Solar stocks are a volatile bunch, rising and falling with energy prices and cheapness of substitutes. However, in the case of SunEdison (SUNE), things are a tad bit more jumpy.
Despite the long-term potential of SUNE, it has become a battleground story stock.
Hedge funds and traders are all over shares. Forbes estimates that by the end of June, there were at least ten hedge fund billionaires betting heavily on the stock. Meanwhile, a variety of short-seller reports have surfaced, questioning the firm’s debt loads and ability to keep receiving juicy cash distributions from its two YieldCos — TerraForm Power (TERP) and TerraForm Global (GLBL).
Those reports have sent SUNE stock down about 76% over the past three months. Meanwhile, every bit of good or decent news has opposite effect, causing SUNE to temporarily surge on the euphoria. (Emphasis on “temporarily.”)
The point is, SUNE has become a trader’s and algorithms paradise. But investors who are looking for bargain solar stocks should look elsewhere. Despite its potential, SunEdison is just too overrun with traders.
However, there are some other solar stocks that haven’t been met with the same level of solar insanity. For investors, these other firms make great buys until the dust settles down in SUNE stock.
Here are three solar stocks to buy today.
Safer Solar Stocks to Buy: First Solar (FSLR)
When it comes to solar stocks, the bellwethers are the place to be when riding out any sector volatility. And you can’t get much better than stalwart First Solar (FSLR).
While SUNE has tried to be everything to everyone, FSLR has continued to focus on the utility space by building large grid-scale power plants. That business continues to suit it well.
During the most recent quarter, FLSR managed to sell stakes in two big projects — its 60 MW North Star and 32-MW Lost Hills-Blackwell Solar farms — to utility Southern Co (SO). It also managed to increase its project backlog for new utility-scale projects by a whopping 537 MW.
Those new projects have the potential to become real revenue and profit boosters for the solar stock.
Deutsche Bank estimates that First Solar can produce over $3.50 in earnings per share by 2017 as FSLR completes 12 projects this year and recognizes revenues for eight more during 2016. This is in spite of expiring federal tax credits for solar.
Additionally, Deutsche Bank estimates that if First Solar completes all 14 projects it has scheduled for 2016, it will be able to add about another $2 billion on top of its revenues. Those sales will help profits at the solar stock exponentially, given its hefty gross margins.
At the end of the day, First Solar looks like one of the safest solar stock picks for the long haul.
Safer Solar Stocks to Buy: Trina Solar Limited (TSL)
Like SUNE, Chinese solar stock Trina Solar Limited (TSL) has been hit hard, falling about 28% over the past three months. However, TSL’s woes have more to do with being a Chinese company than a solar company. The firm continues to be a top industry performer when it comes to solar stocks.
For starters, TSL continues to make good on being the No. 1 producer of photovalic panels. Last year, Trina shipped 3.66 GW worth of panels. This year, TSL expects to ship between 4.9 and 5.1 GW worth of PV modules.
Much of that growth comes from international sales. As one of the most effective panel producers, TSL products still command a premium in the market place and ultimately pull more energy from the sun. That makes them ideal for large-scale products.
And speaking of those projects, Trina has decided to follow the rest of the major solar stocks and begin building, operating and selling large-scale solar farms. The key for TSL has been its foray in distributed grid projects in China — basically, building farms in areas that don’t have access to the main electrical grid.
Trina is planning on spinning off that unit as GrowthCo — a vehicle that will hold most of its cash to develop future solar farms. The spinoff should give TSL some cash as well as price appreciation on the shares it owns.
At the end of the day, rising PV sales and a guaranteed end-user for those sales bodes well for TSL.
Safer Solar Stocks to Buy: SunPower (SPWR)
As we’ve said before, SunEdison’s problem could be that it’s trying to do everything — residential rooftop, utility-scale projects, manufacturer panels. However, where SUNE is struggling, SunPower (SPWR) is thriving.
SPWR’s panels are some of the most efficient on the planet, and the company has managed to become one of solar’s most diverse businesses. SunPower does everything from small-roof top residential installations to massive utility scale solar farms.
Additionally, the firm’s services businesses provide maintenance services and outage restoration/inverter repair services. SPWR’s diverse business model will allow it to survive any volatility or downturn in the solar sector.
Basically, SPWR is what SUNE is hoping to be in the future.
And investors don’t have to wait for it to pay off. SPWR is firmly profitable. More importantly, it doesn’t rely on selling new debt to fund its operations. Long-term debt at SPWR currently sits at less than a $1 billion, compared to total assets of over $4 billion.
You can’t overlook SunPower’s partners, either. Major integrated oil giant Total (TOT) owns over 60% of SPWR, while it’s partnered with First Solar to create YieldCo 8Point3 Energy (CAFD).
With a forward P/E of 10, SPWR has a decent margin of safety, making it one of the best solar stocks to buy today.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities. However, he may initiate a position in FLSR or SPWR within the next 72 hours.
