Buy This Stock For The Core, Not The Apple

GT Advanced Technologies (GTAT) first came to most people’s attention in November of last year, when Apple (AAPL) signed a big contract to ensure long term supply of the company’s sapphire crystals. The assumption was that GTAT’s advanced sapphire materials would be used extensively in Apple’s mobile products before too long. The stock jumped and has continued to do well right up until last week.

Then some analysts ran out of patience. The lack of news about Apple products with sapphire screens led to several downgrades. That, combined with a general pullback in momentum stocks, led to GTAT losing over20 percent from the July 2nd high in a week. All very interesting, you may be thinking, but what has any of this got to do with energy? Simple, in all of the hysteria about i-gizmos, many have lost sight of the fact that GT is a leader in technology surrounding the pholtovoltaic (PV) cells used in solar panels.

I have written about solar energy a couple of times recently as I believe that the industry is maturing and the much hyped potential may soon become reality. A large part of that belief is based on the fact that, as technology advances, so the cost of producing solar power is rapidly becoming more competitive with conventional generation methods. A large part of that cost reduction has come from making the PV cells themselves cheaper to produce, and that is where GTAT comes in.

Their “Hyperion” ion implanter enables companies to cut silicon, sapphire and other materials used in PV cells significantly thinner than was previously possible, resulting in cost savings of around 20 percent, and the “Merlin” solar cell metallization and interconnect technology reduces the use of silver paste, also delivering significant cost savings.

In all of the hype surrounding Apple and sapphire, the long term potential of reducing generation costs for solar power plants has been largely overlooked. The U.S. DOE SunShot initiative has the aim of cutting the per Watt cost of solar electricity to $1, which is ambitious, but thanks to Swanson's Law, is beginning to look achievable. Swanson’s law states that the cost of solar power will drop 20 percent for every doubling of capacity in the industry, and as that capacity continues to increase exponentially, GTAT, as a market leader, can expect to see rapidly growing demand for their core solar power products.

Of course, we shouldn’t ignore the potential of sapphire too. I am not a tech expert, but buying GTAT now following the drop would seem to make sense. It looks as if the lack of an imminent announcement from Apple about the use of sapphire crystal technology is now priced into the stock, so any mention of it when the tech giant releases earnings on July 22nd would cause a significant pop in GTAT. If nothing is forthcoming, then there will likely be little further reaction and investors will return to looking at GT Advanced Technologies as a supplier to the rapidly growing solar industry first and foremost. Even after the juicy prospect of being a supplier to Apple has been removed, however, the core of the company’s business is reason enough to buy the stock.