The King

Is it time to load up on Solars ?

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Now that the Solars are down, is it time to jeer at SLO2 solar players or to load them up ? The answer depends on your investment time horizon and risk tolerance. If you are risk averse or have a short term investment objectives, then i suggest you stay away from them. On the other hand if you are willing to ride a volatile path for good returns or if your investment timeframes are into many months/ years into the future, then this is a good time to load up on them. Here is my reason for recommending Solar stocks :

Alternate energy is hot and I don't see it changing in near future.
It has been hot from last year second half when oil started going up above $60. The only event that can stop this alternative energy craze is, oil falling to below $60. Even that will not kill the alternate energy industry. It will only slow it down. But if oil goes below $50 then i would assume that the alternate energy companies will be doomed. It is tough for any one to predict the future. But based on the information that I have I predict that the oil prices are not going to crash any time in the next few years. A lot of people on wall street have started predicting that the oil prices will head higher in future. I do not agree with them. I think that the oil prices are rising for many reasons and speculation is definitely a very big factor here. In my opinion, speculation accounts for as much as 50% of the current oil contract price. But we need to keep in mind that speculation is not some thing that came to the scene this year. It has always been there but that factor couldn't influence the prices much because the supply was more than the demand. That's why the OPEC countries keep pressing for cutting oil production to keep the prices high. But now the demand has definitely out stripped the supply and that is one undeniable sour truth. In an ideal environment the supply should rise due to increase in demand but the oil exporting countries seem to be enjoying their heavenly ride and they just don't want any one to disturb this dream run. That's why Saudis have rubbished President Bush when he went there begging for increased supply. This is the fact. Neither the oil companies nor the Oil exporting countries are trying hard to increase the supply in the light of increased demand. Both these parties are enjoying their days under the sun.

The developing countries are going through a faster GDP growth and big increase in the middle class population resulting in more autos on the road, more industries and more energy sapping homes with all those washing machines and dish washers. As Dollar becomes weaker, Oil becomes cheaper for these countries as their currencies appreciate. So these countries are not seeing the drop in consumption. So long as these developing countries do not fall into recession and the dollar remain weak, the Oil prices will keep steady or rising. Adding to the problem, the Oil output is actually decreasing in the recent quarters. Oil companies are finding it difficult to find new reserves. The Oil exploration costs are rising due to rising inflation through out the world.
Big increase in Oil supply is the key to bring down the Oil prices . This is what happened in the late 90s. The Oil prices have crashed by more than half due to gradual increase in supply. This time I haven't seen any significant news about new Oil exploration except the one in Brazil. In fact Oil production has dropped significantly in Venezuala and it has also decreased in Russia. It will take 2 to 3 years of sustained efforts to increase the production that will make the supply match the demand and stabilize the prices. Till then these speculators see the supply shortage and keep pushing the prices higher.
All this is helping the speculators and anxious buyers (like airlines) to bid higher prices for future contracts. At some point these speculators will try to take their money and run away leading to some correction in oil prices. But the correction is unlikely to be more than 50% and unlikely to last longer. So oil may not fall to below $60 any time soon and that is enough to keep the Solar companies thriving. Currently most of the Solar companies are growing at 100% rate. They are doubling their earnings year over year. I do not see this happening with any other sector, not even with search engine sector consisting of GOOG and BAIDU. So right now there is no better investment than the alternative energy stocks, especially Solar companies having p/e of less than 40. There are plenty of them like LDK, STP, SOLF, SOL, CSIQ, JASO, YGE, TSL. All these are good companies. Go and buy them.

- Raju
(user "onlyraju" ranked 6 as of 5/21/08 )