Are Solar Stocks Waking From the Dead?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

While stocks and commodities have had spectacular rallies since last March, a few groups have been left behind. Solar stocks are one such group. While they rallied early in the year, they have been mostly flat to down since this spring, while almost everything else in the market was going up. Solar stocks hit their historical peaks between December 2007 and June 2008 (before oil peaked at $147 in July 2008). Some of them dropped more than 90% from their all-time highs until they hit lows at the end of 2008 and early this year. At the very least, they are due for a major technical rally from severely oversold levels.

How far that rally goes and whether or not it turns into something that can last longer than a few months remains to be seen. Some good fundamental news is starting to appear. JA Solar (JASO) hiked guidance on December 14th. The company now expects 2010 shipments to increase by greater than 50%. This made for a good day for solar stocks in general. JASO itself was up 16% during market trading and another 8% after hours.

While some improvement seems to be taking place in the short-term, the longer-term prospects for solar power depend on the future price of oil. Even a cursory supply and demand analysis indicates that oil will be rising in price for many years. According to an rigorous IEA (International Energy Administration) study released at the end of 2008, world production from existing wells is falling at a 6.7% annual rate. New discoveries and new wells coming on line are not keeping up with this loss, so supply is falling. At the same time, the demand destruction from the Credit Crisis is turning around. Forecasts now predict global oil demand will now be 86.3 million barrels per day in 2010, up 1. 7% from 2009. The impending supply/demand imbalance in the oil market will cause prices to rise once again, probably in the not too distant future. For the moment however oil is in a seasonally weak period which will last to around February or so and this should temporarily keep a lid on prices.

Just as solar stocks peaked before oil did, they can also start to rally before the price of oil goes up. A list of solar stocks (ticker symbols in parenthesis) that are at toward the lower end of their price range includes:

China Sunergy (CSUN)
Energy Conversion Devices (ENER)
LDK Solar (LDK)
JA Solar (JASO)
Renesola (SOL)
Suntech Power (STP)

There are also two solar power company ETFs: TAN and KWT.

If you think energy prices will be rising in the long-term, then solar stocks today are among the biggest bargains in the market. The sun should indeed be shining on them in the future.

Disclosure: Long ENER, LDK.

NEXT: Why Inflation is and Will be a Problem

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Economic Statistics are Yesterday, Stock Prices are Tomorrow

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The Fed Beige book was released yesterday and the media reported that it saw a glimmer of hope for economic recover in the U.S. That glimmer is not yet showing up in the economic statistics, which are gloomy worldwide not just in the U.S. However the economic statistics are backward looking and usually dated on top of that by the time they are released. While the report may say March, those numbers really might be from February (or even January). Reports of Q1 activity might actually be data from Q4 at the end of the previous year (this became glaringly obvious in the 3rd quarter of 2005 when hurricane Katrina devastated the U.S. economy and the GDP figures for the quarter then came out higher than had originally been expected, but the 4th quarter GDP was much lower). People get confused when the stock market is already going up when the news is at its worse, but this makes perfect sense. The economic news you are seeing may be from two quarters in the past, while the market is being priced for what it it thinks is going to happen two quarters in the future. When making investing decisions you too should always look forward.

To make investing even more difficult for the average investor, the media constantly inaccurately states that the stock market (or oil market or some other market) can't go up until the economy improves. Historical analysis indicates that this is simply not true. Liquidity drives stock prices. The more money available for buying stocks, the more the market goes up - and this can happen when the economy stays in bad shape for a long time. Liquidity almost always revives the economy as well so eventually a recovery takes place there too (a hyperinflationary depression would be the one exception). The amount of liquidity being pumped into the financial system currently is massive by any historical standard. This is going to be reflected in the stock market first and much later on at Starbucks, where you will be paying $50 for a cup of coffee.

No matter how bad things are, markets also can't go down forever. Eventually there comes a point where everyone who is going to sell has sold. When that happens one little piece of even insignificant good news can drive the market up suddenly and sharply (look for this behavior in the natural gas market in the future). This type of rally is short-covering or if it takes place around an important support level (it doesn't have to) will be called technical. For extremely oversold markets like the one we have now, a rally to the 200-day moving average is common. You should certainly consider taking profits around that level. Also watch for stocks or sectors with a lot of stocks that manage to break through and stay above the 200-day. These are the leaders for the future.

History (something completely unknown to most U.S. financial reporters) tells you a lot about how to successfully make money in the market. Go back and read the news from June 1932. You will see the worse economic news imaginable. The U.S. economy and banking system were in total collapse. And the banking crisis didn't finally bottom until the spring of 1933, when many insolvent banks were closed down during the banking holiday, and the system wasn't stabilized until the implementation of deposit insurance in 1934. Should you have bought stocks in July 1932? If you did, you would have made around 100% in a few weeks.

NEXT: Bull Markets Climb a Wall of Worry

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.