Stay Away From These 3 Solar Companies

Solar energy may not be a new concept, but what is new are the dynamics shaping the industry, whether technological innovation or regulatory matters.

As undercurrents evolve, some companies are bound to skyrocket with growth, while others are destined for failure. Already in the past few months, American companies Solyndra and Evergreen Solar have declared bankruptcy, and more will certainly follow suit.

But today I'm not here to talk about U.S. companies -- more important, I want to list three Chinese companies that have the potential to sink your portfolio.

Consider yourself warned!
On Dec. 4, the U.S. International Trade Commission voted 6-0 in favor of investigating Chinese trading practices with regard to solar production. The bottom line is that U.S. companies feel they are being hurt by unfair practices that boost imports of Chinese solar cells and by-products; practices that include the Chinese government issuing cash grants, discounts, preferential loans, and tax incentives to domestic companies.

It's hard for the average investor to tell how much harm has actually been done to U.S. players in this space. First Solar (Nasdaq: FSLR  ) , for instance, is the largest U.S. manufacturer and uses a different technology than its Chinese counterparts. Over the last year, however, First Solar has seen its share price plunge by 64% and is now trading for a ridiculously low P/E of 7.8. SunPower (Nasdaq: SPWR  ) , another U.S. company, tends to be a leader in efficiency and so it demands more of a premium than some of the Chinese companies.

Nevertheless, the ITC is attempting to measure possible harm to U.S. companies by Chinese imports, and could determine penalties on Chinese companies as early as Jan. 12. The three biggest Chinese solar companies, Yingli Green Energy (NYSE: YGE  ) , Suntech Power (NYSE: STP  ) , and Trina Solar (NYSE: TSL  ) , could all be extremely susceptible to repercussions from the U.S. government. Yingli currently makes about 10% of its revenue from the U.S., whereas Suntech and Trina both make about 15% from the U.S.

Reactions in Asia
Expectedly so, the Chinese government was none too happy about this news. Officials from Beijing said that "China is deeply concerned with the decision, which does not tally with facts and highlights the United States' strong tendency for trade protectionism." It has also decided to launch its own investigation into certain states' support of renewable energy, looking directly at Washington, Massachusetts, Ohio, and California.

Furthermore, lawyers from both Suntech Power and Trina Solar told the ITC that any added tariffs would increase their costs, and therefore would be passed on to the consumer.

None of this is good news for American companies, like GT Advanced Technologies (Nasdaq: GTAT  ) , that export goods to China, considering that any move by the U.S. government would most likely be reciprocated with Chinese tariffs against the U.S.

The Foolish bottom line
Personally, I don't have a problem with any of the three Chinese companies listed above. They've seen great revenue growth in what can be a very lucrative market, and Chinese companies now control about half of the market, positioning themselves well for the future. However, whenever protectionism and/or government regulation gets involved, bad outcomes tend to be inevitable. Solar is a useful and honorable technology, but if you're looking for innovative companies, there are safer plays out there.

In fact, I discovered one such company the other day while talking with our senior technology analyst, Eric Bleeker, which could be one of the greatest disruptors over the next decade. The company is a major mobile player that has roots in some of the most important technological advancements and patents of our time. To check out details about this company, you can read our brand-new, FREE, special report, "The Next Trillion Dollar Revolution." Click here to access it, absolutely free.

Jordan DiPietro owns shares of First Solar. The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. 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 has a disclosure policy.

Read/Post Comments (4) | 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 December 07, 2011, at 3:38 PM, fiddlecat wrote:

    Wouldn't the fact that STP has a factory in the U.S. offset their tariff risk somewhat?

  • Report this Comment On December 11, 2011, at 8:49 PM, RealityCheck1930 wrote:

    Jordan DiPietro,

    Your article is full of horse manure. It does not show any sound financial information the would sink any 3 of the stated Chinese solar stocks. In fact, the article is full of political progaganda with evidence of hidden agenda. If you really think those 3 Chinese Solar stocks will sink big time, please put your money where your mouth is by shorting their stocks as much as possible. In fact, you should liquidate all of your assets, and short.. short.. them, and share your results with us every 3 months from now to 2013.

  • Report this Comment On December 11, 2011, at 8:59 PM, RealityCheck1930 wrote:

    By the way, I don't invest in Solar stocks or own any shares in Yingli Green Energy, Suntech, and Trina Solar unlike you who sounds to gain some benefits from First Solar or SunPower. What I see is the Solar industry is currently going through the cost cutting and consolidation. That is good for consumers because the prices of solar modules will be reduced and become more affordable. Both Yingli and Trina are survivors and will be strong players at the end.

  • Report this Comment On December 11, 2011, at 9:27 PM, NOTvuffett wrote:

    No matter how you slice it, pv solar is expensive compared to other technologies.

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