Below, we examine a solar stock with the greatest growth potential this year. It's poised for triple-digit gains in 2016, no mean feat in a market that some analysts are saying will soon descend into a prolonged slump. If you want to "beat the bear," you should look for companies with game-changing technologies that are tapped into unstoppable trends.
But there's another misconception about solar right now. Many investors think that persistently low oil and gas prices will compel end users to abandon solar in favor of cheaper fossil fuels.
If you believe that fallacy, you'll miss one of the most exciting investment opportunities to come along in decades. Fact is, the infrastructure for the solar industry is now pervasive and entrenched, leading to a "price decoupling" of solar and fossil fuels. Solar and other renewable energies are now integral to the energy status quo and no longer need high oil and gas prices to attract users.
That's why the stock we examine below is projected to appreciate by as much as 193% this year. For further explanation as to the dynamics behind this company's stunning rise, let's turn to the Gartner Hype Cycle.
The Hype Cycle is a graphical presentation developed and used by technology research and advisory firm Gartner for representing the maturity, adoption and social application of specific technologies.
Each Hype Cycle describes five crucial phases of a technology's life cycle:
1) Technology Trigger: A technology breakthrough kicks things off; excitement builds.
2) Peak of Inflated Expectations: Early publicity spawns a flurry of success (and failure) stories. Some companies adapt; others fall by the wayside.
3) Trough of Disillusionment: Interest diminishes as reality fails to live up to the hype. A shakeout ensues, but the smartest early adopters survive and continue to invest and experiment.
4) Slope of Enlightenment: The technology becomes better understood and implemented. Second- and third-generation products emerge.
5) Plateau of Productivity: Mainstream adoption takes off.
Simply put, solar has already passed through its "hype" period and is now in the "plateau of productivity" for sustainable, long-term growth.
The solar industry has not seen its fortunes diminish in the face of cheaper fossil fuels, because solar now moves along its own supply-and-demand dynamics within its plateau of productivity. It doesn't matter if oil is dirt-cheap right now. Solar's customers are increasingly dependent on inexpensive, reliable power from the sun and see no rationale for switching.
The one stock that appears to have greatest upside potential this year is Canadian Solar (CSIQ - Get Report) .
Canadian Solar announced Tuesday that its fourth-quarter and full year 2015 operating results will exceed its previous guidance. The company said it expects its fourth-quarter revenue to be in a range of $1.02 billion to $1.07 billion. For the full fiscal year, the company expects its revenue to be in a range of $3.35 billion to $3.40 billion. The Wall Street consensus had called for Canadian Solar to report revenue of $951.21 million in the fourth quarter and $3.30 billion in the full fiscal year. The company plans to report earnings on March 3.
Headquartered in Ontario, Canada, the company has situated the majority of its factories in China, where costs are considerably lower. The company's dual presence allows low-cost manufacturing but sidesteps some of the obstacles (and transparency issues) of investing in a company that's officially located in China.
Canadian Solar is emphasizing growth opportunities in developing markets as well as developed countries in the eurozone. Germany, Europe's economic growth engine, has declared the goal of decommissioning all its nuclear power plants by 2022 and converting almost entirely to solar and wind power by 2050. Germany is the world's largest solar market and one of Canadian Solar's major clients.
Also boosting the company's long-term fortunes is a new plan from Canada's oil-producing province of Alberta to restrict greenhouse emissions. The antipollution rules will adversely affect the domestic oil sands industry in Canada, but it will drive the construction of more solar power throughout the Great White North.
With a trailing-12-month price-to-earnings ratio of 5.9, Canadian Solar is an inexpensive way to tap solar's enormous growth opportunities.
Canadian Solar's stock now trades at $18.71. The median 12-month price target of analysts covering the stock is $34.50, which suggests shares could gain 84% over the next year. The highest price target is $47, which implies the stock could gain an eye-popping 150% over that period.
By John Persinos
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