solar Louis J. Sheehan, Esquire

Ethanol stocks, once Wall Street’s green giants, have been squashed into wasabi paste. That could be a cautionary tale for today’s alternative-energy darling, solar.


Oil’s march to $133 a barrel has been a boon to green-energy stocks — solar, in particular. Two Chinese solar companies, Trina Solar and LDK Solar, have jumped 25% and 19%, respectively, since May 9. Solarfun Power Holdings has soared 78% during that time.

Ethanol stocks have rallied a bit, but they’re still far from their heyday of 2006 and remain mostly scorned by investors. Pacific Ethanol, which once traded at more than $40 a share — more than four times its 2005 IPO price — closed Wednesday at $5.53.

The similarities between the two industries might scare solar bulls. Both are somewhat at the mercy of commodity prices. Ethanol is suffering from expensive corn. Solar has been pinched by skyrocketing silicon, the key ingredient in photovoltaic modules, the black roof panels that store the sun’s energy.

Ethanol’s margins are also squeezed by a glut that has crushed prices. Solar’s pricing power has held steady, but could be at risk next year, given the vast and growing number of people making solar panels.

China’s Suntech Power Holdings, which reports earnings Thursday, may be on track to be the world’s biggest PV-module maker this year. But at the end of 2006, the latest data available, it had at least 180 competitors, according to Friedman, Billings, Ramsey analyst Mehdi Hosseini. That number has almost certainly grown and threatens to drag PV-module prices lower.

Of course, there are plenty of reasons why the lights won’t go out on solar the way they’ve gone out on ethanol. Both industries depend heavily on government subsidies. But solar seems less likely to fall out of public favor than corn ethanol, which has contributed to soaring food costs.

Solar is cleaner and getting cheaper. Corn ethanol will likely never be economically or environmentally viable without government handouts.

Still, solar stocks are speculative and volatile. While the industry’s prospects look far brighter than ethanol’s, that doesn’t mean they can defy gravity.

Fear Seems Limited; Hope May Be, Too

Despite the Dow’s more-than-400-point drop over two days, there’s not much fear in the stock market. The key measure of market fear, the Chicago Board Options Exchange’s volatility index, or VIX, has jumped 13% this week to 18.59. But when the market came unglued earlier this year, the VIX topped 30.

Back then, investors feared, reasonably so, that the entire financial system was at risk of collapse. This selloff has largely been driven by a slow-motion disaster that’s much easier to understand: soaring, absolutely soaring, oil prices. “I can’t see the bull case for stocks until we can get oil under control somehow,” said Todd Clark, director of trading at Nollenberger Capital Partners in San Francisco.

That clarity may help keep panic out of the market, but it doesn’t necessarily mean good news for stocks. The darkest days of the financial crisis were over pretty quickly, but the lingering effects of $133-a-barrel oil are much harder to solve and can have much broader effects onprofits.



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