Canadian Solar – Bright Future for Downtrodden Energy Stock

In Monday’s Goldman Guide we referenced the 80’s commercial craze “Where’s The Beef”. Our younger readers may not get the reference, and to be honest, we are not sure if there is anything close to the cultural phenomenon the ads created. The closest thing we could think of was the musings of ‘The Most Interesting Man in the World”, who ran a marathon because it was on the way among other accomplishments. But we digress. The tagline was meant to point out the weakening EPS figures for the S&P. We also pointed out that it may be time to look for down in the dumps consumer discretionary or energy stocks.

One energy stock that caught our eye initially was SunPower Corporation (NASDAQ – SPWR - $10.63). We decided otherwise due to several downgrades. On a side note, the Company conducted its quarterly conference call the other day and it was less that cordial. Here is a very interesting read.

http://www.marketwatch.com/story/sunpowers-shock-profit-warning-makes-for-unusually-tense-earnings-call-2016-08-10

The three-year chart for Canadian Solar, Inc. (NASDAQ – CSIQ - $13.09) is illustrated below. This is one our older Market Monitor picks from way back in November of 2013, and has had many peaks and valleys over that time. The stock is down over 50% since then as well as year-to-date coincidentally.

CSIQ 3-Year Chart

(Source: www.otcmarkets.com)

Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar wafers, cells, and solar power products primarily under the Canadian Solar brand name. The Company operates through Module, Energy Development, and Electricity Generation segments. Its products include various solar modules that are used in residential, commercial, and industrial solar power generation systems. The Company also provides specialty solar products consisting of Andes Solar Home System, an off-grid solar system, designed to provide an economical source of electricity to homes and communities without access to grid; and Maple Solar System, a clean energy solution for families, as well as solar system kits, which are a ready-to-install packages, such as inverters, racking system, and other accessories.

There are two major reasons we like CSIQ. First, EPS reporting which ties into the Company’s operating margin. An operating margin consistently above 7% has been a major contributor for the Company to hit or exceed EPS estimates four consecutive quarters. This is crucial for momentum pops. Secondly, there may be some M&A activity with larger firms looking to add technology and efficiencies by buying small cap firms like Canadian Solar. The all-important metric here is Enterprise Value to EBITDA value, which is a low 8.2

We believe CSIQ will begin an accumulation phase. Look for the stock to climb back to $17 by the end of the year.

Have a great day!

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