Future looks bright for solar stocks ......................................
By Susan Taylor
OTTAWA, May 26 - As Canada shrugs off a long, cold winter to bask in spring sunshine, investors may similarly warm to solar power stocks that compete in a sector some analysts say is set for white-hot growth.
Fueled by rocketing oil prices and environmental concerns, the market for solar power products is already blazing, and an increasing appetite for electricity is seen driving even stronger gains in the future.
Over the last decade, the sector has averaged above 35 percent growth each year, according to research. In 2005, the market marched 45 percent higher, despite supply shortages.
Now worth an estimated $10 billion per year, solar's future looks bright.
But there's at least one fly in the ointment - particularly for the slew of small players in this emerging market - a global shortage of key ingredient silicon is crimping production.
That makes it likely that manufacturing capacity will increase well in excess of silicon supply, Wall Street says.
When the silicon bottleneck does ease, predicted for 2008, a price war is likely for solar modules and cells, predicts National Bank Financial analyst Tom Astle.
"We suspect that the industry players have two years to get it right before competitive pressures mount," he said in a recent note. "Investors should watch this closely."
A key Canadian player to follow is Cambridge, Ontario-based ATS Automation Tooling Systems Inc. (ATA.TO: Quote, Profile, Research) Its solar power unit, Photowatt International, is poised for a highly anticipated initial public offering in the fourth quarter of calendar 2006.
"Photowatt is pretty well positioned because they are in the top 20 in the world," said Blackmont Capital analyst James Bradford.
"Also, they're extremely profitable, which is kind of rare in the solar space. And so they can definitely take on some cost. If prices for solar panels and solar cells come down, they (will likely) manage to stay ahead of the curve and keep costs down."
Still, investors hammered ATS this week after it took a C$65 million writedown for part of its cutting-edge solar technology assets to account for a commercialization delay.
Photowatt competes with such North American luminaries as Suntech Power (STP.N: Quote, Profile, Research), SunPower (SPWR.O: Quote, Profile, Research) and Evergreen Solar (ESLR.O: Quote, Profile, Research). Other key players, some of which are part of diversified corporations, include Sharp Corp. (6753.T: Quote, Profile, Research), SolarWorld (SWVG.DE: Quote, Profile, Research), Kyocera (6971.T: Quote, Profile, Research) and GE (GE.N: Quote, Profile, Research).
Canada also has contenders in the wholesale and installation market, which is dominated by Conergy (CGYG.DE: Quote, Profile, Research), privately held PowerLight Corp. and Solar Integrated Technologies (SITq.L: Quote, Profile, Research).
Victoria, British Columbia-based Carmanah Technologies Corp. (CMH.TO: Quote, Profile, Research), which integrates solar products, controls about 60 percent share of the Canadian market, Astle estimates.
Xantrex Technologies (XTX.TO: Quote, Profile, Research), which supplies advanced power electronics such as inverters, has the bulk of its business in the United States and stands to cash in on growth expected there, Astle added.
Behind Japan and Germany, the United States is one of the world's biggest solar power markets, and government subsidies have helped power growth.
This year, for example, California pledged about $3 billion to put solar panels on 2.2 million roofs over the next 11 years.
But for all the sector's appeal, analysts caution investors not to be blinded by solar power stocks.
"Alternative energy, and in particular, solar energy, has become the flavor of the day. However, not all investment opportunities in the sector are equal," Fraser Mackenzie analyst James Muir said in a note initiating coverage of Carmanah with an "underperform" rating.
"At some point the investment community will begin to price the alternative energy sector on a more rational and financially sound basis, and stocks such as Carmanah will underperform the market," Muir said. |
