Buffett And Apple Love This Energy Stock

Written By Outsider Club

Posted April 1, 2014

*Post courtesy of Karen Canella with Street Authority.

You may not know it, but while Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB) build their data centers near utilities that generate clean energy, then buy power from them… Apple (Nasdaq: AAPL) builds its own power plants.

 Apple recently finished the first phase of a 20,000-square-foot data center in Reno, Nev. The construction includes a 137-acre solar array called Fort Churchill that, when completed, will provide 18 to 20 megawatts of power. And six months ago, Apple announced plans to build a second solar panel farm on the property.

Apple also owns a data center in North Carolina, the largest of its kind in the U.S., powered by two solar farms that generate 42 million kilowatt-hours of clean, renewable energy annually for the 100-acre, 20-megawatt facility.

Finally, Apple has two other 338,000-square-foot data centers in the works in Prineville, Ore. — down the road from Facebook’s — which will incorporate solar energy as well.

What’s important for investors is all of these huge facilities are being built by one company.

As you could imagine, being an Apple partner has contributed to a healthy increase in this company’s share price. In the past year, shares have jumped 168%.

Believe it or not, I’m convinced that growth for this company, SunPower (Nasdaq: SPWR), is just getting started.

You see, growth in the U.S. solar industry was nothing short of phenomenal last year, with a 41% increase in installments and enough renewable electricity generated to power more than 2.2 million homes.

Demand is expected to continue growing in 2014. GTM Research and the Solar Energy Industry Association see solar advancing another 26% this year.

In fact, the domestic solar industry is expected to grow an average of 17% for the next five years.

Those are pretty impressive numbers, but SunPower’s are even better. The company is expected to outhustle the industry itself, on track to increase earnings 30% annually over the same period.

How is this $3.9 billion company outpacing the broader industry by so much?

While many solar companies expand their businesses one house or one building at a time, SunPower takes on farm-sized installations like those required by energy-hogging data centers that devour up to 30 billion watts annually, the equivalent of 30 nuclear power plants.

To give you an idea of the potential size of this relatively new market, Pike Research estimates that more than $45 billion will be spent on energy-efficient data center technology alone by 2016.

And Apple is not SunPower’s only notable customer. Warren Buffett is also a client.

In short, Buffett’s firm, Berkshire Hathaway (NYSE: BRK-B), owns almost 90% of energy holding company MidAmerican Energy. In 2012, SunPower signed a $2.5 billion deal with MidAmerican to build two solar farms in the California desert north of Los Angeles. Construction is well underway, and once the 579-megawatt facility is built, SunPower will also maintain it, making it a consistent generator of annual income.

In addition, the company has a 6-gigawatt pipeline of business, enough to power 1 million homes, which includes already inked agreements to build solar farms in South Africa, Japan and Chile.

Every corner of solar that SunPower touches — residential, commercial, international — is in ultra-growth mode. The company’s jam-packed pipeline, coupled with the promise of future projects in all three areas, can only mean higher profits and share prices.

Risks to Consider: SunPower lost nearly $1 billion over 2011 and 2012 and experienced a steep decline in stock price from $142 in December 2007 to below $4 in just five years. That said, one advantage the company has is the backing of its parent company, French oil and gas giant Total (NYSE: TOT), which plucked SunPower from the depths of bankruptcy in 2011.

Action to Take –> Over the past month, SPWR is down 10%. I’d look at this dip as a buying opportunity and buy at the current price of $33, confident that the company is heading into another profitable period.