Reheating Suntech in the solar-power sector

With solar-energy-related stocks on fire again in the last few weeks, Times Staff Writer Edward Silver, who keeps a close eye on green investing trends, offers some perspective on one of the industry’s giants:

Beijing’s main Olympic venue, known as Bird’s Nest Stadium for its twiggy design, will run partly on solar panels manufactured by Suntech Power Holdings. In fact, the company is China’s champion of solar energy and the largest independent producer in the world.

It may surprise many investors that a sizable number of solar stocks are trading on U.S. markets and, for the most part, are trading way up from their IPOs.

Solar stocks notched scorching gains in 2007 as utilities responded to mandates for electricity from clean, renewable sources. While the S&P 500 inched ahead 3.5% last year, First Solar Inc. zoomed 795% and JA Solar Holdings Co. bounded 365%. Suntech, a relative laggard, advanced 142%.

Investors have had to live with stumbles as well as ascents, and the stocks endured a barrage of profit-taking in the first quarter. Suntech backtracked with the group, then filed a less-than-knockout quarterly report on Feb. 20, in the midst of the slide. The meltdown continued until the stock had lost two-thirds of its peak value reached in late December.

Suntech's problem is silicon, which is the raw material of standard solar cells as well as the chips that power computers and cellphones. With three industries grasping for tight supplies, prices have blasted off. Suntech told investors that it was curbing its output until the second half of this year, when it thinks silicon costs will fall.

Or at least it has its fingers crossed. Still, analysts expect the company’s revenue to grow 49% this year to about $2 billion, with earnings up 58% to about $1.66 a share.

Suntech’s March 19 stock close of $29.40 looks like a gift now. The shares have resurged, reaching $49.02 on Friday. They eased $2.35 to $46.67 on Monday. The whole sector is in rally mode lately and the news has been good: Last week, utility PG&E expanded its solar plans, and optimism rose that Congress will extend tax subsidies for renewable energy.

With all the risks solar companies face, however, an upswing could be cut short at any time. Yet risk can work to Suntech’s advantage.

It competes with a pack of less entrenched and less financially stable firms (as well as a few diversified giants, like Sharp Corp. and BP). If silicon stays pricey, if public subsidies for alternative energy ebb, if there’s temporarily too much product and too little demand, the other guys could hit the wall first. Suntech could acquire one or two, watch others struggle, and emerge dominant.

It’s much too early to predict such an outcome, but up-and-coming industries often follow this course. Remember, when computer networking was charging up, there was a crowd of contenders. Eventually, Cisco Systems made the field its own.

Photo: Workers walk next to the Bird's Nest National Stadium under construction for the 2008 Beijing Olympic Games. Oded Balilty / Associated Press

Comments

[Alan Beattie]

If one connects the "energy" dots -- specifically Solar vs. Coal/Oil -- from an "investment" standpoint, a company like SunTech has incredible long-term upside.

And "investment" should not be considered solely in the context of monetary gain or loss. Investment in Solar truly helps enable the long overdue, yet inevitable, transition from fossil fuels to renewable energy sources.

It's amazing that there is now an opportunity to make money and be "politically correct" at the same time.

[Jill D'Agnenica]

Thanks for the in depth info on Suntech. I bought this stock about 6 months ago and watched it soar 140% in three months, only to drop back down in January and then start climbing again. I think it's definitely a keeper. Please write more blogs on eco-friendly and alternative energy investing...I am always on the lookout for investment opportunities that align with my ecological and social concerns, and your blog could be a great resource for folks like me.