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Everything about

Evergreen Solar

(ESLR)

is eco-friendly, from its mission to harness sunlight to the way it makes its

solar panels

. But as an investor, I'm more concerned about the other kind of green.

Shares of the Marlborough, Massachusetts-based company have dropped 32% this year even as the 51-member Wilderhill Clean Energy Index gained 19%. Excess capacity and pricing pressure caused the

solar

company to post a $64.2 million loss in the first quarter as its operating margin sank further into negative territory.

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Although American solar stocks offer a compelling long-term story, the industry is over-fertilized and the second half of this year could see some bankruptcies unless oil prices spike and stimulus programs pick up. Evergreen has been ramping up production and expanding its facilities, but the company's losses have been accelerating.

Evergreen has a proprietary technology that it refers to as "string ribbon." The process allows the company to make its silicon wafers without using oil-based machines, like its competitors. By using so-called Quad furnaces, Evergreen produces its panels in an environmentally responsible manner.

While this green-from-start-to-finish concept makes for good marketing, it's irrelevant if the company is spending more on production than its peers. On that front, Evergreen isn't doing so hot.

Evergreen aims to lower its manufacturing costs to $2 per watt by the end of the year. Rival

First Solar

(FSLR) - Get Report

, the only U.S. solar firm to post a first-quarter profit, has already reduced its production costs to less than a dollar per watt.

The company has burned through $147 million of its cash since the prior year's first quarter and added $224 million of long-term debt. Its per-share losses have grown for four straight quarters and the industry's outlook remains uncertain.

The potential for government subsidies might be a bright spot for Evergreen. Proposed stimulus projects are centered on alternative energy and you can be sure that contracts will go to American firms first. But I see First Solar and

SunPower

(SPWRA)

as more likely candidates because First Solar is the cost-leader and SunPower is the efficiency leader.

Evergreen's press releases read more like those of a biotech firm in search of its blockbuster drug. At the moment, it doesn't look like there's one in the pipeline.

We rate Evergreen Solar "sell" with a grade of D. I'm a bigger fan of First Solar and SunPower, which we rate "hold" with C grades.

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.