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I Wasn't the Only One to See the Potential

By Jim Mueller, CFA - Apr 29, 2013 at 9:20PM

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Power-One is snapped up by ABB.

It's always bittersweet when a company you've invested in and believe has real potential gets taken out of play.

Power-One (NASDAQ: PWER) announced a week ago that it had agreed to be purchased by Switzerland's ABB (ABB 0.31%) for $6.35 per share. The share price immediately popped up to near that level from the low $4 range where shares had been trading.

I first ran across Power-One in the fall of 2010 and decided to make it the second pick of my (then) brand-new Messed-Up Expectations portfolio, the portfolio I manage using money provided by The Motley Fool. As I explained in the original buy article, it entered the inverter market in 2007 and quickly moved up to the No. 2 position behind Germany's SMA Solar Technology. (Inverters convert the DC current produced by solar and wind power into AC current for use.)

Given the continued expansion of solar power and the fact that the company was broadening its business beyond Europe and into Asia and North America (it built a manufacturing plant in Arizona to serve North America), I felt the company was priced at a discount to its value. I purchased shares for both the MUE port and personally.

That was followed by additional purchases in February, April, and September of 2011, and August and November of 2012 -- at lower and lower share prices. I consistently argued that the market was mispricing this profitable and growing company. However, its share price was tied to the fate of the solar panel market, where falling prices -- while good for the utilities installing these things -- have devastated solar-panel makers like First Solar and Suntech Power over the past couple of years. Those companies' share prices are down 66% and 91% since I first purchased Power-One.

While the purchase price is about 50% higher than where it was trading before the announcement, it is much lower than what I believed could be reached. Solar power is becoming cheap enough to be a true, viable player in electricity generation around the world and the market is expected to expand steadily. This is especially true in Asia and North America, where ABB expects double-digit growth. In fact, Deutsche Bank recently reported that it believes solar power will transition from requiring subsidies to being sustainable next year. In other words, grid parity is in sight, and has actually been reached in places such as Italy and India.

ABB got a good deal, snapping up Power-One just as the industry seems poised for a recovery.

And I? I scratched out a small profit with an average purchase price of $6.19 per share. That's better than a stick in the eye, but it's far short of what I had expected going forward. I'll be selling the shares from the MUE portfolio and redeploying the cash elsewhere, probably into both current holdings and a new position.

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