Solar Energy Investors
The largest transfer of energy wealth in history is quietly taking place under the very nose of one of the wealthiest energy magnet in North America, T. Boone Pickens!
We will run out of oil! That is a fact known to us since 1970's when we reached Peak. But, we can run out of reasons to keep drilling long before we lost control over our energy needs.
Some think the U.S. could be generating 10% of its electricity from the sun within 10-15 years, and Scientific American published a scheme last year for drawing almost 70% of our power using solar by 2050.
Solar Energy's turning point will come when its production equals or is cheaper than electricity from coal and natural gas. It's a hard to pin-down target, complicated by gyrations in the price of fossil fuels, and a possible deflation in the price of solar-critical polysilicon wafers. 2010-2012 is a possibility according to Barron's Eric Savitz .
Merrill Lynch's Mark Heller noted that solar startups raised more money in 2007-8 than internet stocks did in their 1998 heyday. Industry experts are looking at:
MEMC (WFR) has made a killing on $450/kg polysilicon wafers. Huge amounts of supply coming on line in 2009 have already hurt the stock. The unknown is how much of that is already priced in.
Solar investor Charles Boucher suggests sticking with 'vertically integrated companies' that are not overly exposed to any single element of the solar market. He likes SunPower (SPWR), which makes high-efficiency cells and runs an instillation unit. Also Chinese companies Canadian Solar (CSIQ), Suntech Power (STP) and Yingli (YGE). Akeena (AKNS) is a pure-play bet on U.S. installation that could get hurt if Congress doesn't renew the tax credit.
Lehman's Vishal Shah likes First Solar (FSLR) - the biggest solar play. It is not exposed to poly pricing, because it uses cadmium telluride, which produces cheaper electricity than poly prices and will continue to until poly hits $70/kg. JA Solar (JASO) could double its capacity without new funds, he says. He notes the China plays, with big exposure to Spain, could rally 50% if the subsidy cut comes it at the low end.
Solar Energy Exchange Traded Fund (EFTs)
In April, Claymore Securities launched the first Solar-Energy Exchange-Traded Fund (EFT), Claymore/MAC Global Solar Energy Index (Symbol: TAN). Van Eck Global followed a few days later with the similar Market Vectors -- Solar Energy ETF (Symbol: KWT). An ETF resembles a traditional mutual fund but trades on an exchange like a stock.
These funds join a slew of other young alternative-energy ETFs, including PowerShares Global Clean Energy Portfolio (Symbol: PBD) and First Trust Nasdaq Clean Edge U.S. Liquid Series Index (Symbol: QCLN), both launched last year.
Some professional investors are diving into the sector. Carol Miller and Dean Kartsonas, managers of Federated Capital Appreciation Fund, started buying alternative-energy stocks early this year and now devote roughly 4.5% of assets to these holdings. One of their top holdings is First Solar, a stock which also plays a starring role in each of the new solar ETFs.
The Federated managers say the industry has great growth potential. Solar power can grow 50% a year between now and 2012 and still represent less than 1% of world-wide power production, Ms. Miller says.
But the more-established alternative-energy ETFs have lately given investors a rocky ride. PowerShares WilderHill Clean Energy (Symbol: PBW) and the First Trust clean-energy ETF, for example, are both down about 19% this year through Thursday.
The new solar ETFs are likely to be similarly volatile. The Market Vectors ETF holds just 27 companies and devotes roughly 40% of assets to its top four holdings. The ETF's benchmark index fell more than 25% this year through the end of April. The Claymore solar ETF, meanwhile, holds just 25 stocks.
There are other risks for investors. If economic growth slows and energy prices fall, these holdings will likely get hurt. And some argue that an index-based fund may not be the best vehicle for alternative-energy investing because active stock pickers can help sort the winning technologies from the losers. (Source: Wall Street Journal)