Investors' First Stop Should Be First Solar

Alternative energy used to be the redheaded stepchild. It was a pipe dream, something that sounded nice, but wasn't really an applicable and cost-efficient way of generating energy. Well times have surely changed, and with energy prices now entrenched well above $100 a barrel, almost any alternative-energy sources that were once a crazy idea are fast becoming legitimate options, and in the process, building legitimate companies.

The initial and continued driver for these stocks is energy prices. Every day the debate is whether oil can continue its push higher, whether it's a bubble or a blow-off run. The interesting thing is while everyone is so concerned about when it will stop, oil prices continue to going up.

If nothing else, this resets the floor or the levels to which oil is likely to pullback to, even if the rally is due for a correction. We used to see the floor as the $75 to $80 range. Now, with the last push, that psychological level has changed to something more in the $100 price area.

Why is this important? Well, the economics of alternative energy, such as solar, make sense when oil is a certain price. The further we move above that price, the greater the certainty we will stay above it, thus removing some of the risk to demand of solar products waning.

The green movement isn't hurting things either. Everywhere we turn we hear about companies "going green." There isn't much more of a green technology then using the good old sun for energy. Of course, creation of the products surely brings some not-so-green byproducts, but in a choice between burning fossil fuels and their pollution, clean, renewable solar wins out.

The result of all of this is these companies are becoming legitimate entities with real earnings and getting new business and new contracts. Canadian Solar (CSIQ - commentary - Cramer's Take) was the latest to report, and it raised guidance and announced a new contract. Earnings from the other major players in the space have been stronger as well.

The easiest and best way to play the space is by being long the biggest and most well-known player, First Solar (FSLR - commentary - Cramer's Take).

First Solar

Click here for larger image.

The stock has made a push to new highs in the last month after a steep pullback in January. Interestingly, the pullback did not violate the longer-term uptrend, keeping the advance intact. Since making this run to new highs, the stock has formed what we refer to as a bullish flag, basically a bullish consolidation that digests the previous gains.

The volume configuration has been constructive as well, with volume increases occurring into strength and contraction into weakness a sign of underlying demand. This is a healthy configuration, and the stock is attempting to break out of the consolidation to the upside. We can see further upside to the $340-$350 area. Trading stops could be placed below the $275 level.

---

At the time of publication, John Hughes and Scott Maragioglio were long First Solar, although positions can change at any time. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.