Yesterday, Cramer decided he was going green. In light of the recent Supreme Court decision Massacusetts v. EPA, which essentially made alternative energy and emissions controls into something that could finally make you money, Cramer is reevaluating all the green stocks that, for the most part, he didn’t like – not because he doesn’t love the environment, but because he just didn’t think they were viable investments.
Cramer believes that certain companies are going to benefit from multiple expansion as a result of the Supreme Court decision. Remember that a stock price is determined by its earnings times its multiple – how much people are willing to pay for those earnings. After Green Day – the day the Supreme Court ruled in the case – that multiple is going to get bigger for green companies as people value these stocks more highly, and a bigger multiple equals a higher stock price, Cramer says.
Today, Cramer’s talking solar power, a sector he’s never been too hot for but is reevaluating now that the Supreme Court has spoken. His two picks are ones he has recommended in the past and he’s reaffirming his “buy buy buy” standing now.
Cramer recommended First Solar on March 7, and since then the stock is up over 30%. He’s sticking with it here for a simple reason: they produce more power for less money than their competitors. They have the highest margins with the lowest costs in the solar business and they don’t use silicon wafers like most solar companies, which is to their advantage because they don’t live and die by high silicon prices. Best of all, Cramer says, the company says it will be able to deliver solar power at competitive retail prices in the next five years. FSLR is going to be the company that makes solar a feasible business on its own, Cramer says.
Secondly, Cramer is recommending MEMC Electronic Materials . These are the guys who make the silicon wafers for all the other solar companies that aren’t First Solar. Cramer actually picked this stock way back on Halloween of 2005 and it is up 247% since. And that was before the Supreme Court decision. Imagine how it’s going to do now, Cramer says, with the solar companies fueling a silicon shortage that can take WFR even higher. The company has a big cost advantage over its competitors even though there’s a ton of new capacity coming out for silicon wafers. After a lot of homework, Cramer doesn’t think that will outstrip demand, though.
Both of these solar plays are momentum names that have already run a lot. But Cramer thinks the Massachusetts v. EPA decision rewrites all the rules for these companies. If Cramer’s right, these companies are the future. And if the economics of solar power change in this country, which they are likely to do now that the Supreme Court has basically forced the EPA to deal with pollution and alternative energy, these solar plays could go even higher.
Bottom line: First Solar is Cramer’s first Green Day solar play because it is, to him, hands down the most economically efficient of the lot. MEMC Electronics is the second because it’s got a stranglehold on the silicon wafer market, the key component to most solar panels.
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