A Trip to SolarCity

 | Jan 06, 2014 | 2:50 PM EST
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Sure, Goldman Sachs' quick reassessment of the solar industry probably gets it right with today's reversal on First Solar (FSLR) and equally quick Conviction Buy recommendation on SolarCity (SCTY). But my job is trying to figure out if the market has taken that good information and given us an opportunity. I believe it has.

I walked into my local Best Buy (BBY) store during the Christmas season, just looking for a decent pair of headphones for a trip. I was surprised to be met by a SolarCity sales representative in the entrance, giving out information and making appointments to install solar panels on people's houses.

I was impressed. This isn't just an overvalued, overhyped story that I'm seeing; there is a long-term commitment that SolarCity Chairman Elon Musk is making to this company in marketing and sales that is out front, hitting the right notes for consumers. Perhaps I should look more closely at this stock, I thought, particularly after shares had a temporary skid during the late fall and into early December.

SolarCity's model for consumer home panels is brilliant, asking for a small up-front capital commitment and offering easy installation alternatives. But how can I recommend a stock with metrics needing 40%-plus growth to legitimize its price-to-earnings ratio? Clearly, much of the added strength of the shares is in the name Elon Musk, not really in the fundamentals. I've reached the point where I don't care anymore.

And here's where I circle back to First Solar. It was my renewable stock of choice when investigating this sector in the early part of 2013, but as the Goldman note correctly points out, First Solar is a commercial and utility name with little exposure to the parabolic growth potential of home panels, clearly where the solar market is going, at least in 2014. First Solar was an OK stock in 2013 and did its job, but it was hardly inspiring; it won't do for another year.

I have already waited too long to find a different renewable energy company or two to add to my energy portfolio, and Solar City is clearly the one that represents "Solar 2.5," despite its speculative valuation.

With a counterintuitive move, I'm using the Goldman Sachs note downgrading First Solar and upgrading SolarCity to trigger exactly what the bank suggests: revising my holding of First Solar into Elon Musk's juggernaut.

I'm not trading out of them today because, as with all big calls from the big analysts, there's an overshoot that takes over trading when the note is released. But by Wednesday, my renewable stock of choice in my balanced energy portfolio will be SolarCity.

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