Hot Stocks
Five Stocks That Will Thrive After the Solar Energy Industry Shakeout
With as much as two-thirds of the struggling solar energy industry expected to either fail or be acquired over the next three years, the table will be set for the survivors to capitalize on a market with enormous growth potential.
The process has already begun, with three solar companies – Evergreen Solar Inc. (Nasdaq: ESLR), Spectra Watt Inc. and the notorious Solyndra LLC – having declared bankruptcy this year.
Solar companies have struggled to keep their heads above water as the price for solar panels has fallen as much as 40%. The average operating margin in the solar energy industry plummeted to 0.1% in the third quarter from 13.7% a year earlier.
The stocks have been pummeled, as a result. The Claymore/MAC Global Solar Index (NYSEARCA: TAN) exchange-traded fund (ETF) is down 58% this year and the Market Vectors Solar Energy (NYSEARCA: KWT) ETF is down more than 60%. Several individual solar stocks have lost more than 70%.
"It's just a really difficult time," Morningstar Inc. (NYSE: MORN) alternative energy analyst Stephen Simko told The Globe and Mail. "The profitability of the industry has collapsed… Unless more bankruptcies happen and more production is shut down, this is a problem that is going to persist."
Few Will Be Left Standing
The tremendous pressure on margins has most people both outside and inside the solar energy industry predicting massive consolidation.
"This is the decade of mergers and acquisitions," Jifan Gao, chief executive officer of Changzhou, China-based Trina Solar Limited (NYSE ADR: TSL), told Bloomberg News. "From now until 2015 is the first phase, when about two-thirds of the players will be shaken out."
The Macquarie Group Limited (PINK ADR: MQBKY) agrees. In a recent report the Australia-based research firm said consolidation would claim 66% of the world's solar companies. Macquarie predicts that only four out of 35 solar companies in China will survive the next three years.
But in the aftermath of the carnage, the surviving solar companies will emerge stronger and in prime position to make the most of an exploding market.
In fact, the solar market has grown in 2011, but because capacity has exceeded demand, prices have continued to fall.
A Growing Market
According to the Solar Energy Industries Association, solar is the fastest-growing energy sector in the United States. The group says solar panel installations in June were up 69% over the previous year.
That pace of growth is expected to continue for an industry that supplies just 1% of the electricity in the United States. The U.S. Energy Information Agency projects installed solar energy capacity to increase 20 to 40 times 2010 levels over the next decade.
The primary reason for such optimism is the same reason the industry is suffering – falling prices that make solar competitive with traditional sources of energy like coal, oil, and gas.
First Solar Inc. (Nasdaq: FSLR), for example, says the solar panels it makes now can produce electricity for 14 cents to 16 cents per kilowatt – still significantly above the average cost of electricity in the United States of 11.6 cents per kilowatt.
But the solar energy industry has steadily improved panel efficiency, and expects the advances to continue. First Solar says that by 2014 its panels will produce electricity for 10 cents to 12 cents per kilowatt.
"At that point, there's a tremendous amount of interest," First Solar spokesman Alan Bernheimer told USA Today.
But which companies will survive to reap the benefits of the golden days of solar?
Amazon Kindle Tablet Will Plump Revenue and Disrupt Market
A rumored Amazon Inc. (Nasdaq: AMZN) Kindle Tablet will deliver billions of dollars in fresh revenue next year.
In addition to its hardware sales, the tablet will provide a quick and convenient way for Amazon to capture a bigger chunk of the digital media market and allow customers to buy any of its millions of offerings from almost anywhere.
The 7-inch tablet is expected to appear within the next month or so and cost just $250. Such a low price from a trusted brand like Amazon will disrupt the entire tablet market.
"A proprietary tablet would allow Amazon to widen itscompetitive moat, improve consumer experience and benefit from the rapid growth in mobile usage," Jefferies & Co.'s (NYSE: JEF) Youssef Squali wrote in a report.
Although analysts expect Amazon to make little profit from the tablet itself, its potential for selling more of its digital wares such as e-books, movies, music and Google Inc. (Nasdaq: GOOG) Android apps is boundless.
The Kindle e-reader shows how hardware can drive media sales. It has helped Amazon capture 90% of the e-book market.
The Kindle e-reader will account for 9.9% of Amazon's total revenue next year, just five years after its debut, according to Citigroup Inc. (NYSE: C) analyst Mark Mahaney. Mahaney estimates about half of that revenue, $6.1 billion, will be from sales of the device, with the other half from e-books.
An Amazon Kindle Tablet will open up multiple digital avenues of growth.
Take online video sales, for example. Amazon has just 4.2% of that market, well behind the 65.48% share of Apple Inc.'s (Nasdaq: AAPL) iTunes Store.
In terms of additional revenue, the Kindle tablet could quickly rival that of the e-reader.
Hot Stocks: Star-Crossed Sony Corp. (NYSE ADR: SNE) Will Continue to be Bad Luck for Investors
What else can go wrong for Sony Corp. (NYSE ADR: SNE)?
After years of struggling to invigorate its turnaround strategy, Sony got slammed with Japan's March 11 earthquake and a devastating hacker attack on its PlayStation network in April.
