Power-One, Inc. (PWER)

[stocktrader001]

Rising Star Buy: Third Time's the Charm for Power-One

By Jim Mueller
April 14, 2011

This article is part of our Rising Star Portfolios series.

A month ago, I lamented the fact that the share price of Power-One (Nasdaq: PWER ) , a maker of DC-to-AC inverters for the solar and wind industries, had dropped well below $8 and then rebounded before I had a chance to buy. Of the 10 different companies my Messed-Up Expectations portfolio owns, I believe this one has the most growth opportunity and I wanted a really good price for my last purchase.

Well, the opportunity has arisen again -- given the volatility of the stock, I figured it probably would -- thanks in part to reaction to an announcement the company made last week. First, some background.

I first ran across this company last November and made it the second purchase for my Rising Star portfolio, believing that the company had a great growth story ahead as solar and wind energy become bigger and bigger contributors to the electrical grid.

When it reported 2010 earnings -- including 143% growth in revenue and a profit instead of a loss for the first time in years -- and guided for lower revenue in the first quarter than analysts had hoped, the market spanked the company by knocking the price down 21% in one day. I picked up a second portion.

Europe dominates, but should it?
Last week, citing slowdowns in Europe, Power-One lowered first quarter revenue guidance even further, down to $240 million to $245 million, below the lower end of its previous guidance of $260 million to $290 million. The stock price, after initially shaking that news off, has spent the past several days falling 10%, ending yesterday at $7.48 per share.

The worry du jour is still Europe, with Italy expected to cut back on its subsidies for solar power. But that worry is overblown, in my opinion, for two reasons. First, there's at least one report that Italy "is backtracking on its plan to cut [subsidies] on renewable energy." If that's true, it wouldn't surprise me, thanks to the public surge against nuclear power forcing Italy to put its nuclear plans on hold.

Second, Power-One is aggressively moving away from reliance on Europe. It's recently opened plants in Arizona and China and is going after the U.S, Chinese, and Indian markets. China, for example, expects to grow its solar power capacity from the current 600 MW level to 20 GW by 2020, a 33-fold increase. That should certainly help Chinese solar panel manufacturer Suntech Power (NYSE: STP ) . California requires that 33% of electricity generated for the state must come from renewable resources by 2020. Both Power-One and SatCon Technology (Nasdaq: SATC ) will benefit. Europe is not the only story anymore.

Thanks to the drop in price, tomorrow the Messed-Up Expectations portfolio will purchase its final position and increase Power-One to a 6% position.

http://www.fool.com/investing/general/2011/04/14/rising-star-buy-third-times-the-charm-for-power-on.aspx