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.
Michael, the Stock Picking Bartender