Chinese solar stocks are trading at going-out-of-business valuations, even though the sector has a host of extremely powerful, long-term catalysts. Specifically, China, India and much of the rest of the developing world are set to expand their use of solar energy at breakneck speeds over the next five years. Indeed, solar is poised to become cheaper than any other major method of electricity generation.
China has said it will spend $360 billion through 2020 on renewable energy amid continued debilitating pollution in the country’s cities, The New York Times reported in January. A major reason for Chinese solar stocks’ bargain basement valuations is that skeptics believe that a subsidy cut Beijing plans to enact for projects completed after June will make Chinese solar companies unprofitable.
But China, which wants to increase the country’s solar energy capacity by 15 to 20 gigawatts a year over the next four years, is clearly committed to continued rapid development of the nation’s solar energy capacity. And with China committed to tripling its total solar capacity over the next four years and solar energy production costs continuing to fall rapidly, Chinese solar companies should remain profitable going forward, enabling the country’s solar stocks to rise from their current low levels.
Although all solar stocks should be boosted by these trends, the low production costs of Chinese solar companies and their high exposure to rapidly growing developing markets leave these three best positioned to benefit from the growth of solar.
Chinese Solar Stocks to Buy: JinkoSolar (JKS)
JinkoSolar Holding Co., Ltd. (NYSE:JKS) predicts it will ship 8.5 to 9 gigawatts of solar modules this year, up significantly from the 6.656 gigawatts it shipped last year. In the wake of the Chinese solar subsidy reduction expected to occur in June, demand for solar energy in China will “decline but will not nosedive,” according to JinkoSolar CEO Kangping Chen.
In the U.S., selling prices are “stabilizing” and “we don’t believe political factors” will “significantly alter (its) growth trajectory,” the CEO stated. Overall, average selling prices in the first half of this year will come in at 37 cents to 39 cents per watt and fall 10% to 15% in the second half of the year. JinkoSolar’s average costs were trending around 35 cents at the end of last year and should fall to a range of 30 cents to 31 cents at the end of the year. JKS, however, notes that the more efficient PERC solar cells, which sell for higher prices, are becoming more popular.
Finally, Chen was encouraged by the demand from India, which exceeded his expectations. Global solar demand, Chen predicts, will be higher in 2017 than in 2016.
Chinese Solar Stocks to Buy: Canadian Solar (CSIQ)
Although the company is called Canadian Solar Inc. (NASDAQ:CSIQ), 42.7% of its shipments went to Asia in the third quarter. And CSIQ benefited from “solid demand in China, Japan and India” in the third quarter, CEO Shawn Qu said on the company’s results conference call in November.
At that time, Canadian Solar was overbooked for the fourth quarter and fully booked for the first quarter of 2017, Qu stated. Moreover, its gross margin for Q3 came in at 17,.8%, up from 17.2% during the previous quarter and 14.9% during the same period a year earlier, and CSIQ said that it expected “to continue to benefit from improved manufacturing efficiencies.”
CSIQ shares trade at a forward price-earnings ratio of 7.84 and a price-book ratio of 0.9. Its current ratio is 1.11, suggesting that its debt level is manageable for the time being.
Chinese Solar Stocks to Buy: JA Solar (JASO)
While JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO) admitted to a slowdown in the Chinese solar market in the third quarter, it’s optimistic about the long-term outlook, however, as JASO believes that it can gain market share in the growing U.S. and Indian markets.
The company also noted that India accounted for 12% of its revenue in the third quarter. Moreover, JASO predicted that even after China reduces the nation’s solar subsidies, its average sales prices will be in the mid-30-cent-per-watt range, while its costs would fall to the low 30-cent-per-watt range.
While Chinese solar companies are facing some near-term hurdles, Chinese solar stocks trade at extremely low valuations. And over the longer term, demand for solar energy is poised to skyrocket around the world, making Chinese solar stocks extremely attractive for patient longer-term investors looking for exposure to Chinese stocks and/or solar stocks.
In November, JASO reported third-quarter earnings per share, excluding some items, of 13 cents, versus the consensus outlook of 6 cents. The company’s revenue came in at $624 million, compared with the consensus outlook of $591 million. In the wake of the results, JASO trades at a trailing P/E ratio of 3.45. And the company’s current ratio is 1.18, indicating that it’s not in danger of defaulting in the near term.
As of this writing, Larry Ramer currently held a position in all three of the aforementioned stock picks.