First Solar, Revisited

As those following along know, I got back into First Solar Inc. (NASDAQ: FSLR) last month. I first bought into First Solar in July of last year, selling my position in December, for a nice 36% gain, albeit on a very small position. Due to a recent selloff I’ve gotten back in.

I wrote about First Solar last July: Why I Think First Solar Has Upside! Have a look. The basics haven’t changed as far as I’m concerned. So why did I sell First Solar when I did? And why did the price drop so much a few months later?

I sold in December because I’d had a nice run on my position, and I set an automatic limit order to sell, because I felt at the time that if it went up much more, it would be time to take profit and wait for a pullback. I don’t recall exactly where I placed the limit order, perhaps around $62ish. What I didn’t expect was the government to significantly extend the Investment Tax Credit (ITC) out of nowhere. When that was announced I was automatically sold out of my position at pretty much the low of the day, at $63.52. I wasn’t crying too hard, as a 36% gain in 5 months isn’t shabby at all, though eventually the stock traded as high as $74.29 a few months later. I love limit orders, but I wasn’t feeling super great about this one with First Solar in the mid $70’s.

But then again, had I not had it in place, who knows if I would have sold at all? I might not have had the opportunity to use those same funds in the recent harsh downturn in price. I think I’d have sold in the high 60’s, but that’s easy to say looking back at lines on a chart.

On April 27th First Solar reported earnings of $1.66 a share, which handily beat analyst’s expectations of 0.93 cents. Revenue, however, came in under expectations. First Solar peaked at over $74 around a month before earnings, but had fallen to around $61 – $62 when they reported. Also announced was that CEO James Hughes will be stepping down on July 1st, to be replaced by CFO Mark Widmar. James Hughes was apparently hired to whip the company’s technology into shape, which he has undoubtedly done when you look at the recent efficiency improvements in their solar panels. Mark Widmar’s job will be to take those improvements and turn First Solar into an even better money making machine. Though further efficiency improvements will certainly be important for First Solar going forward.

Mr. Market didn’t like ANY of this. Over the next few weeks First Solar dropped much further, as low as $46.67, on May 19th. And who do you think was buying? Ok… no surprise if you’re awake while reading this: I was.

This is what I love about the stock market. At some point in March FSLR was worth $74.29. Almost exactly 2 months later, it’s worth $46.67. Can this be rationally explained by investors carefully analyzing First Solar’s future earnings power? A careful consideration of how the company will deploy its resources effect shareholder value? Discounted cash flow analysis? Give me a break. The stock market is as much emotion, feeling, and instinct as anything else, at least in the short term. That’s my current opinion anyway. I don’t see anything changing it anytime soon. Have I discovered one of the secrets to wealth on Wall Street? Buy good companies when others are selling in panic? Is it really that simple? I guess I’ll find out if that’s the case here.

But if you pull back and look at the last 3 or 4 years of price action in First Solar, you see that this is nothing new, not by far. It has large swings up, and large swings down, and back up, that generally lead the stock higher. So following the pattern, I should sell around $74, just to be safe. But I think this is such a good company, so should I sell, especially since the government is trying to encourage this technology? And what about 8point3 Energy Partners (NASDAQ: CAFD)? This YieldCo, another profitable holding of mine, keeps feeding First Solar money, and should continue to buy more and more of FSLR’s projects. First Solar is a very profitable company with a GREAT balance sheet, but it’s being treated like garbage by investors. Keep it up; I’m set to buy more at $42.75!

As always, feel free to look at my portfolio and see how I’m doing. Usually I own or plan to own stock in many of the companies I write about. Please READ MY DISCLIAMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender,

Reno, Nevada


Why I Think First Solar Has Upside!

So what is First Solar Inc. (NASDAQ: FSLR)? Well, First Solar is a leading designer and manufacturer of solar panels. They also design and install large utility scale projects using their panels. Check out their website, they have some great videos on what they do.

I could go into detail about all of the technical aspects of the materials and technology they use to convert solar energy into electricity, but then again, no I couldn’t. Suffice it to say that it all sounds really cool, really complicated, and really, really beyond my ability to fully understand. Sunlight goes in, electricity comes out. Their materials technology differs from the other solar companies, I guess. How? Well… it just does. Anyway, they sound like they know what they’re doing. I just want to make some money.

But how? Ok so they make solar panels. What about cheap Chinese competition? What about cheap oil and gas as an alternative? Well, honestly if there weren’t those concerns out there, the stock price would probably be high enough that I wouldn’t be interested. Problems beget opportunity.

One major opportunity is the ever lowering cost of solar energy. Recently, First Solar CEO Jim Hughes stated that $1 per watt was achievable by 2017, and could be a widespread commercial reality by 2020. Well, personally I don’t see solar taking a huge chunk out of traditional energy generation that soon. Give the technology another fifteen years and we’ll talk. But that doesn’t mean that this quality company isn’t investable right now. I think it is, especially given its recent drop from around $65 in late April to where it’s trading now, around $45.

Why the sudden drop? On April 30th, First Solar held its 2015 Q1 conference call. They reported a loss of 62 cents per share, but were expected to report a loss of 29 cents a share. This was their first reported loss in years. Why such a big miss? Among the reasons for the loss was the delay of several projects, and a few things that were supposed to be counted for Q1 being moved to Q2. Doesn’t sound like such a big deal to me. Bring that share price down so I can have a chance at it, please. Well, the sellers did, and I dove in.

So why do I think First Solar will bounce back? One word: YieldCo. First Solar and SunPower Corp (NASDAQ: SPWR) have gone into a joint venture to form 8point3 Energy Partners LP (NASDAQ: CAFD). So what is the yieldco for? How does it work? 8point3 will buy solar projects, mainly from First Solar and SunPower. It will operate these cash generating projects, with the intent to distribute that cash to shareholders as dividends. According to what I’ve seen, First Solar will retain ownership of 31.1 percent of shares in 8point3. So it sounds to me like this company will be buying assets FROM First Solar, and then turning around and distributing dividends TO First Solar. Sounds like a nice setup. I’m in.

As a side note, 8point3 hasn’t done so well since its IPO about a month ago. It’s gone from around $21 down to around $18. It might become interesting at about $15 or so. Anyway, I’m keeping an eye on it, though I doubt it will get down there due to the dividend yield expected from the company. But with disappointed buyers of the IPO, some general market weakness, maybe even a downgrade out of nowhere… who knows? It could happen.

I should also note that First Solar has a nice strong balance sheet. Nothing wrong with that.

I had a limit order set at $45.50 for 7 shares of First Solar. That order was filled on July 2nd. I had the order set up weeks in advance, and as I watched the share price SLOWLY slide down from $55, to $50, to $47, etc… it was hard not to just give in and buy it. I REALLY wanted a piece of this company. Of course I’m glad that I stuck to my discipline and respected my price target. I now have a second limit order placed to buy 11 shares at $37.40. Will my second order get filled? I hope so, as I see this eventually working its way back to recent highs. I’m willing to average down into this position for a total of four buy points, should it come to that. (Look at the ‘Trading Philosophy’ section to see how I make my trades.)

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAIMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender