Solar Stocks Power Higher (NYSE: WFR) (NASDAQ: FSLR)

As oil prices continue to climb through the roof and clean nuclear energy becomes a worrisome hazard to human health, investors are beginning to give solar more credit. This form of energy is the cleanest and one of the safest renewable sources that exists. Solar wafers are expensive however, although installations costs are coming down. First Solar (NASDAQ: FSLR) is a manufacturer of solar wafers, as is MEMC Electronic Materials (NYSE: WFR).

WFR's business model is slightly different than First Solar's. WFR produces the solar panels but it also has a subsidiary, Sun Edison which is a small portion of WFR's business, that installs solar panels and charges customers for the electricity that they generate. The subsidiary is able to build large scale solar grids, and maintains and sells them to other firms to earn revenue.

While the solar stocks have been downbeat, they are inching higher today. FSLR is up over 2% while WFR is up over 1%.

WFR Breaks Through Technical Resistance

MEMC Electronic Materials (NYSE: WFR) smashed through its upward technical resistance after it had reported an inline quarter but raised guidance signalling improvement in the downbeat solar industry. MEMC continues to trade at recession level lows, but has broken a steady downtrend, and it now ready to rocket higher. The company produces wafer for solar panels, but has recently come across something interesting – the acquisition of SunEdision. SunEdison, which WFR bought for a mere $300 million, now brings in approximately $300 million in revenue to MEMC’s business each quarter. Although the company was not profitable when MEMC purchased it, the MEMC-SunEd combination makes it the king of solar innovation. SunEdison has an economically sustainable business model in which it puts it own solar panels on the roofs of other companies’ building for example, for free, and then sells the solar energy back to the company for below-grid prices. It also sells the power back to the grid. This green energy and cost saving method is beneficial for both MEMC and a host of companies worldwide. MEMC is building a massive solar grid, which surprisingly generates massive amounts of power. MEMC also sold one of its large plants in 2010, which took the company less than a year to build. It sold the solar plant for almost $400 million.

Longer term, the initiative could drive down solar panel costs and a large scale adoption of the clean energy generators. This simply means more business for MEMC at lower cost.

MEMC Electronic Materials is trading just a few points off its 52-week low. The stock is still down over 21% from its 52-week high, and down considerably from its all time highs of over $90 in 2007.

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MEMC's Accounting Gymnastics (NYSE: WFR)

NEW YORK - Two days after MEMC Electronics popularly known as Wafer announced profits of $11 million it also announced that it expected Wafer prices to decline 15 to 20% this year. The company reported some peculiar Non-GAAP projections for 2011. While the company expects GAAP earnings between 25 and 55 cents a share it expects Non GAAP earnings from $1.00 to $1.35 a share. The company announced that they expect $ 0.2 billion of revenue from direct sales and $0.4 billion of revenue from sales leasebacks which are not counted in GAAP revenue. They expect GAAP revenue of $2.8 billion.

We do not have a problem with including the non-GAAP direct direct sales of $0.2 billion for 2011 since the company is not recognizing revenue because of accounting requirements regarding real estate. This means the company is building solar equipment on the land and would normally estimate how much profit they estimate they will make when the job is completed but because they are considered to be making the land more valuable they have to follow real estate accounting. Which means they cannot estimate the profits they will make from the sale until the job is completed. This seems to be improper accounting practice.

The company also expects $0.4 billion of revenue from sales leasebacks. This is not inccluded in GAAP net income which we view as correct. A sales leaseback is when a company sells equipment it currently owns then leases it back. For simplicity lets say MEMC has equipment that is worth around $180 million but it sells it for $200 million but then leases it back forcing the company to pay $200 million of payments to the company that now leases them the equipment. The difference is an unrealized profit which MEMC is likely counting today for non GAAP purposes as profit instead of the GAAP procedure which holds it in an unrealized account . After the current year the unrealized profit lowers the depreciation expense of the company but no real profit is realized from the transaction.

