With the average solar stock having doubled in 2013, it’s much harder to find bargains in the solar industry than it was a year ago. But two of the professional green money managers think there is still value to be found. When I asked them for their top three green stock picks for 2014, they came back with two solar picks each.
Shawn Kravetz is the solar expert on my panel. He is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar. Last year, he had the top pick of all my panelists, Amtech Systems (NASD:ASYS), which was up 160 percent.
This year, Kravetz says “Finding extreme values is challenging” but he still was able to find two that he considers “quite compelling.”
His first pick is Meyer Burger (Swiss:MBTN), a “Leading solar equipment manufacturer whose business has finally troughed.”
Kravetz thinks the company’s business is about to make a “substantial turn” for the better, but the stock has hardly advanced despite the large increase in price for other solar stocks. Even after a strong 2013, Kravetz says “Global solar installations will likely grow 20 percent in 2014. With demand finally nearing an equilibrium with cost efficient supply, this will drive leading players to modernize and expand. The hangover of the solar nuclear winter and a poorly timed acquisition of competitor Roth & Rau is ending, leaving Meyer Burger extremely well positioned for 2014.”
His second pick, Renewable Energy Trade Board Corporation (OTC:EBODF) is not for the faint at heart. He calls it the “Highest risk but highest reward of our three picks.” (The third pick was Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), see here.)
The risks with EBODF are liquidity and lack of information. Kravetz says,
It is tiny and thinly traded. They have not reported financials recently. With those caveats, it is actually quite a simple sum of the parts story that is likely worth nearly 5x its current stock price, if not more. Their value stems from cash on their balance sheet and a substantial stake in a major solar project developer Goldpoly New Energy Holdings Limited (HK:686). We believe EBODF is potentially worth at least $12.00 per share.
The other manager to pick solar stocks was Garvin Jabusch. Jabusch is cofounder and chief investment officer of Green Alpha® Advisors, and is co-manager of the Shelton Green Alpha Fund (NEXTX), and the Sierra Club Green Alpha Portfolio. Green Alpha Advisors and I are currently putting the final touches on a fossil-free equity income strategy for separately managed accounts, which I believe will be an excellent complement to the growth-focused green strategies which are currently available.
Jabusch’s two solar picks were both strong performers in 2013, so they took me by surprise. He says,
It might seem a little crazy, but I like First Solar, Inc. (NASD:FSLR) again in 2014.
2013 saw several developments that have laid the groundwork for accelerating medium and long term growth. By partnering with General Electric (NYSE:GE) (which had been FSLR’s only serious competitor in the thin film PV space) FSLR acquired both GE’s portfolio of thin film patents and its manufacturing capabilities. Moreover, FSLR gained access to GE’s sales channels and distribution capabilities via the deal.
Effectively, FSLR has realized a near monopoly on large-scale thin film (CdTe) PV. First Solar will also capture market share because it has very competitive costs, as low as $0.49 per watt of installed capacity, which could make it the clear leader for the utility-scale market. That might be part of the reason FSLR has a large backlog of approximately 2.2 times 2013 revenues. So the growth story is certainly still there.
On the value side, as I write this, FSLR is trading at just 3.8 times cash on the balance sheet, and the latest pullback in share price has brought the company back down to near its book value. Thus, if FSLR merely appreciates to eight times cash or to double book value, the stock could have a 100% year in 2014 on that basis alone.
Beyond 2014, FSLR looks like a good holding for the long-term. Critics will note that guidance for 2014 EPS is less than that for 2013, but this misses the long term advantage point that revenues though not EPS are expected to grow next year, and that the decline in EPS reflects additional investments back into the firm in multiple areas. This is the right approach for a firm in one of the fastest growing industries in the world, particularly if that firm, as is the case with FSLR, is carrying very little debt.