Few sectors have struggled as much over the last 12 to 18 months than the alternative energy space, especially solar. The solar industry has been decimated by declining subsidies and credits coming from Germany and Spain as those countries deal with the debt crisis on the continent. In addition, the massive (and probably illegal) support the Chinese government has provided its solar manufacturers gives them an unfair pricing advantage.
Former high-flyers like First Solar (FSLR) and MEMC Electronic Materials (WFR) are down as much as 90% from their highs of just a year or so ago. The alternative energy space overall has performed little better over this time span. The Solyndra scandal in the U.S. has dried up domestic government grants and support for the space and low natural gas prices have made energy produced via alternative energy sources even more price uncompetitive.
So, is now the time to go bottom-fishing? The contrarian in me says yes, however, I would ease into any new positions by keeping them small. No one likes to catch a falling knife. Investing in this space now is like investing in the auto industry at the depth of the financial crisis. You might pick up the next Ford (F) for the ripe sum of a dollar a share or you might ride your selection right into bankruptcy court. Here are two stocks whose risk-reward profiles looks favorable for speculative and patient long-term investors.
GT Advanced Technologies (GTAT) provides polysilicon production technology and multicrystalline ingot growth systems for the solar industry worldwide. Four reasons GTAT has long term value at just over $4 a share:
- The company has more than 55% of its market capitalization, or $275 million, in net cash on its books.
- It is still making money. In its just-completed quarter, the company made $0.65 a share -- $0.06 below expectations, but still a nice profit.
- It is absurdly cheap. The low 2013 EPS estimate by the 14 analysts that follow the stock is $1.02 a share.
- The stock is selling at just 2x 2011's operating cash flow and the median analysts' price target is $7.50 a share. The stock was selling above $16 a share less than a year ago.
Power-One (PWER) engages in the design, manufacture, sale and service of power supply products for the renewable energy market worldwide. Four reasons PWER could reward patient investors at under $4 a share:
- Insiders have held tight, even with a 60% drop in the stock over the past year, and two insiders bought new shares in May.
- The company has a robust balance sheet with almost half of the stock's market capitalization in net cash.
- The stock is cheap at less than 7x forward earnings, 7% above book value, and 45% of annual revenues.
- The median analysts' price target is $5.50 a share. The stock sold for more than $8 a share less than a year ago.