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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
As markets across the globe bled red yesterday, shareholders in one company, at least, were dancing in the streets. Thanks to an upgrade from RBC Capital, thin-film solar specialist (and Motley Fool Rule Breakers recommendation) First Solar (Nasdaq: FSLR ) not only sidestepped the carnage, but actually rose higher. Why?
Well, let's see here. On the one hand, First Solar just inked a "Cooperation Framework Agreement" with the Chinese government, an important step toward development of a planned 10-year project to build a two-gigawatt solar power plant in Inner Mongolia. On the other hand, a First Solar exec in charge of sustainable development and environmental compliance just jumped ship -- taking $0.08 per share (!) in First Solar shareholders' profit with him as part of his severance package. (We should all be so lucky.) Meanwhile, rival Sunpower (Nasdaq: SPWRA ) just got crushed on news of an accounting snafu, and analysts are beginning to speculate that this could be the leading edge of a wave of similar announcements.
Speak up, RBC!
There are few situations more frustrating to the individual investor than the one we face today. Presumably, RBC is weighing the good news over the bad, but the sad truth of the matter is that the analyst isn't telling us exactly why it likes First Solar. While multiple media outlets confirm that the upgrade took place, not a single major media outlet has any details on why RBC thinks First Solar is worth owning today.
Now here's the good news: While we're unable to confirm what RBC thinks, here at CAPS we can at least show you how well it thinks, at least when it's picking alternative energy stocks:
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Stock
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RBC Says:
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CAPS says:
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RBC's Picks Beating (Lagging) S&P By:
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Evergreen Solar (Nasdaq: ESLR )
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Underperform
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***
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14 points
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JA Solar (Nasdaq: JASO )
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Outperform
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****
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(10 points)
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SunPower
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Outperform
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***
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(47 points)
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American Superconductor (Nasdaq: AMSC )
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Underperform
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**
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(51 points)
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FuelCell Energy (Nasdaq: FCEL )
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Outperform
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**
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(55 points)
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Survey says ...
So how good an analyst is RBC when it comes to picking alt-energy stocks? Um, not very. In fact, 60% of RBC's recommendations in this space over the past few years have underperformed the market. The question today being: Will First Solar fare as badly?
As I explained earlier this week, I'm not optimistic about solar stocks in general. Between the continual rounds of equity dilution, the now-apparent accounting problems, and the perpetual cash burn, the whole industry looks like a real mess to me. So between my already confirmed bias against the sector, my exercise in Halloween-inspired devil's advocacy last month, and RBC's now-revealed anemic record in picking winners among alt-energy stocks, you'd probably think I would be particularly pessimistic about First Solar.
Newsflash: I'm not
A lot of investors latched onto First Solar's disappointing third-quarter earnings news last month as an excuse to sell the stock. But me, I had a different take on the news. Where others saw a big "revenue miss," I saw something completely different: Strong and strengthening cash flow.
Practically alone among the major solar players, First Solar posted real free cash flow last year -- not nearly as much as the profit First Solar earns under GAAP rules, of course. (Free cash flow comes to $126 million, versus more than $630 million in GAAP "profits.") But that's more than Suntech Power (NYSE: STP ) can claim, more than Yingli Green Energy produces, and almost certainly more than the accounting-challenged SunPower makes.
Foolish takeaway
Now, would I actually go out and buy First Solar on RBC's say-so? Heck, no. $126 million still has this stock selling for 83 times its actual free cash flow -- vastly overpriced, in my book. But compared to everybody-else-in-the-solar-industry, is First Solar the safest play? Yes.
If and when the stock price drops enough to reflect the company's true worth, this will be the one to buy. Patience, grasshopper.
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