3 Solar Companies for Long-Term Investors

Global solar demand will surge over the coming years. Have you prepared your portfolio accordingly?

Apr 2, 2014 at 7:30AM

Deutsche Bank recently affirmed its bullish views on the solar industry. The German bank expects the global demand for solar power to grow by about 31.4% in 2014 and 21.7% in 2015. Plus, the bank estimates that photovoltaic wafer prices will appreciate by 20% during 2014. In light of this expected growth, where should you invest? Let's find out. 

Boosting efficiency
I believe First Solar (NASDAQ:FSLR) is a prime beneficiary here. In addition to manufacturing solar modules, the company takes up installation and maintenance contracts for utility-scale solar projects across the globe. Its diversified business model, in turn, results in balanced growth.

Investors should note that First Solar's PV panels currently lag its peers in terms of average conversion efficiency -- about 13.4% as opposed to 20% of high-end panels from other manufacturers. But its low operational efficiency keeps the cost-per-watt in check, thereby boosting the economic feasibility of utility-scale solar projects.  

In its recently released product roadmap, management noted that the conversion efficiency of its Cd-Te technology would increase 25% by 2016. This, in turn, will boost its systemwide conversion efficiency to 16.2% in 2015 and 19.5% in 2017. More importantly, manufacturing costs will remain constant. 

This will enable utility-scale installations to reach their break-even period relatively sooner, thereby boosting First Solar's competitiveness. Plus, the company can enter the retail installation market and further propel its top-line growth.

Established efficiency
SunPower (NASDAQ:SPWR) is another formidable solar player. The company is involved in the manufacturing of solar panels, and their installation in residential as well as commercial space.

Residential and commercial areas, which are generally cramped for space, require highly efficient panels capable of generating electricity in the minimum area possible. First Solar's panels can't be installed in such areas due to their relatively lower conversion efficiencies. SunPower, however, offers a practical solution to this problem.

SunPower manufactures the industry's most efficient solar panels – its average conversion efficiency reaches up to a record 20%. As a trade-off for quality, its cost-per-watt is about 69% higher than First Solar's. In spite of the initial high costs, SunPower has managed to double its revenue over the last five years. 

Evidently, there is a healthy market for highly efficient solar modules, and SunPower should continue to grow swiftly with the surging global demand for solar power.

A relatively safer investment?
SolarCity (NASDAQ:SCTY), on the other hand, is only involved in the leasing of retail and commercial scale solar panels. So while SunPower and First Solar benefit from the expected increase in PV module prices, SolarCity won't benefit at all. Its revenue stream is largely tied to domestic project installations. 

The absence of a manufacturing division nevertheless reduces SolarCity's operational risks. Over recent months, solar manufacturers around the globe came under pressure as subsidized China-made solar panels intensified market competition. SolarCity, however, came out unscathed since its operations only involve panel leasing. 

Moreover, the leasing business further reduces the volatility in SolarCity's operating cash flows. Once the panels are installed, end-users pay the amount due in predetermined installments. These recurring payments, in turn, enable the company to ramp up its capital expenditure in a balanced and consistent manner over the years.

With leasing options increasing the affordability of its installations while securing operating cash flows for the future, I believe SolarCity offers robust growth prospects while incurring minimal risks. 

Foolish final thoughts
Owing to market speculation and varied panel supply, shares of solar companies have been volatile over the recent months. Therefore, risk-averse investors might want to hedge their risks and rewards by investing in the above-mentioned companies. Where SunPower and First Solar result in balanced growth, SolarCity – being a pure-play – can deliver exceptional returns over the coming years.

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Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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