The Bullish Case for Canadian Solar Stock
Dear reader, I have a confession to make…
I am a bargain shopper. Whether at the grocery store or shopping online, there’s a part of my brain which constantly searches for the best possible deal. I can’t hide it anymore. Even for something as insignificant as apples, nothing makes me happier than knowing I bought them at the cheapest price. My friends think it’s an unhealthy obsession, but hey, blame it on the day job.
I’ve spent my whole career writing about the stock market. If there’s one thing I have learned, it’s that investing is all about bargain hunting. After all, you could discover the best company in the world and it wouldn’t matter if the market has already priced in its potential.
What you want is an undervalued stock.
Only a company with an underappreciated, unloved stock price would make for a stellar investment. That’s why I routinely look at industries which the rest of the market ignores. It’s the only place where you can pick up stocks on the cheap.
My latest find is Canadian Solar Inc. (NASDAQ:CSIQ) at $13.97.
In recent months, I have written a lot about stocks that “sell shovels in a gold rush.” If you are unfamiliar with that phrase, check out the articles on Nvidia Corporation (NASDAQ:NVDA). It’s one of the investing philosophies I absolutely love. Canadian Solar lives by this philosophy, as do others like Nvidia and Qualcomm, Inc. (NASDAQ:QCOM).
In a nutshell, this philosophy says that great companies don’t sell to regular folks; they sell to companies instead.
Rather than digging for gold themselves, they sell shovels to the miners. There is a whole lot of wisdom packed into this little metaphor. For instance, Canadian Solar undoubtedly views solar power as an important part of our energy future, but it doesn’t install rooftop solar panels. It merely sells the parts that allow other companies to install those panels.
Here’s why: corporate clients tend to buy in bulk, sign longer-term deals, and make more rational decisions. They are, in other words, more predictable and dependable than end consumers. That’s why Canadian Solar is such a well-positioned firm.
But remember what I said about the difference between companies and stocks? It’s not enough that a company is good; its share price also has to be cheap.
Lucky for us, the market tossed CSIQ stock into the bargain bin last year.
What This Means for CSIQ Stock
You may be wondering why solar stocks are so inexpensive right now. After all, if solar is the future of energy, wouldn’t investors already be bullish on those stocks? Well, it’s complicated. The market was optimistic on solar power during 2013 and 2014, but then a confluence of events drove share prices into the ground. For one thing, the U.S. Congress nearly failed to renew key solar tax credits.
There was also a sudden drop in demand from China. Both of those events scared the living daylights out of investors, leading to a mass exodus from the solar energy sector. It was indiscriminate and short-sighted carnage.
Why? Simple: the long-term trend is unchanged. Solar energy is still a growing part of the energy supply regardless of whether there are hiccups in the short term. As an industry, it actually employs more people than all U.S. coal companies combined. That’s how much things have already changed.
Those trends are set to continue, meaning that the industry is still due for extraordinary growth. Investors are simply being cautious about which stocks to invest in because the short-term volatility will drive a few out of existence. They’re not quite sure how to sort the wheat from the chaff, which is why all solar stocks fell throughout 2015.
I’m willing to bet that CSIQ stock will among the first to recover. Unlike most other companies in the space, Canadian Solar actually makes a profit. Its bottom line grew by 126% over the last year, suggesting that business is picking up in the space. Most investors haven’t realized that yet, which is what makes me so bullish on this company.
The bottom line is that CSIQ stock is poised for massive gains.