Hunting for the Hottest Solar Stocks? Focus on Utilities

by Aaron Levitt | November 21, 2013 6:00 am

solar-stocks-fslr-csiq-spwrFor investors looking at solar stocks, the past few years have been a bumpy ride. Cheaper natural gas and coal prices, dwindling government subsidies along with a huge glut of photovoltaic panels caused the sun to set on solar stocks.

Share prices for sector plunged and many firms —  including few industry stalwarts — actually had to file for bankruptcy protection.

What a difference a year makes.

Solar stocks have been on fire as several positive factors have propelled share prices to new highs. The solar stock benchmark — the Guggenheim Solar (TAN[1]) — is up an astonishing 129%, and the bundle of sizzling solar stock is actually the number one performing equity exchange-traded fund this year.

Driving that outstanding solar stocks performance has been rising earnings at a few key producers of panels. However, for leading solar stocks First Solar (FSLR[2]), SunPower (SPWR[3]) and Canadian Solar (CSIQ[4]), the key isn’t just how many panels are being sold … but who is doing the buying.

For FSLR, SPWR and CSIQ, the crucial point has been focusing efforts on grid-scale solar installations for utilities. As a result, these three solar stocks could be the best way to play the sector’s return to profitability now and into the future.

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Hottest Solar Stocks: First Solar (FSLR)

hottest-solar-stocks-fslrTo say that recent earnings at First Solar (FSLR[2]) were stellar simply doesn’t do this solar stock justice. Instead, earnings for thin-film specialist FSLR — one of the best solar stocks out there — were beyond stellar.

FSLR stock analysts had estimated[6] that the company would make around 95 cents a share for the third quarter. And First Solar proved why it’s king of the solar stocks[7] by reporting a massive $2.28 per share in earnings. That’s a nearly 80% increase versus a year ago and 140% better than what analysts predicted.

Driving that beyond-stellar performance was the solar stock’s systems business, which owns and operates grid-scale solar installations for utility customers[8]. FSLR revenues at for this business surged over 50% year-over-year.

And even more importantly for investors in solar stocks is the fact that the business is continuing to grow.

FSLR recently signed a signed a deal with NextEra Energy (NEE[9]) to construct a 250-megawatt plant in California, while First Solar also managed to book about 860 megawatts (MW) of new utility-sized projects during the quarter. This has helped increase the solar stock’s backlog up to 2.7 GW. Many of those projects lie outside of North America, too — with Chile, Brazil, Japan and energy strapped China as key markets for FSLR installations. All of these bookings and additional projects should drive earnings in the future, and thus drive FSLR stock even higher.

As one of the leading utility scale PV producers in the world, shares of FSLR stock should be on everyone’s list of solar stocks to buy.

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Hottest Solar Stocks: Canadian Solar (CSIQ)

solar-stocks-csiq-stockFollowing the lead of thin-film rival FSLR, Canadian Solar’s (CSIQ[4]) shift towards being an owner/operator of grid-sized projects is also paying big benefits[10]. CSIQ saw revenues jump 30% during the third quarter vs. the previous one and increase 50% vs. the same period a year ago. That was good for earnings of 56 cents per share of CSIQ stock.

Like the rest of the solar stocks on this list, CSIQ attributed those gains to its high-margin solutions and installation business. And as was the case with FSLR, Canadian Solar continues to rack up more contracts and sales in this business segment.

For the quarter, Canadian Solar increased its total utility-scale project pipeline to approximately 1,015 MW — a record for the solar stock. The latest deal at CSIQ involves the construction and sale of four utility-scale solar power plants — totaling 40 MW — in Ontario to private equity firm DIF Infrastructure Partners. That follows major CSIQ deals with TransCanada (TRP[11]) and a private-equity arm of asset manager BlackRock (BLK[12]).

All in all, Canadian Solar’s shift to focusing on large projects should help move the needle at CSIQ stock, especially compared to panel-only solar stocks like Yingli Green Energy (YGE[13]).

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Hottest Solar Stocks: SunPower (SPWR)

solar-stocks-spwr-stockAs far as solar stocks go, having the backing of a major integrated energy firm — namely France’s Total (TOT[14]) — is nothing to sneeze at. For SunPower (SPWR[3]), that partnership has yielded some pretty big fruit, namely, improved earnings and sales.

While the solar stock’s residential leasing programs could hurt shares of SPWR stock, the company’s efforts to supply its ultra-efficient panels to grid-scale installations is where the action and potential is. Overall, SunPower has bested other solar stocks and has delivered over 120 large-scale solar systems over the past decade.

Those efforts at SPWR aren’t stopping either.

SPWR recently entered into an agreement with Shimizu to supply 69 MW worth of its solar panels for a solar power plant in Japan. Additionally, SPWR began initial shipments for 65 MW of projects in France as well as 70 MW merchant power plant in Chile. Meanwhile, Total and SPWR have been selected by a South African utility to help construct a $200 million, 86 MW facility in Prieska[15].

Like many other solar stocks, SPWR stock has racked up a triple-digit performance — over 450% so far this year — based on higher earnings and profits.

But still, the company’s ultra-efficient panels and focus on grid-projects could make it one of the best solar stocks to buy.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

  1. TAN:
  2. FSLR:
  3. SPWR:
  4. CSIQ:
  5. Compare Brokers:
  6. FSLR stock analysts had estimated:
  7. First Solar proved why it’s king of the solar stocks:
  8. utility customers:
  9. NEE:
  10. also paying big benefits:
  11. TRP:
  12. BLK:
  13. YGE:
  14. TOT:
  15. in Prieska:

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