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Non-Tech : Alternative energy -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (14165)	7/5/2013 3:42:34 PM
From: Jacob Snyder	1 Recommendation Recommended By Dennis Roth Read Replies (1) \| Respond to of 16955

My Solar Rules: From April 2010: #1. The lowest-cost producers will get most of the available profits in this commodity industry. #2. It's a cyclical industry, with high capital costs. Therefore, it isn't safe to buy the stocks, until expectations have bottomed, module prices have fallen to the vicinity of manufacturing costs, and external financing is unavailable for any capacity additions. #3. After the IPO stage, a viable business plan must include internal funding of capex. #4. Until one technology is clearly superior, it is best to reduce risk by investing in the best company in each technology. #5. Higher barriers to entry are needed, or else nobody in solar will be able to maintain decent margins or consistent profit growth. #6. Vertical integration, from polysilicon through installing systems, is necessary for success in solar. #7. National Champions will be among the survivors. #8. No solar company deserves a PE over 15 (using GAAP TTM EPS). Message 26495563 Comments: Rules #1, 2, 3, 5, and 7 still look good. #2: I was early and over-optimistic, about how bad things would get in the industry at the bottom. But we got there, in 2012. #3: FSLR, with the best balance sheet in the industry, just did a secondary offering. So, by this rule, nobody has a viable business plan yet... #4: deleting this rule. C-Si has won, even FSLR admits it. This makes investing in solar more predictable and safe, as technological change is likely to be incremental and gradual. #5: still true, and is happening. It will be a long time before venture capital comes back to blue-sky unproven technologies. It will be a long time before companies like BP and GE get back into solar. #6: As it turns out, when cell/module makers get more vertical, the correct move is into Systems. Going the other way, into wafers and poly, has turned into a costly mistake. So FSLR, SPWR, CSIQ did it right, while YGE and others did it wrong. #7: true, but largely irrelevant now, as only National Champions are left standing. #8: not possible to value solars by PE today, since there ain't no E. The best numbers to judge them by are: costs of production, margins, net debt. Going forward, I'll probably use P/Sales, not PE, to value solars.