Solar industry observers have seen this train coming for months. As prices fall, partly due to high supply levels, and profit margins are squeezed, there’s bound to be a shakeout of solar manufacturers. And the first domino has fallen.
Evergreen Solar recently filed for bankruptcy protection, 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.
Which other companies may be in trouble? Energy Conversion Devices is one possibility. The pictures of its products are very impressive, as are some of its projects. But losses keep mounting, sales are falling, and there’s a large debt burden hanging over the company. Ascent Solar is another one to watch.
Sticking with solar leaders with high profit margins, such as Trina Solar and First Solar, or manufacturers such as SunPower that have project development pipelines, is much smarter than betting on a risky solar technology.
Stocks might still trade after a bankruptcy filing, but that doesn’t mean the shares are actually worth anything. It’s probably smartest to cash them in and seek more promising investments.
Ask the Fool
Q: If I’m a shareholder in a company that goes bankrupt, will I lose my entire investment? – S.D., Kankakee, Ill.
A: You won’t necessarily lose everything, but you’ll probably take a big hit. Some companies file for bankruptcy protection and then turn themselves around, as Texaco and Delta Air Lines did.
Even if a firm ultimately fails, it’s sometimes still worth something. Its assets (such as buildings or equipment or business units) may be sold off. The whole company may be bought by another company, too.
When these sales occur, you as a common-stock shareholder are in line to receive some of the proceeds. Unfortunately, though, you’re last in line. Creditors (banks, bondholders, suppliers, etc.) are paid first, followed by preferred stockholders. If there’s anything left, holders of common stock may receive something. Don’t count on it, though.
It’s best to keep an eye on your stocks and their progress, so that you don’t end up holding a failed company. At a minimum, read quarterly or annual reports.
Q: What is FDIC insurance? – B.C., Syracuse, N.Y.
A: The Federal Deposit Insurance Corp. (FDIC) was created in 1933 to protect investors against bank failures. It insures checking, savings and money market accounts (and CDs) for up to $250,000 per depositor at each bank and thrift. It does not cover stocks, bonds, mutual funds, life insurance policies, annuities and the like, though. For these, check with your financial service company to see what kind of protections may be provided.
Learn more about the FDIC at www.fdic.gov, and more about your short-term savings options at www.fool.com/how-to-invest and www.bankrate.com. (You do have three to six months of expenses socked away in an emergency fund, right?)
My dumbest investment
I bought into the Belgian-Cypriot shipping company ACLN before its scandal erupted and held it until it was worthless. There were actually rumors beforehand that something was wrong with the company – that the financials might not be up to snuff. This was pre-Enron, so I wasn’t jaded enough yet.
I ended up learning that if there’s ever a rumor of bad financials or that a company isn’t on the up-and-up, sell and walk away. Even if the rumor is not true, the stock is sure to fall. Had I sold on the first rumors about ACLN, I may have suffered only a 10 percent or 20 percent loss. – P.M, Santa Maria, Calif.
The Fool responds: Since many actual disasters start with rumors, it’s not crazy to play it safe and sell. Or at least to start looking harder at the company. The SEC found, among other things, that the company had falsely claimed to have more than $100 million in cash and that insiders had been selling stock without making required disclosures.