Alternative energy stocks and green energy stocks have a bit of a cult following on Wall Street. There’s a good reason why investors like solar stocks, wind energy stocks and the like — simply put, we are running out of crude oil. The only question is how long it takes for us to exhaust our crude oil supply. That means in the long-term, solar stocks like First Solar (FSLR), Sunpower (SPWRA) and Trina Solar (TSL) will eventually pick up momentum. So will other green stocks like wind energy companies Gamesa (GCTAF) and Vestas Wind Systems (VWDRY).
The only question is how long it will take for these stocks to become good investments, and whether investors should buy these companies now or buy them later. And after some recent poor earnings and analyst downgrades, it may make sense to delay your purchase of solar stocks and other alternative energy investments.
Here are a few examples why:
- LDK Solar Earnings: China-based LDK Solar (LDK) reported a narrowed loss in its fourth quarter of $7.3 million, or 7 cents per share, on a 29% decline in revenue to $304.6 million. Unfortunately for LDK and the rest of the solar sector, the loss fell well short of Wall Street forecasts for a profit of 12 cents per share. As you might expect, LDK’s earnings miss sent the stock down substantially.
- First Solar, SunPower Downgrades: A negative call by Barclays Capital analyst Vishal Shah back in February helped send shares of the highest profile stocks in the sector reeling, including Evergreen Solar (ESLR), First Solar (FSLR), SunPower Corp. (SPWRA), Suntech Power Holdings (STP) and Trina Solar (TSL).
- Solar ETF Indicates Slow Going: Shares of the Market Vectors Solar Energy ETF (KWT), a fund that tracks the solar sector, are down a stunning -35% year to date.
Part of the problem is that solar stocks and alternative energy stocks need subsidies because they are a small industry and the costs to generate electricity are much higher than with fossil fuels. Wind and solar electricity costs two, three or four times more than traditional methods to generate electricity. Nuclear electricity capacity is also expensive to build, but then it is very reliable and cheap to run, which is why China and India are ramping up their nuclear capacity. Also, with natural gas having fallen a lot, it is becoming again economical to run natural gas fired power plants.
So, right now the alternative energy industry is at the mercy of cash-strapped bureaucrats on both sides of the Atlantic who don’t have the money or the political will to help develppe this industry. Just look at the impact of subsidy cuts on the E.U.-based Vestas Wind Systems, which last year reported a 50% drop in future bookings and weaker revenues.
There’s no doubt that solar stocks, wind energy stocks and other green investments will have their day in the sun. But for now, these stocks are in tough shape and will not recover as long as budget woes persist in so many Western nations.
As of this writing, Jeff Reeves did not own positions in any of the stocks named here.
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