This Stock Is Ready for Its Moment in the Sun
With the growth of large data centers to help power AI, the demand for cheap energy is growing quickly. Solar farms are one of the solutions.
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Small-cap stocks IWM are leading the market on Monday, which is pushing breadth to almost three to one positive. There are only about 150 new 12-month highs, which reflects how badly beaten down most stocks are still.
The Magnificent Seven names have lost traction as a result of market confusion. Apple AAPL and Tesla TSLA, which have been the biggest laggards in the group, are bouncing while Meta META continues to pull back, and Microsoft MSFT is close to filling its earnings gap.
The outperformance by small-caps reflects hope for positive earnings in the next couple of weeks but also illustrates rotational action. These names have lagged badly while the market has been focused on the big-cap technology names that are now expensive and are seeing mixed reactions to their earnings. So far earnings season has had more negative responses than is typical.
I’m focusing on stocks that should have good news or earnings in the next few weeks.
Shining the Light on the Solar Farm Theme
One name in particular that I’m watching is First Solar FSLR. I’ve been watching this one closely for a while and suspect that it could see a positive response to earnings on Wednesday, May 1.
First Solar’s primary customers are utility-scale solar farm operators. The company manufactures photovoltaic solar panels and offers associated solutions, including project development, financing, engineering, procurement, construction, operations, and maintenance. Its primary competitive advantage is the use of thin-film technology as opposed to crystalline silicon. This allows for lower production costs and higher efficiency in high-temperature conditions.
With the growth of large data centers to help power AI, the demand for cheap energy is growing quickly. Solar farms are one of the solutions that are First Solar's primary niche. In Catawba County, NC, where I have property, Microsoft MSFT is spending more than $1 billion to build three data centers. There are also several new solar farms being built. I believe that this is a theme that will help First Solar for years to come.
One upcoming catalyst for FSLR is that the Biden administration is expected to remove a tariff exemption for two-sided bifacial solar modules that are imported to the U.S. As a domestic producer, this will be a major benefit for First Solar.
I don’t typically like to buy stock in front of earnings, but I plan to hold some First Solar, which will report on Wednesday, May 1, after the market closes. Barron's listed FSLR this weekend as one of the few stocks, along with Nvidia NVDA, Super Micro Computer SMCI, and Broadcom AVGO, which is expected to see revenue growth of more than 30% this quarter.
What is most impressive about First Solar is that it has tremendous EPS estimates but trades at a trailing P/E of just 23. Current estimates are for EPS growth of 75% in 2024 to $13.54 and a further 25% increase in 2025 to $20.91.
The main thing holding back First Solar is concern that a Trump administration may put policies in place that may hurt the solar sector, but First Solar's production is sold out through 2026 with over $23 billion in orders through 2030. There is no shortage of demand for what First Solar has to offer.
At the time of publication, Rev Shark was long NVDA and FSLR.