If you bought a bagel for $1 and sold it for $1000 and then leased it back for $1000 you would have $999 of unrealized profit but it would be unacceptable to really think you made money over the whole ordeal. Sales leaseback give companies liquidity as the lessor will gladly make interest on your equipment and the lessee is happy to get the money up front which it can use for other purposes. So we have a problem with MEMC saying its non-GAAP earnings will be $1.00 to $1.35. We believe the company should focus on GAAP policies instead of distorting accounting truths. MEMC says it will recognize revenue on this because "the present value of the lease payments are less than the amount recorded as debt." but this makes little sense since unless they buyout the contract before its due, everyone knows the present value of a $1,000 bond on the day its due is $1,000.

To see the full MEMC report click here.

Hot Stocks to Start off the New Year: RIM, TEVA, WFR, BAC

The year 2010 was great for the stock market overall, but some stocks lagged the market, waiting for a better 2011. That that the new year is here, it is time for these well managed companies to shine.

Research in Motion (NASDAQ: RIMM) (TSE: RIM) has been knocked all over the place even with excellent quarterly reports and 40% revenue growth. With the launch of the long-awaited PlayBook, the stock is a candidate for some real profits. Currently, without the PlayBook, RIM earns more money than UPS (NYSE: UPS), has a much larger growth rate, and trades at less than half the market cap. To read the full report click here.

Teva Pharmaceutical (NASDAQ: TEVA) has investors worried about its monopolistic Copaxone drug. The new year should bring clarification on competitors' generic copies. At the end of 2010 Teva tried to get a concentrated version of its Copaxone approved, but it was quickly denied by the FDA. This could be good news if the FDA does not want to approve other similar drugs. To read the full report click here.

MEMC Electronic Materials (NYSE: WFR) is getting ready to earn some cash this year. Earlier in 2010 insiders purchased large amounts of shares. Most investors see the stock as a solar play - which it is - however it is essentially a play on oil. As the oil price moves up, companies will turn to clean energy such as solar. If oil once again reaches its 2007 highs, MEMC has large earnings power that could boost the stock to its 2007 highs as well. To read the full report click here.

Bank of America (NYSE: BAC) Of the large banks in the United States, Bank of America has lagged the rest. The company has been the center of negative attention, from Wiki Leaks to poor earnings. Last quarter the company earned over $3 billion, which was overshadowed by a $10 billion writedown of goodwill. The company trades just pennies over book value and is poised for a solid year of earnings. The bank may even be ready to start paying its once bountiful dividends once more. To read the full report click here.

The Sun Never Sets On MEMC (NYSE: WFR)

MEMC Electronic Material (NYES: WFR) is on a quest to build a smart grid. One of its subsidiaries, SunEdison has an innovative business model that is underestimated. SunEdison, approximately an 8th of MEMC's business in terms of size, offers companies extremely viable solutions to switch to solar power. From another company's perspective, their electricity bill simply drops, saving the company money. From SunEdison's point of view, the company will own a large array of solar panels that generate massive amount of electricity in sunny areas of the world. SunEdison signs a 20-year contract with other companies to sell them back the electricity, which aids to quickly recover back the cost of the solar panels. Over the years, installation costs of solar panels has dropped dramatically, a large plus for SunEd. If the solar company has excess capacity, it may be able to sell it back to the grid in the future, or power other buildings and factories. The company has operations worldwide.

To read the full report click here.

Top Smart Grid Plays: SWKS, WFR

Skyworks Solutions (NASDAQ: SWKS) has been picking up steam with its continued smart grid developments. The company provides chips and solutions for the growing demand in smart grid technologies. Skyworks provides chips for smart water, gas, and electric meters. Remote metering applications is also in the company's portfolio. Skyworks has over $400 million of cash on hand and minimal debt, which makes its balance sheet look pristine.


MEMC Electronic Materials (NYSE: WFR) is also on the smart grid business. The company produces various types of chips which are used in smart grid applications. It focuses on solar wafers however, and it building its own solar smart grid which helps companies save money and go solar for realistically viable prices. The company boasts almost $600 million in cash and equivalents and rapid revenue growth as the solar industry once again becomes economically favorable.

To read the full report click here.