SunPower Corporation (SPWR), First Solar, Inc. (FSLR), Sunedison Inc (SUNE): Do Solar Stocks Deserve a Place in Your Portfolio?

Despite the industry supply glut, First Solar, Inc. (NASDAQ:FSLR) outperformed its smaller competitor in FY2012, due to its focus on large projects in the North American market. For the period, the company reported increases in revenues and adjusted operating income of 21.8% and 12.1%, respectively, compared to the prior year. While First Solar, Inc. (NASDAQ:FSLR)’s gross margin slipped sharply, due to industry pricing pressures, the company delivered costs savings in its overhead that allowed it to maintain solid cash flow. Looking ahead, First Solar, Inc. (NASDAQ:FSLR) is hoping to duplicate its North American success in international markets, as it pursues growth in countries with strong renewable mandates.

Alternatively, investors could look at companies that are managing solar systems for small and mid-sized businesses, providing renewable energy without the upfront capital costs. One intriguing possibility is Sunedison Inc (NYSE:SUNE), which is building strong market share in the development and management of small scale solar projects that are leased to customers for lengthy periods, usually over twenty years. The company is also a leading global provider of silicon wafers, primarily to the semiconductor industry, which provides a competitive cost advantage in its solar manufacturing operations.

In its latest fiscal year, Sunedison Inc (NYSE:SUNE) reported generally improved financial results, as the positive effects from its 2011 restructuring plan began to flow through to the bottom line. While the company’s overall revenues showed a 6.8% decline, due to continued weakness in the semiconductor industry, Sunedison Inc (NYSE:SUNE) delivered a 73% increase in solar products that helped to deliver an operating profit for its solar segment. The company is also building a long term recurring revenue and profit stream, due to its strategic decision to lease rather than sell most of its completed solar products. As long as the company’s financing costs remain manageable, it should be able to ramp up its mini-utility business for the foreseeable future.

The Solar Energy Industries Association is forecasting strong growth in solar facility construction, with 4.4 billion gW coming on line in 2013. While the industry will go through its share of growing pains, investors need to make the sector part of their portfolio. For my money, Sunedison Inc (NYSE:SUNE)’s recurring business model make it the one to watch.

The article Do Solar Stocks Deserve a Place in Your Portfolio? originally appeared on Fool.com.

Robert Hanley owns shares of SunEdison. The Motley Fool has no position in any of the stocks mentioned. Robert 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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