Over the past few months we’ve spent a fair amount of time determining what value this blog could add to its readers. We’ve essentially boiled down our conclusions to the point where we could identify with many outstanding financial blogs that espoused old school investing in regards to value, balance sheets and growth, we could not find any that merged with the ideals of socially responsible or green investing. That is when the light bulb turned on as this is the type of analysis performed daily.
Being an investment adviser in the Boulder Colorado area would seem ideal since the area is chock full of alternative energy companies but with 20 years in the industry we also are very aware that the vast majority of these firms will not exist in their current form in just 3 or 5 years from now. As a rule of thumb the strength of their balance sheet in light of sales or a weak economy (and weak fossil fuel prices) will determine their inevitable success or failure, not sales, hype or even great technology.
Case in point regarding solar stocks: Reuters is reporting that a parliamentary mediation solution in Germany may reduce the amount of subsidy cuts in solar. Solar has been weak across the board with the expected cuts coming from Europe due to their financial crisis. Hence, why we’ve been avoiding the sector for over a year with the understanding that if a company cannot generate its own revenues without subsidies despite the lofty projections for worldwide revenue estimates, then the investment will likely be a loser.
In the interim we’re assembling a list of solar stocks and searching for those falling to extreme values (Price to Net current asset value) where risk should be minimal.
Ultimately, we think that the European mess will get worse and the domino effect of proposed subsidy cuts are inevitable hence solar stocks with significant European exposure are trades not investments at this juncture.
Markets are quite overbought in the short term and we don’t believe now is a good time to be adding new money to equities as the window of opportunity appears closed for the near term. The ideal time would have been a couple of weeks ago when fear approached extreme levels not seen since last March.
On the bright side, the weak Philly Fed data would have poleaxed the markets had it been released 2-3 weeks ago, whereas today it only creates mild selling. This leads me to suggest that a slowing economy is now baked in the cake.