Many investors take a hard-nosed attitude towards solar power, dismissing it as a commercially unpractical aspiration of aging hippies. That’s a big mistake. Solar power is proliferating around the world and makers of solar panels are experiencing boom times. That makes solar stocks a shining opportunity.
Our favorite solar stock is Canadian Solar (CSIQ). With a market cap of $1.58 billion, Canadian Solar provides the solar sector with ingots, wafers, cells, and modules, as well as entire solar power systems. The stock is volatile, but shares currently show a 30% gain in the past year.
Although headquartered in Ontario, Canada, the company has most of its manufacturing facilities in China, where costs are far cheaper. CSIQ’s two locations allow for low-cost manufacturing, but also permit the company to avoid some of the regulatory obstacles of being officially based in China. This strategy gives Canadian Solar a cost edge over larger U.S.-based competitors, such as First Solar (FSLR).
As solar power becomes more prevalent, the industry is growing in scale and panels are becoming cheaper to produce. The average price of a solar panel is plummeting and technological advances continue to dampen costs.
According to the latest solar industry report from the Earth Policy Institute, a record 38,000 megawatts of solar photovoltaics (PV) were installed in 2013, pushing the total global solar power capacity near 140,000 megawatts. The Earth Policy Institute also finds that more countries are embracing solar power as costs come down. More than 30 countries now boast capacity of over 100 megawatts, a figure that the institute projects will double by 2018.
Sunny Earnings Surprise
These trends are all fueling growth in CSIQ’s business. In its second quarter, Canadian Solar reported surprisingly robust earnings of $55.8 million, or 95 cents per diluted share, compared with a year-earlier loss of $12.6 million, or 29 cents a share. Revenue spiked to $623.8 million from $380 million during the same period a year ago. Management projected third-quarter revenue in a range between $760 million to $810 million.
As a mid-sized but sufficiently capitalized company, Canadian Solar has room for growth in this fast-growing business. The company is now pursuing several large-scale projects, involving new opportunities in energy-hungry markets such as Japan and Germany.
Closer to its home in the Great White North, Canadian Solar is in a partnership with Grand Renewable Solar LP for the construction of a 130 MW utility-scale solar power plant in Ontario that’s expected to soon generate revenue of more than $301.1 million.
CSIQ is also making inroads in solar-friendly Europe, especially in the euro zone’s economic engine Germany, which recently renounced nuclear power and is aggressively adopting solar power to make up the difference. Japan’s Fukushima nuclear disaster in 2011 compelled German Chancellor Angela Merkel to announce a plan to scupper all of the country’s nuclear power plants by 2022 and convert almost entirely to solar and wind energy by 2050.
Meanwhile, in the United States, an increasing number of states are enacting solar power subsidies and tax breaks to facilitate the expansion of alternate energy sources.
For Canadian Solar, the future’s so bright, its investors may have to wear shades.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.