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2007: Solar Stocks Come out Smok’in

By Peter Lynch
Exclusively for InvestorIdeas.com
February 12, 2007

With all the talk worldwide about Global Warning and the current (finally) scientific consensus that “more than likely” mankind is a significant contributor to Global Warming, some people may have missed another area that was rapidly heating up – Solar Stocks !

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Solar stocks opened 2007 with very strong upward movements after peaking in May of 2006 and then bottoming in late summer of 2006. German stocks opened 2007 with the average stock gaining 41.39%; over 12 FOLD greater when compared to the German STOXX gain of 3.4%. Keep in mind that this is only over a period of 5 to 6 weeks.

2007: Solar Stocks Come out Smok’in

Symbol

Company Name

Performance %

AS1-FF

Aleo Solar AG

42.4

CGY-FF

Conergy AG.

21.3

ES6-FF

Ersol Solar Energy AG

22.1

QCE-FF

Q-Cells AG

38.8

S2M-FF

Solar Millennium AG

55.2

SAG-FF

S.A.G. Solarstrom AG

88.1

SFX-FF

Solar-Fabrik AG

26.8

SOO1-FF

Solon AG Fuer Solartechnik

46.7

SWV-FF

Solarworld AG

29.8

SWW-FF

Sunways AG

42.7

German Dow Index

SX5P

German STOXX

3.4

U.S. listed solar stocks also significantly outperformed the standard conventional indexes most referenced in the U.S.

Symbol

Company Name

Performance %


CSIQ

Canadian Solar Inc.

4

DESC

Distributed Energy Systems Corp.

-17.8

DSTI

DayStar Technologies Inc.

-23.8

EMKR

EMCORE Corporation

-27.5

ENER

Energy Conversion Devices Inc

-12.7

ESLR

Evergreen Solar, Inc.

13.3

FSLR

First Solar, Inc.

10.1

SOLF

SolarFun, Ltd

17.2

SPIR

Spire Corporation

1.4

SPWR

Sunpower Corporation

17.4

STP

Suntech Power Holdings ADR

9.1

TSL

Trina Solar

90.4

WFR

MEMC Electronic Materials, Inc.

35.8


Renewable ETF's

ECO

The WilderHill Clean Energy Index

3.6

PBW

PowerShares Wilderhill Clean Energy

3.9

Indexes

DJIA

Dow Jones Industrial Average

0.9

SPX

Standard & Poor’s

1.4

NASD

NASDAQ

1.8

U.S. listed solar stocks averaged a 10% gain over the 5 to 6 week period verses 3.75% for the more diversified renewable ETF’s and 1.36% for the three indexes. Very impressive performance, especially considering that four of the U.S. solar stocks had various difficulties they had to face in late 2006 and early 2007.

DESC - re-structuring and some changes in management

DSTI - major management changes, re-structuring and financial problems

EMKR - some slowdowns in major business and delays in solar division (only 20% of their business)

ENER – Lack of profits and subsequent Wall Street analyst down-grades

If it were not for these four companies, U.S solar stocks would have averaged 22%, certainly outstanding by any measure.

What Happened?

1. I think all the talk about Global Warming and other energy related problems got people to thinking and then acting by looking to diversify into the renewable or “green” areas of investment.

2. Solar Stocks had peaked back in May of 2006 and were in the midst of a correction until the end of the summer. In the fall they started to consolidate and then toward the end of 2006 they started to move up, especially in Germany.

3. The industry has been growing at an incredible 40% rate per year and it is finally attracting serious investor attention.

What does it mean?

I think it means that we are seeing the very beginnings of credibility in the solar and renewable energy industry. The industry is still in its infancy and has a LONG WAY to go, but it is beginning to attract credible participants and more importantly - serious financing.

The industry will surely be one of the outstanding market segments for decades to come. But investors must also realize that along with this rapid growth and dynamic innovation, there will be significant price volatility and rapidly developing innovative technologies that could cause significant damage to current industry leaders. In other words – high risk, high return.

Current Situation

I am always asked (concerning stocks, especially solar stocks) what would I do now, what would I buy and what would I not buy?

So here are my thoughts (in general) on what I would do now. Remember, these are not recommendations, they are just my personal opinions on what I would do at the current time and you must remember that they are based upon my own personal risk profile, which may be higher or lower than yours.

1. I think the majority of solar stocks are over-extended and are due for a correction. So I would do no new buying at this time. Solar stocks have run “too far, too fast” and need to take a breather.

2. I think the overall market is also overextended and has gone far too long without a significant correction. It is currently pushing all sorts of historical records without a significant (10%) correction. There is far too much optimism around, given the real world problems facing the U.S. This is certainly NOT a low risk investment environment.

3. I would wait for a correction in both the solar sector and the general market and in the meantime I would generate a list of companies that I may want to buy, when the time is right – “A Watch List”.

4. I would be careful to select the companies that are: the most financially strong (have plenty of cash), have strong management and have the best “relative strength” to their peer group (solar stocks) and to the market in general.

J. Peter Lynch has worked, for 30 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.

Disclaimer
Peter Lynch is an independent columnist for this web site and may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not directly affiliated or compensated by the companies mentioned in this article. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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