Increasing demand for solar energy and solar products proved to be a boon for Trina Solar Ltd. (NYSE: TSL) and LDK Solar Co. Ltd. (NYSE: LDK) as both companies reported Wednesday that their earnings soared in the third quarter. Investors were not impressed, however, pushing shares lower.
Trina Solar, a maker of solar photovoltaic products, said its net income quadrupled to $32.1 million, or $1.17 per American Depository Share, from the same period of the previous year. These results included a foreign currency exchange loss of $4.9 million. Revenue more than tripled to $290.7 million.
Analysts surveyed by Thomson Reuters, on average, had expected a profit of $1.21 per share on revenue of $276.9 million.
However, the company lowered its full-year 2008 revenue estimate to range between $800 and $850 million because the company expects fewer product shipments for the year than previously forecast.
Shares of Trina Solar fell to a 52-week low of $6.81 Wednesday. The share price is 86.8% lower than a year ago.
Wind and solar, two renewable energy sources with a promising future, nevertheless face a bottleneck of sorts in the United States: the electric power grid. The existing grid can not handle the new demands, The New York Times reported Wednesday, forcing renewable wind and solar sites to shut down, even when conditions are right to generate and sell power.
An infrastructure-challenged U.S.
Economist Glen Langan says there's a theme that keeps popping up in the U.S. economy in the early 21st century: inadequate infrastructure. "We're a nation of inadequate infrastructures: the power grid, air travel/air traffic control, railways, highways... pick an infrastructure and you'll see a network that can't handle present demands, let alone an expanded national economy in 2020 or 2030," Langan said.
The power grid bottleneck is particularly frustrating and damaging because both wind and solar power generation systems are mushrooming, and could, with an adequate grid, account for more than 20% of the nation's power needs, Langan said, adding that some economic models put renewable energy's potential contribution even higher, at 25% or more.
"Imagine T. Boone Pickens building his massive, multi-billion dollar wind mill farm and having it sit idle because the grid cannot tolerate and transmit the increased power? Pretty sad," Langan said.
Rival home improvement chains Home Depot Inc. (NYSE: HD) and Lowe's Companies Inc. (NYSE: LOW) are scheduled to report quarterly results this week. Not surprisingly, given the ongoing housing slump, analysts surveyed by Thomson Financial on average expect both companies to post earnings lower than in the same period a year ago. For Home Depot, that's 61 cents per share, down 20.8%, and for Lowe's, 56 cents per share, down 16.4%. Meanwhile, cabinet maker American Woodmark Corp. (NASDAQ: AMWD), for whom Home Depot and Lowe's are major distributors, is also expected to report lower earnings: 11 cents per share, down 67.6%.
The presidential campaigns have prompted much discussion of energy policy and alternative energy sources. Some solar-energy-related concerns are scheduled to report this week, and expectations seem to be high. Trina Solar Ltd. (NYSE: TSL) is expected to report 81 cents per share earnings, up 67.9%; ReneSola Ltd. (NYSE: SOL) is expected to post earnings of 32 cents per share, up 62.5%; and Suntech Power Holdings Co. (NYSE: STP) is expected to have earnings of 32 cents per share, up 21.9%. Even China Sunergy Co. Ltd. (NASDAQ: CSUN) is expected to have swung to a profit of 3 cents per share, from a per-share loss of 14 cents a year ago.
SPWR opened this morning at $87.64. So far today the stock has hit a low of $87.57 and a high of $93.93. As of 12:55, SPWR is trading at $93.26, up $14.69 (18.7%). The chart for SPWR looks neutral and S&P gives SPWR a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think, but willstill leverage nice returns. For this particular trade, we will make an 11.1% return in just four months as long as SPWR is above $55 at December expiration. Sunpower would have to fall by more than 40% before we would start to lose money. Learn more about this type of trade here.
SPWR hasn't been below $55 since March and has shown support around $71 recently. With the way the political climate is shaping up, it looks like some form of solar power should be here for quite a while.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SPWR.
