Battery and Solar Stocks Driven By Tesla The recent moves by Tesla (TSLA) have attracted a lot of attention into the green space that was tarnished not too long ago by companies like First Solar. This increase in attention has led to investors taking a few more speculative gambles in the space, but let's take a look at a few names that have near term positive potential thanks to higher earnings estimates.
Model S Driving The Market
Many of the companies in the solar and battery power space should be sending not only 'Thank you' notes to Elon Musk, they should be sending him gift baskets stuffed with cash. His success with the Model S and turning Tesla into an earnings positive company.
With the electric car seeing strong demand, outselling both BMW and Mercedes Benz comparable models, investors are looking deeper into the ecosystem of electric power for other places to invest. They are quickly finding out that choices are limited to battery and solar stocks. These industries are not with their concerns though, so let's leverage the Zacks Rank to find the highest quality names.
Ja Solar Holding (JASO) is a Zacks Rank #2 (Buy) and has beaten the Zacks Consensus Estimate in two of the last three quarters. Over that stretch the company has also shown consistent, albeit small, revenue growth. Each top line result was also better than expected by an average of about 10% more than the Zacks Consensus Estimate.
Among the issues that investors might have is that the company is losing money and is projected to lose money throughout 2014. That said, the estimated loss has been decreasing recently. The Zacks Consensus Estimate for 2013 stood at -$3.87 in February 2013, and declined to -$3.55 in March and more recently moved to -$2.74. Over the same time period estimates for 2014 have also increased from a loss of $2.03 to a the current level of -$1.43.
From a valuation standpoint, JASO has negative earnings so the old standby of Price to Earnings is not a meaningful measurement. Instead we have to look at price to book and price to sales. The company is trading at 0.4x price to book, well below the 1.3x industry average while the price to sales shows a more modest discount to the industry average of 0.3x compared to 0.7x.
What is keeping investors interested in JASO is the mild revenue growth of 1.5% in 2013 compared to an industry that is seeing - 33.5% revenue growth. At the same time the shrinking loss makes earnings growth seem wildly better than the 1% industry average and that rate of growth continues into 2014.
Not Getting Burned
All other solar stocks are carrying a Zacks Rank #3 (Hold), so picking one or another might not make too much sense. What could protect an investor looking for more solar exposure is an ETF that would diversify the risk of holding just one name.
There is no Zacks Rank on the Guggenheim Solar ETF (TAN), but you have to love the ticker symbol. You can get more information on TAN in these articles written by our ETF specialists. Clean Energy ETFs and Go Green with These 3 Clean Energy ETFs.
EnerSys(ENS) is a producer of industrial batteries. A market capitalization of $2.3B may seem small, but in the world of battery stocks, it's a monster. Its profitable and has seen revenue grow over the last few years.
The valuation of the stock is in line with its peer group. Trading at 13.4x trailing earnings, the company is at a slight discount to the peer group average of 14x. The forward multiple of 13.8 is right in line with the 13.7 peer group average. Price to book and price to sales both show the stock trading at slight premium to the peer group average.
Where ENS is set apart from its peers is its net margin. With several peers struggling to produce any earnings at all, the 7.3% net margin is well above the 5.6% peer group average.
The stock is a Zacks Rank #3 (Hold) and that is likely because of a lack of growth in 2013 estimates and a recent move lower in 2014 estimates. Analysts had been moving estimates for 2013 in the right direction in March and April, but May has been another story. There was a two cent decrease in estimates for 2013, and a more surprising eleven cent drop in 2014 numbers. That decrease has prevented the stock from being a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy).
The Musk Trade
It's not a secret that Home Run Investor added Tesla (TSLA) to its portfolio on February 1, 2013. The idea of electric cars being here to stay is driving investors to look at other alternative energy companies. The craze that Tesla and Solar City have created has driven prices up on many of these stocks, but its earnings that drive stocks over the long haul. Right now, most stocks in the space have not seen positive earnings revisions, so there might be a better time down the road.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.
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