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My Top Energy Stock to Buy in January

My Top Energy Stock to Buy in January
Written by Publishing Team

Despite the impressive bull market, the run continued Standard & Poor’s 500 And investors’ enthusiasm for sustainability lately, the solar market hasn’t been great in 2021. The MAC Global Solar Index is down 26% over the past year, while the broader market has had its ninth best year over the past 50 years.

For investors wanting to get through a bad year, there are some opportunities in the solar market that are worth considering right now. The thing that stands out to me this month is First Solar (NASDAQ: FSLR). Despite the poor performance of stocks in 2021, there are some trade catalysts that should do well over the next couple of years, and those who buy now could get into one of the more attractive entry points in a while. Here’s a look at why First Solar is a solid buy in January and why it should be on your radar in January.

Solar installation at sunset.

Image source: Getty Images.

Impressive growth pipeline

Historically, two hits against First Solar over the years have been tepid growth in its manufacturing capacity and sales focus in North America. From 2013 to 2018, its manufacturing capacity increased by 1 gigawatt (GW) per year. A combination of the cyclical nature of the solar panel market, unexpected tax breaks and government subsidies, and First Solar’s constantly retooling its facilities to handle more advanced panel manufacturing all hampered business growth.

In 2018, the company began manufacturing its newest motherboard, Series 6. The product was so successful that the company promptly discontinued several previous models and focused on making all of its facilities work exclusively on this board. Since then, the company’s footprint has gone from 2.6GW of panel capacity to 8.0GW today to build the Series 6 exclusively.

But what’s even more exciting for investors are their future growth plans. Management expects to begin construction of two new facilities – one in the US and one in India – which, along with improving existing facilities, expects to double production of panels by 2024.

Moreover, the addition of a new facility in India would help boost its sales outside the US. Currently, the company anticipates that 86% of mid- to late-stage booking opportunities are in North America. In the near future, though, expect about 55% of booking opportunities in North America.

Unparalleled financial strength

There are a lot of things that make First Solar a unique company. Its panel technology uses different semiconductors than most others, and it has been – somewhat frustratingly – conservative about growth plans in the past, focusing almost exclusively on utility-scale projects rather than delving into the residential market.

Another unique element in First Solar that has always separated it from its peers is the way it manages its balance sheet. For years, management avoided taking on large amounts of debt and always kept a huge amount of cash on the balance sheet. As of last quarter, the company had $1.66 billion in net cash (cash and marketable securities minus debt) in vaults. For those who record at home, this means that about 18% of the company’s market value is net cash on the balance sheet.

While investors should expect the cash pile to dwindle a bit as management builds two new facilities, it’s reassuring to know that management has held more than $1 billion in cash on hand since 2014 to manage the industry’s ups and downs and prepare to do so. Big investments.

Long distance large power reserve

First Solar isn’t the latest name on the block when it comes to renewable energy, and its methodical approach to growth has likely frustrated some investors over the years. One thing to give First Solar is that it has managed through many ups and downs in the solar market – it’s much more cyclical than many think – over the years. There is a lot of renewable energy businesses out there that not many are many years from now, but First Solar will likely continue to be a steadily growing company for many years to come.

With a clear line of sight to double its current manufacturing capacity over the next couple of years, plenty of financial strength to get it done, a proven management team that allocated capital brilliantly, and a share price close to 30% off its high, today seems like a good time to take a look at First Solar’s stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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