2008 will be the year of $105 oil and booming solar energy stocks, one of which could very well be Small Cap Trading Pit favorite Hoku Scientific (HOKU:NASDAQ).
Note: Small Cap Trading Pit readers were advised to take a position Thursday morning. This is the second time readers are playing HOKU. The first time around, readers took gains of 34% and 37% in a matter of days.
Solar Energy: Oil Hits Record-High $100 A Barrel
At $40 a barrel, crude was expensive. At $60, it wasn’t sustainable. At $80, it was a one-time event that we’d never see again. But here we are at $90+, watching as it tries to take out $100.
Another rebel uprising in Nigeria, supply issues in the Gulf of Mexico, a chokehold on the Strait of Hormuz, news of more terrorism, and we’ll be well above $150 a barrel.
And with higher oil costs come higher solar stock valuations. Only problem is that with tight polysilicon supply, solar company valuations are unsustainable.
Solar Energy: Investing in the Solution
Solar companies are running amok on $96-plus oil.
But take a closer look and you’ll see the industry is running out of power, and fast, unless polysilicon supply can keep up with the pace of demand.
The solar industry uses silicon panels to convert sunlight into electricity. Right now, only a select few solar companies in the world have the resources to supply enough panels to match the rising demand. And sure, those few have sky-high gains to show for it.
The current shortage is actually a production capacity issue. Polysilicon companies aren’t making their product in large enough quantities to satisfy the solar industry’s needs, keeping the solar market at a standstill.
So the solar companies have started funneling money into polysilicon manufacturers to fund the construction of new facilities and increase output.
And thanks to this desperate influx of spending along with the insane increase in demand, the polysilicon market is in the midst of a veritable feeding frenzy. It doesn’t help that the big banks believe the polysilicon shortage will persist through 2009.
Solar Energy: When the Fuel Tank’s Dry, Prices Fly High . . .
As demand for polysilicon grows, supply wanes. The price of polysilicon is already $70 a kilogram, double that of 2004.
Without solar panels, there’s no solar power. The industry is dead in the water. All the current activity in the solar sector will grind to a halt.
Face it. Strong global demand for solar isn’t going to slow in the face of $95 oil . . . and there’s plenty to get excited about thanks to China’s insatiable demand ahead of the Summer 2008 Olympics, and the United States’ solar energy plans.
But without enough polysilicon supply, the valuations are unsustainable. It’s the reason companies like MEMC have rocketed from $45 to $70 in recent months. They have the supply amid heavy demand.
Is it too late to profit from the polysilicon supply-demand crunch? No.
Take a look at $200 million Hoku Scientific, Inc. (NASDAQ:HOKU), a small-cap stock with more than $1.5 billion in inked deals with the likes of Sanyo Electric and Expertise Water Division.
As of January 2, the company amended two supply agreements in an effort to keep customers while it tries to secure polysilicon plant financing. An amended deal with Sanyo Electric will give Hoku an extra six weeks to secure financing. The initial deadline was December 31. It’s now February 15.
The news comes just weeks after Hoku entered a financing agreement with Merrill Lynch for up to $185 million. But to secure that, Hoku must obtain $35 million in cash.
Ian L. Cooper