That the developing and developed world will need considerably more electricity in the decades ahead would not surprise most investors / readers.
That both economic zones can achieve this goal while adding a minimal amount of soot to the atmosphere, however, would.
And the technology that will undoubtedly serve as a key energy-generation component in emerging markets' 21st century power grid? You guessed it: nuclear power -- the power generation form that has lagged in the United States for more than 20 years, due to environmental regulations.
China, India push forward with plant plans
China and India are two emerging market nations that recognize that nuclear power is an essential part of meeting future electricity demand. Nuclear power will account for more than 5% of China's power output by 2020, Bloomberg News reported Monday. Meanwhile, India will start three nuclear reactors this year.
Economist Glen Langan said that while nuclear power is not, strictly speaking, a renewable energy, it has to be considered as part of the next-generation energy mix [along with wind and solar power] to meet the U.S.'s growing demand for electricity.
Solar energy may be the wave of energy's future, but companies such as Google (NASDAQ: GOOG) and Chevron (NYSE: CVX) may best start-ups in getting to the benefits. A number of large American companies with tremendous balance sheets are pouring money into solar energy based on the fact that it is becoming more competitive with oil.
According toBloomberg, "Costs for the technology will fall below coal as soon as 2020, the U.S. government estimates. JPMorgan Chase & Co. and Wells Fargo & Co. invested last year in the biggest solar plant built in a generation; Chevron and Google are funding research; and Goldman Sachs is seeking land to lease as demand out-paces wind turbines and geothermal."
Given the potential size of the bonanza, the investments should not be surprising, but they could squeeze smaller solar energy companies out of the market. Firms like JA Solar (NASDAQ: JASO) and SunTech (NYSE: STP) have their entire futures bet on the success of solar energy and the fact that there are not many companies in the business, at least until now.
It has began to occur to large companies that if fossil fuels will indeed start to run low in two or three decades that the trillions of dollars in market cap currently represented in large oil company stocks will have to go somewhere.
When oil was at $65 a barrel, almost no one believed it would double. There were a few nuts making the case, but they were ignored like Galileo was when he said the Earth moved around the sun.
Now, it is hard to find analysts who do not believe oil is going to move over $140 a barrel, and, perhaps above $200. Their reasoning is sound enough. Demand in emerging nations like China and India is still increasing. While crude use in the U.S. may be off slightly, it's not off enough to matter. Supplies may be drying up as fields in the Middle East, Mexico, and Russia age. A political catastrophe in Nigeria or Venezuela could cut production.
Against all that, a case for a sharp drop in oil prices is quietly forming and its logic is powerful but poorly understood.
The first argument that oil is too high is that it has been pushed up in part by speculators rushing to cover bets that crude will fall. It is a bit like a "short squeeze" in stocks. Once the "covering" is done, oil prices will face less pressure on the upside.
The rise in commodity prices is set to complicate the growth plans for yet another sector.
Projected costs for a new generation of nuclear power plants on the drawing boards are increasing at an enormous rate -- in some cases double to quadruple their earlier, rough estimates - - The Wall Street Journal reported Monday(subscription required).
Further, that new generation of nuclear power plants has emerged as an important component of the United States' future energy supply, due to $100-plus oil and the technology's superiority to high-pollution, coal-fired energy plants, The Journal reported Monday. However, surging costs for cement, steel, and copper, among other factors, have caused nuclear plant construction costs to soar to $5-$12 billion -- a trend that could lead to delayed or canceled projects.
Rising energy costs
Economist Peter Dawson told BloggingStocks Monday what investors should take away from the rising nuclear plant cost phenomenon is not so much a comparison of the positives/negatives of each energy technology, but the rising cost of energy, across all platforms, in general.
