Dealmaker’s Diary: A Clean Energy Play Poised to Shine

Alpesh Patel|May 16, 2024

I’ve got a stock that’s sure to brighten your day portfolio…

It’s a major player in the solar power industry… with proprietary technology and a streamlined manufacturing process.

As governments all over the world focus on renewable energy, the company is ramping up capacity to meet this demand.

The stock scores a 9 on my Growth-Value-Income rating system – the same algorithm I use for my hedge fund clients (that you get access to for free!)…

And momentum is picking up. I expect the stock to break out and reach its multiyear high… with some volatility along the way.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

This one is poised to shine.

 

TRANSCRIPT

Hi, friends, and welcome to another Stock of the Week.

I’ve got very much the kind of company that is in a sector that is in the news.

It’s First Solar (FSLR), and the name gives it away, really, with this one.

It’s a company that manufactures and designs solar power systems and panels.

The company stands alone in the industry with its differentiated semiconductor and streamlined manufacturing process. So some intellectual property over there. I’m not going to go into the detail of thin film solar modules, but let’s just say there is some intellectual property protection for the company.

And to some extent, that’s why we can see profits growing at a huge annual rate. We can see big numbers in terms of manufacturing capacity catching up as well to meet the huge global demand as well for panels.

First Solar’s market cap is currently $20 billion.

I get blown away by some of these companies that I’ve never even come across, and then you realize they’re multibillion-dollar companies.

Total revenue was shy of a billion dollars, but it increased 20% from the same quarter the previous year. And you already know globally – whether you are focused on renewable energy or not – that certainly governments of the world are.

Now let’s get to some of the numbers.

On my proprietary Growth-Value-Income (GVI) rating – where I look at revenue growth, I look at income, I look at valuation based on the share price and profitability – we’ve got a score of 9. Anything with 7, 8, or 9, is fine.

The forecast P/E ratio is 14. In other words, you’re paying $14 for every dollar of forecast or expected profitability.

A multiple of 14 is not bad. It’s not expensive. It’s not cheap. Either way, I’m okay with it as a number.

Cash return on capital invested or CROCI is lower than I would want. I want to see a cash return on capital invested in the top 25% of all companies. This isn’t meeting that benchmark, so there’s some downside with the stock. It’s a factor that is important for me… and you can see why here.

Nevertheless, there are other things going for the stock. While it has high volatility, it’s got a strong return Alpha. In other words, it has a strong ability to outperform the market. It has a Sortino above 0.3, which tends to be my threshold. Sortino, remember, is the average return versus downside risk.

So quite a lot of things going for the stock.

You’ll know if you’re part of GVI Investor that I want stocks that tick every box. A lot of due diligence going on there.

So where are we on this?

Well, momentum is picking up again. The stock price dropped to as low as $133 and has now reached $191. If that trend continues – which is what I’m anticipating – then I would expect the stock to break into multiyear-high territories well above $215.

Now, there is risk. The risk is that, as those of you follow me carefully will know, if the monthly MACD – a measure of momentum – crosses above its moving average, that makes things a little bit more confident. It hasn’t quite done that yet.

However, it is rising. And often it can rise, rise, kiss the moving average, the yellow dotted line, kiss its own moving average and then drop back before moving upward.

So I don’t necessarily expect a smooth direct upward move. It might have a pullback before it goes back up again. That’s common, which wouldn’t worry me in the slightest.

The overall trend is most clearly upward. There is some historic pullbacks even in the upward trends. You can see some of the drawdowns, and their durations can be quite lengthy.

I want you to think about drawdown depth and duration and assume whenever you buy a stock that the worst drawdown it had in the previous upward trend – and the duration before it broke back to where it was – will happen again as soon as you buy.

Just call it the “just my luck” phenomenon.

Assume that the worst previous drawdown in an upward trend and duration before it broke back will repeat itself as soon as you buy. That will help manage your expectations.

And if you don’t like the drawdown depth and duration, the stock’s not for you. The volatility is not for you.

That’s how you can tell very easily if a stock is for you in terms of volatility as a final test, sort of final personalization, because it might be right for everybody else. It might even be going up. You just don’t like that roller coaster ride.

This one on a discount cash flow basis is 43.2% undervalued. Again, that’s a relatively positive aspect about the stock.

So I hope you enjoyed that. Hope you enjoyed some of the educational insights I’ve provided as well.

Thank you very much.