The First Domino Falls in the Solar Shakeout

Travis Hoium, The Motley Fool
Updated

Solar industry observers have been watching this train coming for months. As prices fall and margins are squeezed, there is bound to be a shakeout of solar manufacturers. And the first domino has fallen.

Evergreen Solar (NAS: ESLR) filed for bankruptcy protection this week citing Chinese competition it just couldn't overcome. Evergreen's technology was supposed to lead to lower costs than the competition, and a move to China was supposed to be the final cost cutting step the company needed.

All of the things that were "supposed to" happen never did, and this week's filing was the result.

Who's next?
One minor solar manufacturer filing for bankruptcy doesn't really constitute a shakeout, so who else may be in trouble going forward? Energy Conversion Devices (NAS: ENER) is one of three clean energy companies I thought were on their last leg, along with Evergreen Solar, so that would be my next pick.

Like Evergreen, Energy Conversion Devices is a great story. The pictures of its products are very impressive, and there are even some nice projects the company is working on. But losses keep mounting, sales are falling, and there's a large debt burden hanging over the company. When earnings are released on Aug. 25, we'll see if the company's solar division has made any progress, but I'm not going to bet on it.

Ascent Solar (NAS: ASTI) is another company I would be leery of. As I highlighted this week, the company may have gotten a new lease on life, but that doesn't mean it's time isn't coming.

Sticking with solar leaders with high margins like Trina Solar (NYS: TSL) and First Solar (NAS: FSLR) , or manufacturers with project development pipelines like SunPower (NAS: SPWRA) , is much smarter than betting on a risky solar technology.

Stocks can continue to trade after bankruptcy has been filed, but that doesn't mean the shares are actually worth anything. If I owned shares, I would cash them in for anything I could get at this point.

Keep Evergreen Solar and Ascent Solar on My Watchlist to see whether they're going to follow Evergreen Solar's fate.

At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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