At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best...
Bloomberg is sounding a bullish note on solar stocks this week, reporting "a surprise shift" in "the $36 billion market [as it] migrates from Europe to Asia." According to the news agency, China's Suntech Power (NYSE: STP ) , Yingli Green Energy (NYSE: YGE ) , Trina Solar (NYSE: TSL ) , and others are leading a movement to increase shipments of solar modules 27% to 37% this year. Curiously, the vast majority of these new modules appear destined to remain in China, which is expected to soon "become the top solar market in 2013."
No sooner had this report come out than it caught the attention of Wall Street, where on Friday Avian Securities announced upgrades to "positive" for two of the usual suspects: Yingli and Trina. Was Avian right to do so?
Buy these numbers
Anything's possible, but I have to say that the numbers don't look good. Both Yingli's and Trina's sales declined in the most recent quarter compared to the year-ago quarter (as did Suntech's, down a whopping 53%). None of the three firms is currently profitable. Of the three, only Trina is expected to turn a profit within the next year or so -- and even then, the forward P/E ratio of 37 hardly looks attractive.
Regarding their debt loads, all three firms look to be on shaky ground with significant debt. And their ability to generate cash to pay down this debt doesn't look much better. Neither Yingli nor Trina routinely reports free-cash-flow data in its quarterly filings. Suntech, which does, showed $45 million in negative free cash flow over the past 12 months.
Invest in solar? That idea's for the birds
Solar's troubles don't end there, either. The fact is, nearly every company in the industry these days is in shambles. Polysilicon provider and wafer maker LDK Solar (NYSE: LDK ) carries a debt load more than 10 times the size of its own market cap. And with net income recently amounting to a $1.18 billion annual loss, things are getting worse -- not better.
And here in the States, the company that used to tout its thin-film solar products as a cheaper alternative to polysilicon, First Solar (Nasdaq: FSLR ) , is debt-heavy and cash-light as well. Last year, First Solar burnt through $765 million in negative free cash flow. This year its numbers have improved a bit, but not nearly enough to keep it solvent.
Foolish final thought
Ranked in the bottom half of analysts we track on CAPS and currently clocking an average record of 35% accuracy on its picks, Avian Securities is no stranger to birdbrained investing ideas. This latest batch of solar recs isn't likely to change matters much.
Personally, I see better prospects for profit in more traditional areas of energy production -- such as the stock we recently profiled in our report: "The Only Energy Stock You'll Ever Need." But as for the solar industry, I'm so convinced that affairs are flying south that I've decided to double down on my sell recommendations. LDK, First Solar, Yingli, Trina, and Suntech -- I think each and every one of these companies is going to underperform the market. And yes, I'll bet my reputation on it.