Chinese Solar Stocks Present Compelling Value

7/7 - "Cowen notes Solar stocks have been pummeled by concerns about a potential sharp drop in Spanish solar subsidies. In firm's view, a proposed 2009 cap of 300MW is unlikely to become law, as it would cause significant job losses and business closures. Unemployment and economic growth are the major issues for the Spanish government. The power sector has accumulated a large deficit, because regulated prices have not kept pace with fuel costs, underscoring the case for renewables.

They see Outperform-rated thin-film players ENER ($64) and FSLR ($253) as best-positioned, but believe Outperform-rated ESLR ($9), SPWR ($64) and STP ($35) are also oversold. "

7/14 - "Canadian Solar (CSIQ) announced plans to sell 3.5 million common shares, raising the company’s expected fully diluted share count to nearly 36 million shares (32.3 million shares as of last report + 3.5 million shares from the announced secondary) and its enterprise value to nearly $1.4 billion...we think it’s important for investors to realize that this latest financing nowhere meets the actual financing needs of CSIQ, and as such we expect continued financings for CSIQ over the next year."

"CSIQ’s financing needs are a direct result of the company’s astounding $1.7 billion in purchase obligations (page 64 in CSIQ’s 20-F). Interestingly, this number may in fact be conservative considering the company’s recent initiatives. Since the company will have to pay the vast majority of these obligations up-front to suppliers in cash, and will not receive adequate cash receipts from customers prior to the necessary payments to suppliers, CSIQ will be in need of serious cash in order to meet its production goals. Ironically, the more CSIQ pursues contracts at any price, the more cash it will need to fund its supplier obligations, and the more dilution shareholders should expect."

"Our low-ball estimate is that CSIQ will need at least an additional $200 million in financing to support operations in the coming year. This cash may come from the Chinese banks (short-term loans) and/or Wall Street. In either case, the company’s enterprise valuation will increase even without a corresponding increase in the share price, leaving investors with little in the way of capital gains."

"...since we remain reasonably certain that the suppliers of polysilicon-based solar modules (an extremely low barrier to entry business), will vastly exceed the suppliers of the raw material (e.g. polysilicion) for these modules (a very high barrier to entry business) for the foreseeable future, we believe that the suppliers of polysilicon-based solar modules will constantly be squeezed from both their customers and their suppliers of materials. As such, we do not believe that these companies will be self-funding any time soon and the future free cash-flow (if any) will not justify the current enterprise valuation."

7/2 - "Wind power is a source of energy that is a renewable, clean, has a low operating cost and is a technology that's been around for over century," says Ian Cooper...The small cap specialist and editor of the SC Trading Pit explains, "That's why we're adding a position in First Trust ISE Global Wind Energy ETF (NYSE: FAN)., which lets you own 52 wind stocks at once."

"The nice thing about this ETF is that many of the holdings are non-US companies, meaning they're not reliant on news of green energy tax credits...Sixteen percent of the fund is allocated to the U.S. with some weighting in Denmark, Germany, the U.K. and Spain."

"UK ministers want a six-fold increase in the amount of energy generated by wind farms by 2020...An Energy Department study found that wind energy could generate 20% of U.S. electricity by 2030, as compared to today's 1%...Between 2005 and 2007, both Germany and Spain's wind power capacity experienced impressive growth (about 21% and 51%, respectively). Now look back at the U.S. growth. Our capacity catapulted nearly 84%."

""But it isn't just the past growth that we're impressed with. Over the next two years, the Global Wind Energy Council (GWEC) predicts that the world's installed wind power capacity will practically double. We are bullish on wind power and the new FAN exchange-traded fund."

7/13 - "Tidal power, not to be confuesed with wave power, is the conversion of the energy of tides into electricity. Tides are the rising and falling motion of the earth’s ocean surface caused by the gravitational tidal forces of the Moon and the Sun. Tide mills have been around for a very long time, reportedly since Roman times."

"Ocean Power Technologies, Inc (OPTT) develops proprietary systems that generate electricity through ocean tides and waves. Their PowerBuoy system is used to supply electricity to local and regional electric power grids. The company recently generated negative earnings of $1.38 per share. This is a very low cap stock of less than $95 million and should therefore be considered very speculative."

"E.ON AG (EONGY.PK) is a German based company which has been investing in small marine energy companies. The stock has a PE of 13 and a yield of 3.2%.

RWE AG ADR (RWEOY.PK) RWE’s NPower announced that it is in partnership with Marine Current Turbines to build a tidal farm of SeaGen turbines off the coast of Anglesey in Wales. The stock has a PE of 23 and a yield of 4%."