There are many that fear the bear hasn't died. Maybe he's hibernating. But if the bear isn't gone, he's at least lost some teeth. In the last hour of trading today, the DJIA was up more than 900 points from its intraday lows seen just last Monday. Despite weaker home prices trends not seen for 20 years and despite an absolutely dismal ugly Consumer Confidence report, the market managed to do well today despite mixed index averages at the closing bell. There was not a single earnings report that can be used for "the focus" that turned the whole market. It looks like there was actually real buying interest coupled by short covering. Here are the unofficial closing bell index averages for today:
DJIA 12,532.60 (-16.04; -0.13%)
S&P500 1,352.99 (+3.11; +0.23%)
NASDAQ 2,341.05 (+14.30; +0.61%)
10YR-TBond 3.492% (-0.03)
Monsanto (NYSE: MON) rose almost 10% to $114.54 after the agriculture giant raised guidance for both Q2 and for fiscal 2008 based on strong seed sales and all other markets firing on all cylinders.
According to the FT, GE (NYSE: GE) "will announce plans to double its investments in renewable energies to $6bn by 2010."
GE is, of course, smart to put its capital into a necessary hedge against crude oil and gas. Most evidence points to the fact that high prices in this sector will make alternative energies more practical and profitable.
But GE's plan has some drawbacks. The first is that the market for new energy sources will be very crowded. Many of the companies are small. That does not play to GE's strength of being in very large, capital-intensive businesses like jet engines and infrastructure. The capital that makes GE such a winner in its current businesses may not be as important in an emerging industry with hundreds of start-ups.
GE also is entering a business that depends to a great degree on government regulation and tax breaks. In many countries, alternative energy growth is based on incentives granted through taxation or contracts for local projects. That can be fickle. GE may not do fickle well.
Douglas A. McIntyre is an editor at 247wallst.com.
For long-term plays, the preferred investment is a company with a demonstrated business model (10 years), in an established market, with an average total annual return on equity of 20% during that span.
To be sure, First Solar (NYSE: FSLR) does not fit that profile, but it's worth a review, given both macro fundamentals and the company's outlook. Note: Underscoring, this is a high-risk stock.
First Solar uses an advanced, thin-film technology that uses cadmium telluride semiconductor material to convert sunlight into electricity. With a global polycrystalline silicon shortage holding back some producers of solar cells, First Solar's glass as substrate, coated with cadmium telluride can march ahead, while others await their raw materials.
Solar energy products company Trina Solar Limited (NYSE: TSL) released very bright 3Q 2007 results on November 21. The company has been named #1 on Deloitte Technology China Fast 50. Trina Solar posted a total revenue increase of 9.7% to $82.6 million. Gross profit increased 16.7% and total megawatt shipments increased 4%. YTD, the numbers are impressive. Total revenues are up 164%, gross profit is up 92%, operating income is up 76% and net income is up 145%.
These numbers, however, must be tempered with the realization that trina Solar is still very much in its early stages of growth and most of its free cash flowe must be plowed back into the company to increase manufacturing capacity. Operating income dipped 14% in 3Q 2007, cost of revenues increased 8%, interest expense increased, as did operating expenses, administrative expenses, selling expenses and the R & D budget.
Currently, Trina Solar has a manufacturing capacity of 150 MW (megawatts) of solar modules, but plans to double the size of the company to 350 MW by the end of 2008. Trina Solar has already locked in contracts for much of its polysilicon supplies through 2013, and has already sold 100% of its first module production capacity in 2008 and 50% of its second module production capacity.
Trina Solar is in the initial stages of planning for its own $1 billion polysilicon production facility to supply its raw material needs in a cost effective manner. In addition to its existing client base in Germany, Italy and Spain, with its increased production capacity, Trina Solar is looking to expand its market base into the Netherlands, Belgium and France in 2008.
The odds of a 2007 Energy Bill passing the Democratic Party-led U.S. Congress, with President Bush's blessing, "Are still likely," according to a Washington-based, public policy lobbyist with knowledge of the matter.
"The bill will need a few revisions, but I'd say it's a 70/30 go, in favor of the bill being signed by the president," the lobbyist told Bloggingstocks Tuesday, on condition he not be identified by name.
The lobbyist, who represents primarily Democratic Party-based constituencies, said the the bill's renewable energy component and potential tax increases remain the hangups in the bill.
