I have a long (and sordid) past with solar power stocks... since I love high growth sectors I jumped into this theme ahead of the pack in latter 2006. In the interim I've missed a lot of opportunities to the upside and lost a lot of money sticking to stocks that I should not of. This is one sector buying "value" stocks has been incorrect and chasing the top valuation (First Solar) has been the only way to survive any buy and hold strategy. In solar, you can lose money holding stocks for 320 days a year but in 9 day periods every so often you can double your money.
When the stocks were at their peak of fervor in late 2007 I was early calling for a major consolidation to come in this increasingly commoditized business - this was a very unpopular view at the time to the "herd" as solar stocks were money printing machines for investors for much of 2007. (
Jan 3, 2008: The Long Term in Solar)
I do have some serious concerns in the 'mid term' (1-4 years)... my thesis is like all mfg goods, especially now heavily based in China, we will have periods of time over the next decade where capacity does not match demand, and even if this holds for a 4-6 quarter period, serious price wars can develop. I outlined this theory in detail in November in (Interesting Survey from Chinese Solar Companies - Price Concerns Already an Issue)
In times like this when speculative juices are flowing in the sector, and even the tiniest of companies get run up 100s of percent it is hard to reconcile these performances with long term logic. The market in the near term is anything but logical. We will have some great shakeouts and many of these no name companies rising 400% I expect to be delisted, acquired for pennies on the dollar in half a decade or just be gone.
Now as I always repeat in these posts about solar, the counter argument is always, solar is 0.000001% of all energy use and will explode over the coming decades. I don't dispute that. My argument is timing. Timing of supply vs demand. It would only take 4-8 quarters where demand and supply are misaligned (way too much supply vs current demand) and this would crush pricing.... many companies will go from printing money to being major losers.
Not only has that been happening but the credit crunch and drop in oil has caused investors to flee. (
Feb 6, 2009: NYT - Dark Days for Green Energy) (
Dec 20, 2008: BusinessWeek - Clouds Over the Solar Industry) Frankly my largest mistake here was not listening to my theories and going heavily short the group - but again, if you were a few weeks / months early you could easily lose 100% shorting into a mania that was solar circa late 07.
There are many many many! moving parts in this sector not limited to
- Price of polysilicon (major input for most major players)
- Government subsidies
- Awakening of China / America versus established programs in Japan and Western Europe
- Natural gas / coal prices (or "oil" if you want to keep it simple)
- Access to credit for large scale installations
- Thin film technologies versus polysilicon based
- Consumer demand v corporate demand
- Massive growth in Taiwanese and Chinese small to large players with cutthroat competition
- Ability for many of those players in item 8 to stay solvent
- Price points that create equilibrium with conventional energy sources
That's a smattering of issues; there are more - outside of the black boxes of financials, this is probably the most complicated sector I keep an eye on. But for "investing" (speculation) purposes almost all of that is thrown aside and as goes oil, usually goes solar - with some lag. Now, oil has almost nothing to do with solar energy - but in the simplistic mind set of the "market" they seem to have a 1:1 relationship (solar is a competitor with coal and natural gas). Granted HAL9000 of quant fund, program trading fame trades the entire complex (coal, nat gas, oil) as "one" 90% of the time so I guess through osmosis oil = natural gas; at least for stock jocks and their computers.
