I have written about this stock in the past and continue to believe that it has enormous upside that is not being appreciated by the market. There are secular trends favoring the solar sector and this stock is insanely undervalued based on most traditional valuation metrics. I think it’s a great time to buy this stock and sock it away. I am talking about JA Solar (JASO).
Good News Keeps Coming
Despite its long-term underperformance, the recent newsflow has been good, which has enabled the stock to bounce a bit. Last week, UBS put out a note that speculated that new California governor Jerry Brown would increase the state’s renewable energy mandate to 33%. Recently, the California Resources Board recommended this move. Whether or not this happens, it is clear that trends favor this industry.
Investors have been jittery with regard to this industry due to fears that European governments like Germany and Italy would curtail their generous subsidies to the solar sector. Even if this happens, there is too much fear built into these stock prices, especially that of JASO. Other governments such as the United States continue to make solar energy a priority and Europe will always be a huge player.
Another factor that will help the sector is the inexorable increase in oil prices. Crude oil is one big push away from the $100 level and it seems inevitable that it will get there soon. This makes alternative energy like solar more economically attractive. We have heard it said a billion times that we must end our dependence on foreign oil, but solar is actually an alternative that is in hand and will continue to grow.
Ridiculous Valuations
JA Solar is a low-cost producer of solar cells in the industry, yet it continues to garner discounted valuations. It is trading for a paltry 5.8x current-year estimates. It is even cheaper when you strip out the nearly $2 in cash the company has on the balance sheet. JASO also sports a solid ROE of 22.5% and operating margins of 17%. I believe that fears of reduced subsidies will run their course soon and that this will be a double-digit stock within the year.
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