Photo:Roger Wilco, Creative Commons, Flickr

I have some good news and some bad news. The bad news is that SunPower (SPWR – Last trade $49.92), the darling of the solar sector, trades at a P/E ratio of 133+. With the industry average P/E ratio at 25.70, not everyone can afford SPWR. The good news is that you can still gain exposure to SPWR at a lower cost.

While reading last week's Barron's, I came across an interesting interview with John Buckingham, chief exec and chief stockpicker for Al Frank Asset Management. Buckingham publishes the monthly Prudent Speculator investment newsletter, which, over three decades, has recommended 1,346 stocks that have enjoyed an average annual return of 20.61%. In the interview, Buckingham suggests that investors looking to gain exposure to the semiconductor and solar businesses should buy Cypress Semiconductor (CY – Last trade $19.48). CY is a medium-sized integrated-circuit maker that owns about three-quarters of SPWR.

Buckingham points out that CY's shares in SPWR are worth almost $2.2 billion, yet the market-cap on all of CY is only $2.7 billion. CY's 2006 revenues, excluding SPWR, was $855 million in 2006. Buckingham feels that there is more value to CY excluding SPWR than the market is currently pricing in.

CY seems to be holding on to its stake in SPWR. At the end of December, Chapman Capital reportedly sent a letter to CY suggesting that the company separate itself from its stake in SPWR and then seek a leveraged buy-out. The CEO said at the start of February that they are not currently looking at taking the company private. He added that they are still looking at ways to unlock value and may consider another spin-off.

SPWR is a great company with bright future. As we have previously pointed out, SPWR understands that margin pressure, resulting from reduced barriers to entry into the solar market, can be partially offset by vertical integration throughout the solar PV value chain. The company has taken action to integrate both downstream and upstream. SPWR's high-efficiency cells should continue to provide a source of pricing power going forward.

With SPWR trading at a significant premium to the rest of the market, I still feel that most of the good news has already been priced into SPWR shares. CY trades with a P/S multiple of 2.2, below its historical average of 2.5. CY still trades at a premium compared to the average semiconductor stock, but it looks like the cheapest way to gain access to the SPWR fairy tale.

But don't pull the trigger just yet.

The semiconductor industry is struggling with a combination of slowing U.S. demand offset by stronger emerging markets. The combination of these two forces leads to a skewing of demand toward low-end products. J.P. Morgan (JPM) recently cut their estimates for the semiconductor sector, and Pacific Crest Securities told clients that Q2 chip demand is below par.

There is a good chance we've seen the end of the bad news for the semiconductor industry. Both Texas Instruments (TXN) and National Semiconductor (NSM) recently said inventories have been worked down and backlogs are beginning to build again, suggesting that the semiconductor downturn may be ending soon. The seasonal pick up for semiconductor stocks normally occurs in late summer, and if CY earnings on April 26 disappoint, I would see any weakness in the share price as a buying opportunity.

If semiconductor companies provide better guidance during the upcoming earnings season, I'd definitely turn bullish on CY as a cheaper way to gain exposure to SPWR over the long term.

Disclaimer: I do not own any stocks mentioned above. I do not give investment advice. Do your own research. Do not rely on anything in this blog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security