As sellers zap clean-energy stocks, some see opportunity

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From Times staff writer Edward Silver:

Renewable energy companies have had a terrific year, by and large, but you wouldn’t know it from their stricken stocks. In Monday’s market breakdown, these volatile issues outdid the S&P 500’s spectacular plunge, and there’s nary a bank among them.

While the big-stock index was disgorging 8.8%, the Claymore/MAC Global Solar index melted down 17.5%. Zoltek Cos., which makes windmill components, slid 13.4% and geothermal specialist Ormat Technologies dropped 12.4%.

There’s worry in the market that 2009 will pull the plug on renewables’ growth streak. True, a recession brought on by the credit crisis could slam clean tech from more than one side. Not only does liquidity flee stocks but bank financing dries up; not only does demand for power stagnate, but tumbling oil prices quiet any public clamor for alternatives.

As a result, many of the stocks are at levels that beg to be noticed. Analysts expect ReneSola, a Chinese producer of silicon for solar cells, to rake in profit of about $2.40 a share in 2009. The stock closed Wednesday at $11.23. The Market Vectors Global Alternative Energy ETF, stuffed with solar shares and smaller stakes in wind and water, sold at $62 last Christmas Eve. Since then it’s down 37%, to $39.20.

Two money managers I know are happy to be buyers at these prices -- and one, who helms a hedge fund, had earlier bet the other way, via ‘short sales.’ Though conditions are a bit ominous in the near term, these investors believe they are watching an immense industry take shape. Profit forecasts may be pruned for 2009, yet many players in renewables will sell everything they make.

For much of this year, there wasn’t enough silicon to go around in solar, and some firms that were left wanting became profitable short sales for the hedge investor.Now he says he has rearranged his bets to ride a recovery in the sector, expecting relatively low price-to-earnings multiples to rise. . . .

The manager, who asked for anonymity, says he has loaded up on SunPower’s class B shares, which trade at a discount to A shares but have greater voting rights.

Edward Guinness, who co-manages the Guinness Atkinson Alternative Energy fund in London, likewise sees the ‘across-the-board capitulation’ in the stocks as a signal to add to the portfolio. Rising electric costs around the world strengthen the story for renewables, he says. Notably, those costs are up about 30% in Britain this year.

At the same time, solar companies are slashing their own costs. Like chip firms did in their youth, they are wringing efficiencies out of their manufacturing and building economies of scale.

Those parallel trends narrow the price gap for the customer, bringing solar nearer the goal of ‘grid parity’ with fossil fuels. That would make it a cost-effective, as well as low-carbon, alternative. Guinness calls Suntech Power the best idea in the field for its sizable market share and technology that boosts energy output.

Both Guinness and the hedge manager have been awed by the recent selling in wind giant Vestas. With the U.S. on the verge of building new turbine farms, congressional wavering on tax breaks has taken the wind out of Vestas’ sails. That could be fixed soon. The incentives were attached to the bank bailout bill the Senate passed late Wednesday, although the House may not be as accommodating.

The company, though, controls a third of the global market for turbines, Guinness notes, and its order books are filled well into 2010. The hedgie says simply: ‘We are buying. When conditions are worst, that’s when you want to buy.’

What about the looming recession? The forces lined up in favor of renewables are bigger than that, he says.

‘We are still talking about an electricity market that’s worth trillions a year. There’s clear demand to stem the effects of global warming and move beyond fossil fuels. This market gets bigger every day.’