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As the solar industry recovers from a rough couple of years, there will be winners and losers emerging on the stock market. So far, companies with downstream exposure have fared far better than module-focused manufacturers, but downstream isn't the only part of the market where opportunities lie. Here are three companies with interesting prospects going into 2014.
I think only a few Chinese solar manufacturers will survive long-term, and I think Trina Solar (NYSE: TSL ) has the opportunity to be one of them. The company does have $1.1 billion in debt, but $558 million of cash offsets some of that risk, and it was one of the only solar companies to post a quarterly profit already this year.
Next year, conditions should improve even more; demand is expected to increase and module sale prices will likely rise or at worst stay flat. If Trina Solar is able to cut costs even a little bit it would turn a small profit into a sizable one, and that could mean another strong year for the stock.
It hasn't been an easy transition from a supplier of solar components to a project builder for SunEdison (NYSE: SUNE ) , but long-term I think it's the right move. What makes SunEdison intriguing is that it's not only a project builder, it is also looking at project ownership as a long-term strategy.
When management adjusted its fourth quarter outlook in early December, investors panicked at the thought of fewer solar project sales, but the adjustment was made because the company is going to keep some projects on the balance sheet. They thought there was too much value to give up via sale and kept the projects for shareholders' benefit.
As solar companies find it easier to tap debt markets and generate profits that can be used to offset tax benefits, I think we'll see more companies keep solar projects on their balance sheets. The strategy won't result in near term profit growth, but it will be better for investors long-term.
2014 will be a transitional year for First Solar (NASDAQ: FSLR ) . The low cost, low efficiency modules that brought the company to solar dominance are slowly becoming obsolete, and efficiency needs to be improved quickly. The plan for CdTe modules is to increase efficiency to over 14% next year and near 17% by the end of 2016. If that happens the company may stay competitive with the product.
We also don't yet know what the company will do with its acquisition of TetraSun, which was acquired this year to provide a pathway to a higher efficiency product. If successful in mass production, TetraSun's technology could allow for an entry into the residential and commercial markets where First Solar has so far been shut out.
Technology is the challenge for First Solar, but the company's major competitive advantage is its efficiency in building utility-scale solar projects. Even if CdTe panels become obsolete and TetraSun's technology fails, it can fall back on building projects with other manufacturers' panels.
What makes the company intriguing for 2014 is that the utility-scale market appears to be making a comeback, and, with high margins in Japan and the U.S., I think there's an opportunity to increase backlog and even begin holding projects on the balance sheet, the way SunEdison is. There's also lots of upside if manufacturing technology improves and opens up new markets.
First Solar probably won't be the best stock in solar long-term, but it may be the most consistent.
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