Modification likely
"More than likely President Bush will get the renewable energy component modified, but the Democrats may gain extra footing with better solar/wind energy credits," he said.
The bill current would require utilities to generate more power from renewable energy. Lawmakers from the Southeast U.S. have said they're concerned that utilities in their states will not be able to meet the requirement, due to a lack of wind power, The Wall Street Journal reported.
Want to hear about one bright spot on the energy horizon? It's natural gas, for now, at least.
While oil's price has soared in 2007, natural gas' price has actually declined -- you heard that right, declined -- in 2007, from $8.90 / million btu on Dec. 31 2006 to $7.93 / million btu as of Nov. 12, 2007.
In fact, on a per energy unit basis - - or how much energy one can buy for a $1 - - natural gas is about half the price of oil. That's good news for utilities that operate natural gas-fired electric generation plants and homeowners who heat by gas. The situation represents an energy-sector turnabout, of sorts: in 2005, scarce gas supplies and a cold winter caused natural gas prices to spike well above the energy-equivalent price for oil. Homeowners who heated by gas - - most of whom could not switch quickly to another energy form - - were hit especially hard that year.
What's driving the oil/natural gas energy split? Independent Energy Trader Jim Dietz told BloggingsStocks that natural gas' lack of portability is a big factor. Unlike oil, natural gas isn't transported from hemisphere-to-hemisphere the way oil is: i..e. oil can go wherever the global market says the price is highest, Dietz said. Natural gas is consumed regionally. Hence, when regional demand is high, "that leads to quicker price rises for natural gas, but also when demand drops, quicker price reductions," he said. The latter is the case now, he said.
Dietz cautions that a hot summer in the U.S. could quickly reverse the current trend, so homeowners "should not consider natural gas the permanent energy winner, when deciding to heat by natural gas or oil, if they have the choice." "Solar, wind, the home's efficiency rating, and the availability of an energy form in your area of the country" should also be considered, Dietz added.
I'm glad that I'm not the only one who is just a little miffed at the way that Fed chairman Ben Bernanke and his elite staff have chosen to handle our economy. My feelings fall pretty much in line with those of investment genius Jim Rogers. I listened to a short interview with him today on public radio. He pretty much confirmed my belief that the dollar could be going the way of the dinosaurs. For crying out loud, the Fed dumped about four tons of greenbacks on the financial system Thursday. Bank leaders such as Citigroup Inc. (NYSE: C) aren't generating enough profit to meet the demands of operation and to please the shareholders at the same time! What's the Fed going to do about the 80% profit decline at Wachovia Corp. (NYSE: WB)? A lower basis point for bank borrowing won't even scratch the surface of the cash shortfall. In fact, the lower the basis point the more it injures the bank's ability to make a profit on the loans that we need right now to salvage some home ownership scenarios from the mortgage debacle. How much more evidence do you need to realize we are living in a time of disastrous fiscal policy? We're lining up to make 1929 look like a cake walk.
Trina Solar, a maker of solar photovoltaic products, said its net income quadrupled to $32.1 million, or $1.17 per American Depository Share, from the same period of the previous year. These results included a foreign currency exchange loss of $4.9 million. Revenue more than tripled to $290.7 million.
Rival home improvement chains 
Solar energy may be the wave of energy's future, but companies such as 
When oil was at $65 a barrel, almost no one believed it would double. There were a few nuts making the case, but they were ignored like Galileo was when he said the Earth moved around the sun.
According to the 
For long-term plays, the preferred investment is a company with a demonstrated business model (10 years), in an established market, with an average total annual return on equity of 20% during that span.
I'm glad that I'm not the only one who is just a little miffed at the way that Fed chairman Ben Bernanke and his elite staff have chosen to handle our economy. My feelings fall pretty much in line with those of 
Waiting for the other shoe to drop: The looming credit crisis
Closing Bell: Dow down 7.7%; GE, YHOO, MS fall, PGI, MNT soar
Bet on T&A with J&J (JNJ)
