Socially responsible investing can be profitable, very profitable, but there are some object lessons out there that should cause investors to make sure that not only are their companies socially responsible but that they have a compelling reason to be in the stock beside just good vibes. Alternative energy seems to be the worst-hit sector of socially responsible stocks over the last few years.
Profits Gone With The Wind
One of the most painful lessons for socially responsible investors must be Vestas Wind Systems (NASDAQOTH: VWSYF), the largest wind turbine manufacturer in the world. Believers in clean energy would have seen over 90% losses from its 2009 high just below $700 to below $25 last year. Vestas has gained 50% from that low as it reported on Feb. 6, the first profit in several quarters.
Despite job reductions and other cost cutting measures Vestas lowered guidance and noted the clean energy political atmosphere is still turbulent. Although Germany, the international leader in clean energy policy is growing its wind farms, it may have been too little, too late for Vestas, which is still challenged by overcapacity in the industry.
Then there is First Solar, Inc. (NASDAQ: FSLR), a poster child for responsible investing gone wrong. It wasn’t just the bankruptcy of Solyndra that knelt a death knell to solar stocks, but a more rational bear premise that solar has to be cheaper than coal and natural gas to catalyze mass adoption. For more about grid parity click here. Until very recently First Solar had suffered under this thesis, but then they bought the 50 megawatt AC Macho Springs Solar project in New Mexico that makes solar cheaper than coal. Due for a 2014 completion the photovoltaic project can power 18,000 homes. Even better the cost will be 5.8 cents per kwh compared to the usual 16.3 cents per kwh for solar thin films generally.
Tempe, AZ based First Solar may finally be the phoenix rising from the solar ashes as it’s now the number 2 photovoltaic module supplier after rival Chinese company Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE). First Solar really was a high flier almost touching $300 a share in 2008-9 and then plunging to an all time low in June 2012 of $11.43.
Germany again plays a role in the solar industry as the most solar energy friendly nation, but when it announced in early 2012 it was cutting subsidies fast and furious almost every solar stock plummeted. At that time First Solar was relying on Germany for almost half of its installations, but subsequently has weaned itself off somewhat from subsidy driven markets like Germany. Things are looking a little brighter for First Solar with its Macho Springs plant as well as California clean energy mandates.
The company still has negative earnings of -$7.66 and a sizable short interest of 37.80%, but compared to its Chinese brethren it’s a star.
Will The Sun Set on Chinese Solar?
An even worse performer than First Solar has to be rival Yingli Green Energy, the number one photovoltaic supplier. From a high of $35.00 in 2008 it also hit an all time low of $1.25 in November 2012. Yingli Green may still suffer from oversupply and US tariffs on their solar panels. Its balance sheet isn’t very sunny, either, with total debt of $2.51 billion to total cash of $593.37 million. The return on equity at -70.06% is disturbing as well.
Yingli Green reports again on February 25.
Although Yingli Green may be a takeover target in some sort of Chinese solar consolidation scenario, investors shouldn’t buy in on these hopes. Another name in the space, LDK Solar Co., Ltd (NYSE: LDK), has also been bandied about as a takeover target. But as Fellow Fool Travis Hoium wrote in June wondering how this company keeps its doors open LDK Solar was only a few years ago a $70 stock and traded to 71 cents (!) in October, almost a 99% loss from its highs.
LDK numbers are even worse than Yingli Green’s with a -121.74 % return on equity and total debt of $3.13 billion to total cash of $111.86 million. Save propups from the Chinese government and infusions of cash from the China Development Bank, Chinese solar companies like LDK Solar would likely have folded years ago considering its operating margin is -60.78%.
Follow Your Heart But Check The Ticker
Sure, it’s a wonderful feeling when a company is doing good and you have a conviction hold in it. But it’s even better if it’s making you money. For companies like Chinese solar stocks the political risks are substantial including foreign tariffs, overseas energy subsidies, and Central government support (or lack of it). There are other socially responsible companies out there, even in the renewable energy space, that are much less risky. Even First Solar’s future is looking so bright it’s gotta wear shades as it moves away from subsidies that can be yanked away on a moment’s notice. It also has the California energy mandate in its corner.
But don’t be blindsided by the sun stocks. Follow your heart but check the ticker and watch the news for political momentum on solar energy. Then and only then can you bask in the sun.
The article Follow Your Heart But Check The Ticker originally appeared on Fool.com and is written by AnnaLisa Kraft.