The quake forced Sony to take tax credit provisions in its March quarter that resulted in a $3.2 billion loss for its 2011 fiscal year – the once-dominant consumer electronics company's third consecutive annual loss.
Investors have grown increasing disenchanted with Sony, sending the stock down about 30% this year. It has made several new 52-week lows in the past few months, most recently touching $24.21 on June 24. In 2008, the stock was trading at more than $50 a share.
"Sony said this was going to be its year but it looks like it then got a smack in the eye," saidShiro Mikoshiba, an analyst at Nomura Holdings Inc. (NYSE ADR: NMR) in Tokyo.
Sony said last month that the combination of the March 11 disasters and the hacker attack would erase $2 billion from its operating profit in the current fiscal year, though it still forecast a net profit of just under $1 billion.
Hot Stocks: Toyota Motor Corp. (NYSE: TM) Won't Be Back on Track Any Time Soon
Don't count on Toyota Motor Corp. (NYSE ADR: TM) to regain its place as the leader in global auto sales any time soon.
Because even though the company is ahead of schedule as it looks to bounce back from the horrible wave of disasters that engulfed Japan in the spring, it now faces another roadblock in the strengthening yen.
Indeed, the good news for Toyota is that it now expects full production in Japan to resume by September, two months earlier than originally predicted. But the bad news for the company is that the dollar has slid from over 90 yen a year ago to about 80 yen now, making all Japanese exports increasingly expensive. The break-even point for Toyota is around 85 yen to the dollar.
For every yen of appreciation, Toyota would need to raise the price of its autos in the United States by 1.25% to maintain the same profit, an unappealing alternative in a challenging economy.
Hot Stocks: Don't Let Groupon Inc. Play You For a Fool
Groupon Inc. will try to get you to jump on its initial public offering (IPO) by touting its extreme growth and its profit potential – but don't believe it.
Even though Chicago-based Groupon, an e-commerce player that offers daily discounts to subscribers via e-mail, has exploded since it entered the online coupon world in 2008, that growth is threatened by the company's competition and mounting losses.
"The market opportunity isn't as big as the industry players would like you to believe," Sucharita Mulpuru, an analyst with Forrester Research Inc. (Nasdaq: FORR) wrote in an open letter to investors considering Groupon. "This IPO game isn't about finding value, it's about finding a greater fool who actually believes the valuation is true. Trust me, you will be the fool."
Here's why buying into what Groupon's saying about its profitability is a foolish move.
Hot Stocks: Why LinkedIn Is More than Just a "Bubble"
[Editor's Note: This analysis of LinkedIn Corp. follows the company's high profile public offering. To read a separate story about initial public offerings (IPOs) that appeared yesterday (Thursday) in Money Morning, please click here.]
LinkedIn Corp. (NYSE: LNKD) has had quite a ride since its initial public offering last week.
The stock surged 109% in its first day of trading to a peak of $122.70 a share, but has since tumbled back to close yesterday (Thursday) at $78.63.
Optimism about the potential for new-wave social media companies and a genuine thirst among investors desperate for a serious growth play drove LinkedIn's meteoric rise. But profit-taking and fears that the stock had entered "bubble" territory led to a quick drop.
Hot Stocks: Netflix Inc. (Nasdaq: NFLX) Is More Than Just Special Effects
Netflix Inc. (Nasdaq: NFLX) shares have surged 764% in just two-and-a-half years.
And yet there are still investors, analysts and businessmen who continue to doubt the company – choosing instead to believe that its meteoric rise is more flash than bang.
If you're part of that mix, you may want to reconsider your stance: Not only has Netflix revolutionized the way people rent movies – driving Blockbuster Inc. (PINK: BLOAQ) into bankruptcy in the process – it's now even revolutionizing the way people watch TV.
Having added 3.3 million subscribers in this year's first quarter, Netflix has some 23.6 million subscribers in North America alone. That's more than Comcast Corp. (Nasdaq: CMCSA, CMCSK), whose cable-subscriber ranks shrank by 39,000 to 22.76 million during the same three-month stretch.
Hot Stocks: General Electric Co. (NYSE: GE) Creates New Business Focus to Rise from Recession
General Electric Co. (NYSE: GE) started 2011 with a better-than-expected earnings report, showing its redirected business is gaining momentum after being hit hard by the financial crisis.
GE has been shifting its focus to emerging market growth, oil services and energy demand to reduce reliance on the volatile financial services sector – and those moves are paying off.
GE beat expectations with first-quarter earnings of $3.4 billion, or 31 cents a share, up 48% from a year earlier. This was the fourth consecutive quarter in which GE grew its earnings.
Hot Stocks: Starbucks Turnaround Brings Back the Grande Profits
Reaping the fruits of a remarkable turnaround, Starbucks Corp. (Nasdaq: SBUX) last week reported a 20% increase in profit just days after learning it had become the No. 3 restaurant chain in the United States.
Such achievements were virtually unthinkable back in 2008, when the coffee store chain's annual profits plummeted 53.1% to $315 million from $672.6 million the year before (Starbucks' fiscal year ends September 30).
But lately Starbucks has been on a winning streak.
"What they've done to turn the company around has been nothing short of remarkable," R.J. Hottovy, an analyst with Morningstar, told Retail Traffic. "They are very well positioned and I think there are still some growth opportunities for them out there."
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