Rising Star Buy: Third Time's the Charm for Power-One

This article is part of our Rising Star Portfolios series.

A month ago, I lamented the fact that the share price of Power-One (Nasdaq: PWER  ) , a maker of DC-to-AC inverters for the solar and wind industries, had dropped well below $8 and then rebounded before I had a chance to buy. Of the 10 different companies my Messed-Up Expectations portfolio owns, I believe this one has the most growth opportunity and I wanted a really good price for my last purchase.

Well, the opportunity has arisen again -- given the volatility of the stock, I figured it probably would -- thanks in part to reaction to an announcement the company made last week. First, some background.

I first ran across this company last November and made it the second purchase for my Rising Star portfolio, believing that the company had a great growth story ahead as solar and wind energy become bigger and bigger contributors to the electrical grid.

When it reported 2010 earnings -- including 143% growth in revenue and a profit instead of a loss for the first time in years -- and guided for lower revenue in the first quarter than analysts had hoped, the market spanked the company by knocking the price down 21% in one day. I picked up a second portion.

Europe dominates, but should it?
Last week, citing slowdowns in Europe, Power-One lowered first quarter revenue guidance even further, down to $240 million to $245 million, below the lower end of its previous guidance of $260 million to $290 million. The stock price, after initially shaking that news off, has spent the past several days falling 10%, ending yesterday at $7.48 per share.

The worry du jour is still Europe, with Italy expected to cut back on its subsidies for solar power. But that worry is overblown, in my opinion, for two reasons. First, there's at least one report that Italy "is backtracking on its plan to cut [subsidies] on renewable energy." If that's true, it wouldn't surprise me, thanks to the public surge against nuclear power forcing Italy to put its nuclear plans on hold.

Second, Power-One is aggressively moving away from reliance on Europe. It's recently opened plants in Arizona and China and is going after the U.S, Chinese, and Indian markets. China, for example, expects to grow its solar power capacity from the current 600 MW level to 20 GW by 2020, a 33-fold increase. That should certainly help Chinese solar panel manufacturer Suntech Power (NYSE: STP  ) . California requires that 33% of electricity generated for the state must come from renewable resources by 2020. Both Power-One and SatCon Technology (Nasdaq: SATC  ) will benefit. Europe is not the only story anymore.

Thanks to the drop in price, tomorrow the Messed-Up Expectations portfolio will purchase its final position and increase Power-One to a 6% position.

Once you've added Power-One to My Watchlist so you can keep up to date on it, come to the MUE discussion board for further talk on this company and the others in the portfolio, or follow me on Twitter.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

Fool analyst Jim Mueller owns shares of Power-One, but not of any other company mentioned. He works for the Motley Fool Stock Advisor newsletter service. The Motley Fool also owns shares of Power-One. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy is never messed up.


Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 15, 2011, at 7:57 AM, Earthhouse2 wrote:

    I made a handsome profit on its last decline by purchasing options. However, with the reduction in infrastructure spending proposed by the Government, reduction in European demand, and loss of last years incentives and subsidies, it is tough not to beware.

  • Report this Comment On April 15, 2011, at 6:40 PM, Diplolich wrote:

    Thank you Motley Fool for your recommendation to buy Power-One. I realize this may be a short term setback but why have the last three stocks I have bought on Fools recommendations come back losers in the short term. Now, I like the long term thinking and approach but I have had a run of very bad investments in the last six months and was hoping for more from Motley Fool.

  • Report this Comment On April 19, 2011, at 4:40 PM, pebbles444 wrote:

    Unbelievable....the markets up 65pts. and Power-One is down AGAIN after it has already had a huge drop. I sympathize with the last writer here....Diplolich. When is this Motley Fool recommended stock going to turn around?

  • Report this Comment On April 20, 2011, at 9:33 AM, TMFGebinr wrote:

    Hi pebbles and Diplolich,

    Unfortunately, if you expect immediate increases in purchases, you're going to be disappointed a lot. I know you've heard this before, but nobody can predict what direction stocks will move in the short term (and anyone who says they can isn't being honest). If you like the long-term thinking and approach, as you said, then you're going to have to be patient for the long term to happen. And that's, in reality, longer than a few weeks or six months.

    Thanks for reading.

    Jim

  • Report this Comment On April 21, 2011, at 1:09 PM, pebbles444 wrote:

    I appreciate your response Jim, but my observations of this stock are that it is extremely volatile. It usually opens up high and then immediately sells off and hasn't made any gains even on very high up days. It's hard to have confidence in a stock that trades this way. I understand being long in a stock but you would expect to see some sort of gains when the market is up considerably otherwise this stock is just being used to short every day. Just my observations until I see it trade differently.

  • Report this Comment On April 21, 2011, at 4:45 PM, pebbles444 wrote:

    Today's price action with Power-One was better....it held on to a little gain. I hope that trend continues!

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