RICHARD BLACKWELL
January 10, 2008
Canadian investors who want to put money into solar stocks, but are put off by the tiny number of domestic small caps in that sector, can look to China for wider - and larger - pickings.
Several Chinese solar firms trade on easily accessible U.S. markets, and most are large companies with a record of substantial revenues and profits.
The biggest, Suntech Power Holdings Co., a Chinese solar cell and module producer that trades on the New York Stock Exchange, has a whopping $11-billion (U.S.) market capitalization, and expects revenue in the $2-billion range in 2008.
The next largest, LDK Solar Co., a solar wafer maker with a market cap of $4.5-billion, expects its revenues to pass the $1-billion mark this year.
One of the smaller companies in the group, Canadian Solar Inc., is actually incorporated in Canada, but all its manufacturing operations are in China and it trades on the Nasdaq Stock Market.
Many of these Chinese-based, U.S.-traded solar firms have seen dramatic growth, and have been fantastic performers over the past year or so. Stock prices have quadrupled since the start of 2007 in some instances.
The Chinese solar firms benefit from the fundamentals that are driving the solar business over all: huge consumer interest in the technology, government support for solar development in many countries, and technological improvements. They also gain from the low-cost manufacturing that characterizes much of Chinese industry.
But, as an investor, how do you choose which Chinese solar stock to pick? Many are in similar businesses, manufacturing cells or modules, which are then sold to companies around the world that make solar energy products.
It's a matter of doing your homework on each of the companies, said Lex Kerkovius, a portfolio manager with Calgary-based McLean & Partners Wealth Management.
A crucial factor for each of these firms is whether they've got a reliable supply of feedstock for the solar cells or modules. "You have to have pretty much locked up your polysilicon supply in the current environment" where there is a shortage of this raw material, Mr. Kerkovius said. "That's the No. 1 risk variable."
It's also important to check out the customer list for each of the firms, to ensure there is a sufficient geographic diversity, he said.
Then, of course, the stock price is also crucial. "Some of these stocks have had phenomenal runs, and in some instances unjustified runs, based on the underlying fundamentals," he said. "People just jumped on the bandwagon and just ran along with them."
One consequence is that share prices of Chinese solar firms tend to be very volatile.
This was demonstrated yesterday when most Chinese solar stocks sank sharply. China Sunergy Co., which trades on Nasdaq, fell almost 10 per cent. "These things can be real screamers going down," Mr. Kerkovius said.
Mark Manley, an analyst at Natixis Bleichroeder Inc. in New York, said a pullback was not surprising after valuations rose dramatically in the past year. "They've run up, and what we're seeing here is people saying 'Hmm, maybe its time to take some profits.' "
Some investors have also been spooked by the fact that a new U.S. energy bill didn't include renewed investment tax credits for solar energy, and others are worrying that a slowing U.S. economy might dent the sector.
Investors need to understand that this volatility is going to continue, Mr. Manley said. "This is not [a sector] you put your savings into."
On the other hand, the fallback in solar stocks over the past few days might have created a buying opportunity, he said.
And it is important to note that even the poorest-performing solar stocks in the past year have risen at least 50 per cent, said Pavel Molchanov, an analyst at Raymond James Ltd. in Houston.
While there's no guarantee that will be replicated, the overall solar market is expected to grow by around 40 per cent annually for several more years, he said, so the underlying fundamentals look strong. "The good news about solar power is that there are many tailwinds propelling this group."
Sun shines on China's solar stocks
| Company name | Symbol | Price $U.S. | 52-week low $ | 52-week high $ | One-year price change % | Three-month price change % | Market cap ($billion) |
| Suntech Power | STP-N | 71.42 | 31.41 | 90 | +108.8 | +80.6 | 10.8 |
| LDK Solar Co. | LDK-N | 43.3 | 22.27 | 76.75 | - | - 3.3 | 4.5 |
| Yingli Green Energy | YGE-N | 33.02 | 10.48 | 41.5 | - | +14.1 | 4.2 |
| JA Solar Holdings | JASO-Q | 70.37 | 16.17 | 76.5 | - | +69.9 | 3.7 |
| Solarfun Power Holdings | SOLF-Q | 28 | 8.22 | 40.19 | +172.1 | +109.9 | 1.3 |
| Trina Solar | TSL-N | 43.79 | 17.06 | 73.06 | +140.1 | - 20.8 | 1.1 |
| Canadian Solar | CSIQ-Q | 23.74 | 6.5 | 31.44 | +143.0 | +115.4 | 0.6 |
| China Sunergy | CSUN-Q | 12.25 | 4.83 | 19.23 | - | +0.7 | 0.5 |
SOURCE: GLOBE INVESTOR
