue for the industry in the United States. This isn’t a cheap stock, but it should have a bright future.
I’ve laid out some key statistics for solar companies, showing that despite the run solar stocks have been on recently, there is a lot of room to move higher, because these multiples are very low for high-tech companies, particularly in the case of SunPower and First Solar.
| Company | Market Cap | Price/Sales | Price/Book | Forward P/E |
|---|---|---|---|---|
| SunPower | $1.18 billion | 0.47 | 1.13 | 19.8 |
| First Solar | $2.89 billion | 0.95 | 0.81 | 8.3 |
| SolarCity | $1.32 billion | 9.81 | 7.37 | n/a |
Source: Yahoo! Finance.
Who loses?
If there are going to be winners, there will also be losers. Solar stocks all seem to jump and drop in unison, but some are in fact falling behind. Three stocks I would stay away from right now are LDK Solar Co., Ltd (ADR) (NYSE:LDK), Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), and Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP). These companies are nowhere near profitability, and they owe billions of dollars to state-run Chinese banks. Equity holders will likely be left in the dust by the time the Chinese solar market shakes out.
The year of solar
Solar stocks have been rising all year, but I think it’s just the beginning. Financial conditions are improving, more financing options are opening up, and as costs fall, more markets open up to solar. This is the recipe for the big returns investors are hoping for. I’ve made my bet. Who do you think will win the year in solar?
The article 2013 Is the Year of Solar originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower. He also owns shares of SunPower and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15 Calls on SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned.
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