2 Reasons to Add Solarcity to Your Roth IRA

SolarCity remains in the early stages of disrupting energy delivery in the U.S. Here are two reasons why you should consider adding the stock to your Roth IRA.

Apr 10, 2014 at 6:33PM

The Pencils IRA Project is dedicated to building a portfolio of promising businesses that can be followed and replicated by both young and new IRA investors. Each holding of the Pencils IRA Project must meet the five pillars of a "megagrower" business -- purpose-driven business, innovative products, visionary leadership, increasing cash-flow production, and strong company culture -- with significant potential to create stakeholder value and substantially beat the market over the long haul.

SolarCity (NASDAQ:SCTY) is this month's addition to the Pencils IRA Project. The stock does not look cheap by standard measures of valuation, but I expect this business to trade at a premium for many years to come. SolarCity is revolutionizing the field of energy delivery in the U.S., and it expects one day to expand beyond U.S. borders. Last month the company passed the milestone of 100,000 customers, and I believe it will add hundreds of thousands -- and, eventually, millions -- in the coming years.


1. Purpose-driven business
SolarCity's purpose, since its founding in 2006 by brothers Peter and Lyndon Rive, has been to make solar technology a more-available, widespread energy source. "SolarCity's mission has always been to help homeowners and businesses adopt clean power while saving on energy costs," explains CEO Lyndon Rive. The Rives are determined to demonstrate that people can help the planet and save money at the same time. 

In less than a decade, SolarCity has grown into the largest installer of residential solar systems, demonstrating the viability of solar energy as a mainstream energy source. Despite the company's early success and continued expansion, the Rives remain focused on their original goal.

"What's important is the mission," states Lyndon Rive. "If I wanted money, I would have cashed out a long time ago."

2. Innovative products and services
SolarCity's bread and butter is installing rooftop solar systems free of charge and selling the electricity at rates up to 15% lower than traditional utility rates. In essence, SolarCity offers "clean" energy to residential and commercial customers with no upfront cost and lower rates than consumers pay for "dirty" energy sources like coal and other fossil fuels. In addition to residential users and businesses, SolarCity's clients include colleges, school districts, local governments, and nonprofits.

Currently serving more than 100,000 customers in 14 states, SolarCity captures 32% of the residential solar-installer market in the U.S. (up from 17.4% in 2012). "The benefit of market share is it gives us more economies of scale," explains Lyndon Rive. "By getting more economies of scale, we can continue to invest in technology and services that will continue to separate us even further from our competitors and our value proposition to our customers."

Each SolarCity customer contract represents 20 years of consistent revenue for the business in the form of monthly electricity payments. The company's "nominal contract payments" -- the estimated future cash flows remaining on SolarCity's existing contracts -- have increased from $500 million in 2011 to about $2 billion in 2013.

In December 2013 SolarCity completed the acquisition of Zep Solar, a company dedicated to making solar installations more efficient and profitable for solar installers. As SolarCity continues to scale its business on a national level, achieving lower installation times and costs, it will widen its competitive moat. It's important to note that the cost of solar power has steadily decreased -- the cost of solar photovoltaic cells has decreased 99% since 1977 -- while the cost of generating electricity via fossil fuels has increased over the past two decades. As the Edison Electric Institute notes, "Customers inevitably will see these rising fuel costs that electric utilities must pay reflected in their electric bills." 

Foolish bottom line
Solar energy, and especially SolarCity, have a bright future (har har). The cost of providing solar energy has decreased, while the cost of providing fossil fuels has tended to increase over the long term. As these trends continue, and as SolarCity reduces its costs via scaling and acquiring businesses such as Zep Solar, SolarCity is poised to reward patient long-term investors with market-beating returns.

For these reasons, as well as the three remaining megagrower pillars that I will examine in my next article, I am excited to add SolarCity to the Pencils IRA Project.

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David Kretzmann owns shares of SolarCity. You can follow David on his Foolish discussion board, Pencils Palace, on CAPS, or on Twitter @David_KretzmannLearn more about David's Pencils IRA Project at Fool.com. The Motley Fool recommends and 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." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

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.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

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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