Friday, November 16, 2007

Starting Small Stakes in the 2 Emerging Solar Leaders

I am beginning very small stakes in the 2 companies that (to me) have emerged as the solar leaders

First Solar (FSLR) and Suntech Power (STP); one could argue that Sunpower (SPWR) is also in that group, and its relative strength is very good as well, but I can get Suntech Power (STP) for about 2/3rd the valuation on 2008 estimates that I would have to pay for Sunpower (SPWR)

Suntech Power is currently at $1.68 for 2008 estimates; I think it will be north of $2.00 (well north potentially)
Sunpower is currently at $2.04 for 2008 estimates; I think it will be higher but not sure how much more; their margins still concerned me. Even at these levels Sunpower trades at a rich premium to Suntech Power. I also have been an investor in Suntech Power since late 2006 so I know the history much more intimately. I've held the name in the fund in the past but unfortunately it was not performing so I jettisoned a large part of the position far too early. But after this most recent quarter, these are names that need to be in the portfolio for the long run. Size and scale will (eventually) matter in this commodity business and these are the 3 names that have it already.

I bought $5000 worth or a beginning position of 0.45% or so in each name. Both companies are refusing to budge downward in an ugly tape. Both companies earnings were just fantastic and the guidance is tremendous. Now First Solar might disappoint the momentum lemmings in a few quarters since it has guided first half of 2008 below Q4 2007, but thats something to worry about in a few months.

I still hold hope some panic ensues and I can get these stocks at lower prices, but I wanted to establish a small beachhead in these names; which I can add to later. While more money can be potentially made in the more speculative names, I can sleep at night with the industry leaders.

Long First Solar, Suntech Power in fund; no personal position

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