By Steve Alexander of MagicDiligence.com

NEW YORK ( MagicDiligence) --

In perusing over the Magic Formula Investing screens, one sees the common stocks of many currently out-of-favor and possibly declining industries: for-profit education, defense contractors, tobacco firms, hard-disk drive makers, solar-energy equipment providers.

Wait, solar-energy equipment providers? In a value screen? Isn't that a growth industry?

It certainly looks like one to me. This is a market that has increased new installed capacity by a compound 51% annual rate over the past decade, including almost doubling new capacity added in 2010 to more than 10 gigawatts. Most analysts and participating firms are predicting 20% growth in global demand for solar in 2011. LDK Solar ( LDK) earlier this week upped fourth-quarter revenue guidance by 22%, kicking up wafer and module shipment estimates in the process. Does this sound like an industry that should be harboring a number of value stocks?

What about those individual stocks? Perhaps there is some problem with their forward demand trends, or maybe they have poor balance sheets, or the Securities and Exchange Commission is breathing down their necks, right? There must be some problem for them to show up in a deep value screen.

MFI currently screens two stocks that are directly leveraged to the solar industry -- GT Solar ( SOLR) and Power-One ( PWER). Another, Veeco Instruments ( VECO), has a small thin-film equipment business, but that stock is more closely tied to the LED market so we'll ignore it for the purpose of this article.

What's wrong with GT Solar? The company makes early-stage solar cell production equipment, and is the No. 2 provider behind equipment giant Applied Materials ( AMAT). Is it a poor balance sheet? Nope, the company has $260 million in cash and no debt as of the last 10-Q filing. A problem with the SEC? No, nothing. Poor forward demand trends? Well, last quarter GT posted a 120% year-over-year increase in revenue, 345% in operating profits. For the fiscal year ending in March, revenue is slated to come in 53% higher than 2010. For 2011, preliminary estimates are for about 12% earnings per share growth, although the company has a history of obliterating analyst targets.

And that's not even considering GT's new sapphire business, which is leveraged to the similarly rapid growth of the LED lighting market and is expected to ramp to nearly $200 million in revenue for fiscal 2012.

For all of this growth, the market is only generous enough to attach a 12 price-to-earnings ratio (9.6 forward)? Does that make sense to anyone else? It doesn't to me.

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