As if anyone didn't already know, First Solar (FSLR) - Get Report lately has been one of the hottest stocks on the planet, tacking on 13% this year following a blistering 785% run in 2007. Today's impressive first-quarter earnings report only justifies First Solar's status as one of the true 800-pound gorillas in the momentum game.
One factor in First Solar's success its production of thin-film solar panels, which don't require polysilicon, commonly known as the stuff
MEMC Electronic Materials
makes. Polysilicon, a key component in the manufacture of semiconductors and solar panels, remains in short supply due to rampantly growing demand for solar panels as well as industry production problems.
However, there's another quality thin-film player out there beyond First Solar, and while it hasn't been the stock market monster First Solar has been, it also isn't trading at more than 20 times expected full-year sales.
That player is
Energy Conversion Devices
, which is a pick in the
newsletter, and best characterized as the former redheaded stepchild of the solar industry before getting its act together in recent quarters with improving sales and cost controls.
Like First Solar's, ECD's solar panels do not use polysilicon and so the company isn't feeling the heat of tight polysilicon supplies. ECD's panels are lightweight and highly durable, which has given the company a strong position in the building materials market, since the panels don't require any type of structural reinforcements. This reduces the cost and complexity of installation for customers, who can just pile the panels on roofs to generate electricity.
ECD's financial metrics are also improving, with gross margins steadily rising, and sales growth of 106% over the first two quarters of the 2008 fiscal year, which ends in June. Plus, the company aims to hit sustainable profitability in the June quarter, and the company has an element of safety in the fact that 100% of the fiscal 2008 pipeline for this fiscal year is full. And looking to next year, 80% is booked up.
ECD also has a wildcard up its sleeve in the form of a 39.5% stake in memory company Ovonyx. Ovonyx has pioneered phase-change memory (also commonly referred to as PCM or PRAM), a potential replacement for other forms of memory including flash. With companies like
all exploring PRAM as a way to generate growth in the tough memory business, ECD's stake in Ovonyx represents a potentially highly valuable call option on the success of PRAM.
Should PRAM ever take off in a big way, Ovonyx could be on the receiving end of significant royalty payments. For now, the PRAM news we hear is mostly confined to the development of prototypes, but anyone interested in memory stocks should be following the technology's progress.
So while First Solar remains at the top of the heap among the investing masses, ECD is just coming into its own, and I believe the stock is worth betting on from here.
P.S. I'd still stay away from
, a stock I featured in an April 11
. The stock gets interesting in the $35 to $38 range, but there wasn't anything in
this morning's earnings report
that makes it a knife worth trying to catch.
(Editor's note: TheBreakout Stocks model portfolio includes Energy Conversion Devices.)
In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for
, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics. His primary market interests include consumer technology, specialty retail, and small-caps. Comeau received a bachelor's degree in Finance from Brooklyn College, and has completed Level 1 of the CFA program.. He appreciates your feedback;
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