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After sell off, Canadian Solar still shines

The fundamentals for renewable energy stocks haven't changed despite the recent sector sell off.

One of last year’s hottest sectors was renewable energy as public sentiment embraced clean fuels and rising profitability made the companies more attractive to investors.

But after hitting highs in mid-February, many companies have given up most, if not all, of this year’s gains. This includes solar energy companies. Even so, the long term fundamentals are strong as the shift way from fossil fuels continues and these technologies mature.

Here’s an update on Canadian Solar Inc. (NDQ: CSIQ), based in Guelph, Ont.

Background: Canadian Solar is one of the world’s largest manufacturers of solar panels. It has operations in 24 countries including two manufacturing plants in Ontario. It has a growing business designing and building solar power plants for utilities and commercial and industrial customers.

Canadian Solar listed on the Nasdaq exchange in 2006 and is moving ahead with a dual listing in China. That should be complete by next spring.

John Cook, who manages the Mackenzie Global Environmental Equity Fund says the rising price of polysilicon is affecting the price of solar panels. Credit: Supplied photo

Performance: Renewables hit their stride in 2020 and Canadian Solar was a top performer. The shares are up 169% in the last 12 months, even with a sharp sell off in February. The shares are down 8.6% year to date.

Financials: Canadian’s Solar reported its yearend on Mar. 18. Quarterly revenue and profit beat expectations. Revenue rose 13% to $1.04 billion, while profit fell 91% to $6.6 million, or $0.11 per share. Covid-related impacts, plus a rise in material costs were cited as reasons.

For the full year, revenue grew 9% to $3.5 billion and net income attributable was of $147 million or $2.38 per diluted share.

Discussion & Outlook:  In a conference call, CEO Dr. Shawn Qu said 2021 will be a good year. He expects Canadian Solar to capture 10% of the solar battery storage market in the U.S. alone.

“We remain confident in solar energy’s global prospects,” he said. “We are at a turning point, seeing a steep increase in demand for clean power for solar and battery storage projects, where Canadian Solar has a competitive advantage.”

John Cook, whose Greenchip Financial Corp. was acquired by Mackenzie Financial Corp. in December, says the sell-off was sector-wide. Mr. Cook is a green investing pioneer and now manages the Mackenzie Global Environmental Equity Fund.

He says the price of polysilicon, the main input for panels has almost doubled since last summer. This will affect profits, though new solar installations are expected to remain strong. Fundamentals still favour solar which is some parts of the world is now the cheapest form of power to generate.

Mr Cook says 10% of his fund’s holdings are in solar stocks, including Canadian Solar.

“It still looks attractively priced to us.”

This is an edited and updated version of article that appeared in the Internet Wealth Builder on March 22, 2021.  For information on how to reprint this article please view this page.

Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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