September 21, 2011 / 7:52 PM / in 6 years

HOW TO PLAY IT: Solyndra case: Solar's darkest hour

THE ISSUE: The once squeaky-clean solar power industry hits its nadir as Solyndra’s executives invoke the Fifth Amendment when Congress asks the solar power manufacturer Friday to explain how it took a $535 million loan and quickly went bankrupt. Will the shakeout it spurs in solar create value in the stocks?

By Sam Forgione

NEW YORK, Sept 21 (Reuters) - It may be nothing more than a political dustup and Washington scandal that will be forgotten by the winter solstice, but the quick failure of Solyndra paints a big black mustache on the solar industry’s happy face.

Sun power was one of the hottest and worthiest of investing sectors as oil prices surged and alternatives were in demand. The sector cooled off over the past year because the hyper-competitive industry may have overestimated demand.

Now Solyndra has become a symbol of the bust after burning through billions of investment dollars and then burning its bridges in Washington by failing to repay over $500 million in Federally guaranteed loans.

Solar is still a growth industry, though, and overall demand for energy is still rock-solid, even in a slack economy. Survivors may emerge.

Indeed some see the industry going through a much-needed shakeout. Sunnier times could return for the stronger players. How can you avoid being burned?


The demise of Solyndra, which shut down its operations over the summer, leaves a clear leader in First Solar (FSLR.O), says one fund manager specializing in the sector.

“First Solar still has the lowest cost structure in the entire industry, good brand-name recognition, an active pipeline to develop projects, and the company is in good shape for the long term,” said Shayle Kann, Managing Director at Green Tech Media Research.

Yingli Green Energy Holdings (YGE.N) is another player that has kept costs in line and built its brand.

“The solar market will be growing year after year for the foreseeable future,” said the analyst. Demand is growing in China and India, as well as the United States.

But solar bulls need to be patient.

“Don’t go bullish for short-term gain. Look at it for long-term play.”


“The publicity will wash over.” said Greg Payne, portfolio manager at Greenchip Financial, referring to the Solyndra scandal.

Until it does, Payne is going with the flow of water power.

“Hydro is safe because there’s more predictability on maintenance and operation expenses, and it has a longer lifetime,” Payne said.

    Some of the alternative energy providers are suffering because “supply and demand are not in balance.”

    Not so with hydro, which Payne said is “the best asset among renewables,” citing Etrion (ETX.TO), Enel Green Power EGPW.MI,and Brookfield Renewable Power BRC_u.TO as smart choices.

    Ranging more broadly, Payne sees spinoff benefits for electricity and water infrastructure companies as the search for energy alternatives gains traction.

    “Suppliers of electricity and water infrastructure are oligopolistic, have stable-margins, reasonable valuations, and better balance sheets,” he said before recommending Schneider Electric (SCHN.PA) and ABB (ABB.N) in Europe,and Cooper Industries CBE.N and smaller companies Itron (ITRI.O) and Elster ELT.N in the U.S.


    Global Tech Strategist at Auerbach Grayson and Co. Richard Ross said that it might just be best to avoid the alternatives altogether while the entire solar industry is “painted with the brush of Solyndra.”

    For investors itching to find the growth industries of the future, he recommends the safer, better traveled path offered by tech stocks like Apple (AAPL.O) and IBM (IBM.N).

    “IBM on the corporate side and Apple on the consumer side are well-entrenched with customers and have steady revenue streams,” said Richard Ross,

    “We have to wait for the dust to settle and look for safety and security,” he said.

    Reporting by Sam Forgione; Editing by Richard Satran;; +1 646 223 6297; RM:

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