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