An “Alternative” Way to Profit

Posted by Wayne on April 21, 2008 – 2:12 pm

As I was taking my daily “stroll” through TickerHound.com, I came across a question on a topic that I’ve been extremely interested in lately: Alternative Energy.

The Big Picture

We all know that we’re at major crossroads both from a political and economic perspective right now.  The United States and our allies abroad have become increasingly dependent on foreign oil – this puts us in an extremely vulnerable position from a geo-political perspective.

How can we continue to exert influence and authority abroad if we’re constantly at the mercy of a market we have very little direct control over?

Combine that with the growing call-to-arms of the Green movement and it’s easy to see why there’s such a big opportunity brewing in alternative forms of energy.

The U.S. and many other countries around the world are (as my grandfather would say), “backing the truck up” and pouring money into this sector right now.  There’s a tremendous opportunity here for the investors who play the sector right.  That’s why I was so happy to see someone ask this fairly straight forward question on TickerHound the other day:

“What are some good alternative energy stocks?”

While this sector is still considered to be in its earlier (read: riskier) stages – meaning, some companies will stick around and others will fold – I feel that if we pay attention to the fundamentals we can still find great companies, trading at reasonable valuations that have a high degree of succeeding and being one of the companies that will “stick around”…and show investors some handsome profits in the interim.

One of my favorites at the time being is, Trina Solar (NYSE: TSL).  This company is based in Changzhou, China and manufactures and sells solar modules to countries around the world.

While we may be going through a tough time in the market here in the US, things aren’t so bad on the other side of the pond.  The fact that Trina sells much of its products into European countries like Spain, Germany and Italy, makes this writer very happy.

Look at the Numbers

So the big picture/macro story is there, now let’s take a look at how this company has been performing from a financial perspective.

2006 revenues were about $114 million – not bad.

2007 revenues more than doubled to $301 million – even better!

And the most recent quarter showed gross revenue of $101 million – which is nearly TRIPLE what the company did in the year-ago period.

So the top line growth is certainly here, but what about the bottom line?

Well, the bottom line numbers are looking even better.  Due to some favorable shifts in the supply of polysilicon (the raw material used to build solar panels) Trina was able to expand their profit margins and returns on equity in the most recent quarter.  The company showed a 40% increase in net profit margins, putting it at about 15% and its Return on Equity jumped to 17.5% - a BIG improvement by anybody’s yardstick.

And the market has been rewarding Trina handsomely for its performance – the stock is up 50% within the last month but it still has a long way to go before it reaches the 52-week high it previously set back in July.

So for me, this is definitely the company to look at further if an investor were looking for a long term play in a market that’s just beginning to take off.  The macro picture is firmly in place, the company is showing some strong signs of growth while continuing to improve its fundamentals and the stock still seems to have some upside in it.

Click here to give your 2 cents on the Alternative Energy sector or to read some of the other answers people left on TickerHound.com