DOLLARS FROM HEAVEN
By Art Tabuenca, Blue Marble Investments, LLC.*

"Every time rains, it rains - Pennies from heaven Don't you know each cloud contains - Pennies from heaven You'll find your fortune's fallin' - all over the town Be sure that your umbrella's - upside down"

Profits falling from the sky? A wishful, romantic notion perhaps, but realistic? Maybe it's not so far fetched. With all due respect to songwriters Johnny Burke and Arthur Johnston, I'd like to suggest that perhaps if written today, Mr. Sinatra may have crooned slightly different lyrics:

"Every time it shines, it shines - dollars from heaven Don't you know the sun contains - dollars from heaven There's a fortune to be made now - and if you need proof Be sure those solar panels - are up on your roof"

Solar panels? Yes, solar panels. Amidst the continuing threat of power blackouts that many Californians have experienced, the interest in solar energy systems is soaring both within the Golden Gate State and beyond.

Due to historically lower energy costs and lower subsidies for green power systems, the United States has lagged behind other industrial nations in solar energy usage. Japan and Europe, are industry's two biggest markets. In 1999, $2.6 billion's worth of solar panel equipment was sold worldwide. According to the consulting group PV Energy Systems, the market should grow 25 percent annually for the next five years.

The solar power industry has been dominated by large multinational companies like Britain's BP Amoco (NYSE: BP), Germany's Siemens (NYSE: SI), and Japan's Kyocera (NYSE: KYO); however competition from smaller pure play solar power upstarts is increasing. One such company is AstroPower (Nasdaq: APWR) based in Newark, Delaware.

AstroPower has experienced dramatic revenue growth of 50% per year over the last 5 years, and can't build production capacity for their solar panels fast enough. Since the California crisis hit, AstroPower's biggest challenge has been keeping up with the boom in new orders. AstroPower's CEO is Allen Barnett, a former University of Delaware engineering professor who started at the company as part of a research stint. . Barnett explains that, "our only problem today is that at a 50% growth rate, we cannot satisfy the demand of our current customers." AstroPower claims it can only meet about 70% of the demand for its products, compared to around 90% a few years ago. ``It will take at least two years to catch up with demand,'' says Barnett. In addition to the growing interest in the U.S. (which currently accounts for only 20% of AstroPower's sales), Barnett sees huge opportunities in Asia, Africa, and Latin America.

ADVANCED ENGINEERING = PROFITS
Unlike most pure play solar power companies, AstroPower is actually profitable. In 2000, the company posted a profit of $3.5 million, or $0.27 cents per share -- a 53% jump from 1999, and the company says it's on track to meet analysts' expectations of a $0.53 per-share return this year, almost double its 2000 profits.

According to AstroPower, the basis for past and present profitability has been the use of recycled semiconductor wafers to make superior single crystal silicon solar cells. By avoiding the high costs of growing, slicing and preparing ingot-grown wafers, the company can maintain significant cost advantage over its competition. Additionally, the company has developed a new generation of solar panels, expected to hit the market soon, in which the solar cells are etched onto sheets of glass. This eliminates the time-consuming and costly task of making individual solar cells and later attaching them to panels.

DEMAND = CONTINUED GROWTH
AstroPower's fastest growing business right now involves outfitting homes that are already connected to the nation's power grid. As the U.S. power grid comes under greater strain and as the cost of solar technology drops, AstroPower foresees continued growth. In the last decade alone, the cost for a solar panel system generating enough electricity for a family of four has dropped from $40,000 to $25,000. More significantly, when such systems are installed during initial construction it can add as little as $7,000 to the cost of the house. Depending on energy costs, such a system could pay for itself in 10 years or less. Such prospects are attracting large homebuilders, witness the following deals where AstroPower solar systems will be installed, all announced in the last 6 months:

• Shea Homes; 100-200 new homes in the San Diego, CA area.
• U.S. Home; 500-1000 new homes in the Sacramento, CA area.
• Pardee Homes; 200 new homes in Southern California
• New York City; existing 27 story, 280 unit Battery Park hi-rise.

Other catalysts that should continue to fuel interest in solar systems include:

• Government subsidies for renewable energy systems.
• Acceptance of "net meter" technology, whereby Utility companies actually credit solar system users for energy they pump back into the system during the day.

INVESTING = OPPORTUNITY?
Anyone with a sense of concern for the environment can appreciate the AstroPower story; but what does it mean for the potential investor? According to 10 of the16 analysts that cover the stock it is considered either a Buy or a Strong Buy (the other 6 rate it a hold). To be sure, the company carries a very rich P/E (price divided by last years earnings) multiple of 408 (as a point of reference, the P/E for the S&P 500 is in the mid 20's). However as most investors realize, high growth emerging market companies frequently trade with very high P/E multiples. To help digest the potential, the investor should consider:

• Among the upstart pure-play solar energy companies, AstroPower is the only one to actually show profits.
• The analysts consensus earnings estimates for the next 5 years forecast an impressive growth at 40% per year.
• Institutional ownership increased by 12% in the most recent quarter; an indicator of confidence from Wall Street.

Investing in emerging markets and technologies is not for the faint of heart. Price movements can be very volatile and erratic, as the risk/reward ratios escalate. Keeping this in mind, it is easy to conclude that solar power is an important technology that will play a central role in the restructuring of the trillion-dollar global power industry. Oil exploration in the Arctic may be a long-term option, but solar energy is an immediate, at-hand fix. For investors buying into the short list of pure-play solar power leaders, such as Astropower, it may provide an immediate opportunity as well. Truly it could be shining "dollars from heaven" indeed.

* Securities offered through Commonwealth Financial Network, Member NASD/SIPC.