What's Really Behind the Solar Sell-off...

Written By Brian Hicks

Posted December 26, 2011

In the past month, the world’s greatest living investor stunned the markets by acquiring 2 solar projects.

Last week, MidAmerican — the utility component of Warren Buffett’s Berkshire Hathaway — said it would acquire an interest in the 290-megawatt Agua Caliente project in Yuma County, Arizona.

The solar plant is being built by First Solar.

The $1.8 billion project is expected to be completed by 2014. California utility Pacific Gas & Electric will buy the project’s electricity output.

The announcement comes a little over a week after MidAmerican said it would buy First Solar’s 550 MW Topaz Solar Farm power plant in California.

At first glance, you’d think that Buffett has become a diehard “greenie,” especially since he helped block the construction of the Keystone XL oilsands pipeline through his home state of Nebraska.

However, when you look at this acquisition, it’s true to form to Buffett’s “buy when people are panicking” investing strategy.

At a trailing-twelve-month basis, First Solar stock is down a staggering 82%. You’re reading that correctly… down 82%!

True believer shareholders who’ve held for that entire period are puking up blood.

It’s true.

First Solar started the year valued at $22 billion.


$3 billion.

No wonder it caught the eye of Buffett.

The trailing p/e multiple on First Solar is 5.7. Its forward p/e is 8! Assuming the “e” in the estimate remains solid, this is the very definition of buying a stock at dirt cheap levels.

And it’s not just First Solar that’s been crushed this year. The entire solar stock complex has been taken to the woodshed. Take a look:

Solar Stock YTD Performance Current TTM P/E
Trina Solar -77% 3
LDK Solar -68% 7
Yingli Green Energy -71% 3.6
JA Solar -85% 2
Canadian Solar -84% n/a
SunPower -75% n/a

Do solar stocks at current valuations represent a good investment right now? Well, if it’s good enough for Warren Buffett, it’s probably good enough for you and me, right? I wouldn’t be surprised to see a tsunami of takeover activity in the solar space.

But dear reader, I think there’s something bigger at work here. For years, these solar stocks were high-flyers. Investors tripped over themselves to get a stake in this booming sector. And solar expert Jeff Siegel was able to position his members for some hefty gains.

I mean, First Solar soared 1,195% within 17 months of its IPO. That’s “dot.com” mania style gains.

But what a difference four years make.

You see, 4 years ago, the United States was the ninth largest global producer of natural gas.


It’s #1.

Hydraulic fracturing has completely changed the game. With this drilling technology perfected… and getting better everyday, vast natural gas formations in the U.S. are now open.

So much natural gas is being produced in the United States, that the price of the “champagne of fuel” has dropped to a near decade low.

natural gas chart dec 2011

But that’s only half the story. Booming shale gas formations like the massive Marcellus shale are currently producing thousands of jobs.

Marcellus Map

In fact, the boom is so big, the first steel mill in decades is being built in Youngstown, OH.

This steel mill will supply natural gas drillers in the Marcellus with pipes.

A friend of mine who’s a salesman for a truck strapping company in Williamsport, PA (a few hours from the Wealth Daily office) says he can’t keep workers because they’re all heading off to the gas drillers, where they can make double the wage.

If Obama wants to get re-elected, he should open all the oil and gas shale regions in the U.S. for production. Hundreds of thousands of jobs would be created in an instant. He would be hero to average working Americans.

But if he doesn’t, I can guarantee the Republican nominee will. You can take that one to the bank.

The original bull on America,

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Brian Hicks

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