NEVs blog

Equities and commodities all fell during the week ending November 14th.  US REITs were particularly hard hit (RWR -18.5%).  For a complete summary visit our returns page. 

Sustainable energy also fell sharply with only 10 companies in our indices advancing.

SOLAR has experienced continuted high volatile with a variety of downgrades occuring during the week.    On Wednesday the index hit its 52 week low and closed the week down 74.5% YTD.  

This huge adjustment has left  the market cap of our SOLAR index shrinking to USD 33.4 billion from a peak of over USD 110 billion.   Some of the US traded companies, Yingli (YGE), JA Solar (JASO), SolarFun (SOLF), Trina (TSL), and Canadian Solar (CSIQ), are trading below book value with trailing PE ratios ranging from 4.6 – 6.5. 

These price levels reflect a very negative outlook for profitabilty and growth at the companies.    The negative outlook is stemming from concerns about sales levels,  margins, and negative currency exchange movements.   

Some data is coming out allowing us to assess the current valuation levels.  In its conference call this week JA Solar (JASO) reduced its sales forecast in 2009 to between USD 1.5 – 1.7 billion and EPS to USD 0.90.   These numbers reflect a huge 75+% sales growth over expected 2008 sales of USD 849.5 – 878.9 million and a forward PE of 3.1 on Friday’s close.   Sunpower also lowered its guidance for 2008 to EPS of USD 1.68, a forward PE of 15.2 on Friday’s close.   

Mark has a long position in JASO.

How epic has this correction been?  The answer is worse than the 1987 programmatic crash (S&P -32%) but not as bad, to date, as the 1973 oil crisis (S&P -48%) or the dot-com bubble (S&P -49%).   For an excellent graphic of these events and the current housing bubble (S&P -45%) visit here. 

But for sustainable energy the correction has been even more severe.   Our graph from the October 7, 2007 S&P 500 peak to now shows the changes to the four sectors we have been tracking since the S&P peak.   At their minimums the four indices were down between 65 – 80%.

The month of October was particularly bad for sustainable energy where 100% of the companies in our indices had negative returns.

So what am I optimistic about?  Simple, I’m optimistic the sustainable energy industry will continue to exist and at some point prices get so low that the stocks represent attactive buys.  I think this is particularly true for solar as the statistics below show for 10 of the US traded companies I track in the Camino SOLAR idex (detail here).

SOLAR growth rates would have to slow dramatically to make the companies overpriced at current levels.   Even if their earnings growth slows by a factor of 4 these ten companies would still be fairly priced.  And I don’t see many reasons to expect such a slowing.  Modules prices are expected to fall which should boast sales and improve customer ROI.  Retail electric prices are virtually unaffected by oil prices in many economies so the basic economic benefit of solar isn’t going away.   Subsidies are locked in in the US.  Financing should be available with the massive governmental pushes to create liquidity while lowering rates.   And the technology continues to improve further driving down costs and improving solar’s competitive position. 

There may be other bargins in the sustainable energy sector but the solar sector is a good place to start with plenty of potential investment targets.

Mark has positions in JASO, SOL, CSIQ, STP, SOLF, and LDK