As the world becomes greener, solar companies should grow. Sunedison Inc (NYSE:SUNE), ReneSola Ltd. (ADR) (NYSE:SOL), China Sunergy Co Ltd (NASDAQ:CSUN) and Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) seem particularly well-positioned to benefit from the growing demand for solar technology. Let´s take a closer look at each company in order to understand why they would be good investment opportunities.
The big-fish
Recently, management announced a major restructuring project that should reduce costs and ameliorate cash flows, mainly through workforce reductions. The plan also includes a shift in focus towards its solar energy segment, and away of its underperforming solar materials segment.
The solar installations segment is currently the biggest revenue contributor, although other product lines, like silicon wafers, continue to generate large amounts of cash. Going forward, its solar products are expected to drive growth, accompanying the transition towards green technologies.
A strong focus has been put on distributed generation (DG). “Unlike centralized power plants, the DG approach employs small-scale technologies to produce electricity at the close proximity of the end users. This makes DG a cheaper source of power generation as distribution costs get eliminated” (Zacks). This segment is expected to at least double its size by 2016, providing a stable source of income to the company as it further penetrates the market.
A Chinese market-leader
ReneSola Ltd. (ADR) (NYSE:SOL) is a Chinese solar wafer manufacturer with a market capitalization of $218 million. The company is expected to deliver EPS growth rates around 15% over the next five years while trading around $2.50 per share. This makes it quite undervalued in relation to its sales and book-values, which is why I’d recommend buying and holding on to this stock.
As a vertically integrated player, ReneSola Ltd. (ADR) (NYSE:SOL)’s costs are among the lowest in the world. The company holds an advantageous position in relation to its peers to benefit from the soon-to-recuperate demand for solar wafers and related products. In addition, being the second largest wafer supplier on the globe, analysts expect it to capture increasing shares of the market.
Even through tough economic times, the company and its management have proven resilient and willing to continuously evolve with ever-changing market dynamics. These characteristics have helped the firm avoid accumulating large amounts of long-term debt, unlike most of its peers, and should help the firm´s profitability going forward; meanwhile, cost reduction initiatives could widen ReneSola Ltd. (ADR) (NYSE:SOL)’s margins considerably.
Small-cap, big potential
China Sunergy Co Ltd (NASDAQ:CSUN) is a Chinese manufacturer of solar cell products that convert sunlight directly into electricity. With a market capitalization of a little over $30 million, it is the smallest of the publicly traded Chinese solar companies. Still, it deserves to be mentioned.
Although demand for solar products has been weak and many of the company’s European customers have gone bankrupt, China Sunergy Co Ltd (NASDAQ:CSUN) has managed to stay afloat by making an incursion into the solar panels segment. Currently trading at about $2 per share, at 0.1 times its sales, an attractive entry point is open; if the firm manages to stay alive for a couple of years, the upside should prove significant.
Like the legend of the phoenix
Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is a Chinese company that once was the world´s largest solar panel producer. Although now surpassed in scale by other firms, analysts expect Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) to outperform its peers in terms of EPS growth over the next five years, delivering annual rates of around 15%. Despite having had to struggle financially during 2013, management provided strong guidance for the 2013-2015 period during the last earnings call.
The firm’s focus on constantly penetrating new markets not only reduces its dependence on its core markets (Germany, Greece, the Czech Republic, the Benelux Region and Italy), but also provides continuous expansion opportunities. While expanding its global footprint, megawatts shipped are also rising on the back of both mature and new ones markets, like Israel, Australia and Thailand.
Going forward, Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP)’s access to low-cost labor in China will continue to provide advantages over its European and U.S. competitors. Lower costs added to the high conversion efficiency that its products offer will help it capture increasing shares of the market.
Trading at $1 per share, about 0.1 times its sales, this stock looks incredibly cheap. I’d recommend buying and holding on to these shares. Gradually building a strong balance sheet and reducing debt levels, the company holds plenty of upside potential.
Silver linings
Investing in the solar industry is investing in the future. By buying solar stocks, not only are you supporting eco-friendly technologies, but you’re also making a wise investment. Although they do not fulfill Warren Buffett’s criteria for investing, they still seem poised to deliver strong growth rates. Despite increasing obstacles in the European market, the above described companies deserve a closer look from long-term investors since their upside potential will become greater as the world becomes greener. Getting a hold of these stocks now while they are substantially undervalued might prove highly beneficial over the long-term.
The article Four Promising Stocks in the Solar Industry originally appeared on Fool.com.
Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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