Business: Sand Trap

Will the silicon shortage stunt the solar industry's growth?

By Alan Joch

Illustration by Koren Shadmi

A Solar Game Plan

Solar-smitten investors don’t have to wait on the sidelines for another two years as polysilicon manufacturers ramp up production. Here are four ways to position yourself today for solar success. —A.J.

Consider investing in polysilicon manufacturers: Rather than bolting from solar because of its near-term supply problems, Jesse Pichel, senior technology analyst for investment-banking firm Piper Jaffray, recommends playing the polysilicon shortage directly. He looks for polysilicon manufacturers with attractive price-to-earnings multiples (the stock price divided by the company’s earnings per share, a good metric for looking at an individual stock’s value relative to a large index like the S&P 500.) One such example is MEMC Electronic Materials (ticker: WFR), which has sold at about 12 times its earnings. Investors who balk at supporting manufacturing companies, a segment not typically considered green, may be comforted to know that PowerShares WilderHill Clean Energy Portfolio (ticker: PBW), a diversified exchange-traded fund, includes MEMC within its portfolio of 40 clean-energy stocks.

Build a diversified portfolio: Rather than gambling entirely on solar stocks, which will likely remain volatile for the foreseeable future, consider a broad mix of environmental securities. A handful of indexes now monitor the financial returns of green investments, including NASDAQ Clean Edge U.S. Index; CleanTech Index; WilderHill Clean Energy Index; and WilderHill Clean Energy Global Innovation Index.

Wait until profits are on the horizon: Look for companies that show solid financials and a clear path to profitability, says Eric Becker, Green Century Balanced Fund co-manager. “Some companies have strong environmental stories to tell,” he notes, “but the question is, are they going to pan out in one year, three years, or five years?” Becker himself follows a simple rule—he invests in companies that are already profitable or whose earnings trends over a number of years show profitability is imminent. He admits that no pure solar companies meet these criteria yet, so for now his strategy is to limit solar bets to firms included within diversified alternative energy funds, such as the PowerShares ETF.

Keep an eye on companies that use less—or no— silicon: Energy Conversion Devices (ticker: ENER) and Evergreen Solar (ticker: ESLR) use manufacturing techniques that reduce the amount of silicon needed to produce the equivalent wattages of conventional solar panels. DayStar Technologies (ticker: DSTI) is banking on a chemical-element cocktail, known as CIGS, to produce silicon-free panels. Other CIGS companies include HelioVolt Corp., Miasolé, and Nanosolar, Inc. These are all private companies with significant venture capital backing; investors should watch for future IPOs.

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Issue 25

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