Sun Shines on Solar Stocks in Early 2010 Trading

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.


Some of the biggest gainers in the beginning of 2010 were solar stocks. While the rest of the stock market rallied starting in March 2009, these stocks were left behind. Some solar stocks are still not that far off their  lows, so they are long overdue for a bounce. Solar power ETFs, TAN and KWT, were up 10.0% and 9.9% respectively in the first week of trading. Many individual stocks were up much more, with the biggest gainer being SolarFun Power (SOLF) - up 32%. This powerful first week rally is justified if you think energy prices are going up in the long run or that inflation is in our future because of all the government money printing taking place globally.

The news has also been good for the solar sector recently. On January 8th, private company eSolar signed an agreement with China to build a series of solar thermal power plants with a 2000-megawatt capacity. Last September, First Solar (FSLR) also inked a contract with China to build an equally large photovoltaic plant. JA Solar Holdings (JASO) helped wake the sector up in December when it announced that it expected its 2010 product shipments to increase 50% in 2010.

As a young industry, solar will be prone to consolidation. This energy source is still not economically viable without government subsidies and support. These are likely to continue however until rising oil prices turn solar into a self-sustaining industry. While the risk of bankruptcy was at its height in the fall of 2008, it is still a good idea for intermediate to longer-term investors to weed out stocks that might face a liquidity crunch. Running out of cash is the biggest risk for insolvency. To avoid this, look for stocks with a Current Ratio (short-term assets divided by short-term liabilities) greater than 2.0 and keep an eye on this number. Solar industry stocks that met this standard at the end of 2009 are:  Ascent Solar Technologies (ASTI), Energy Conversion Devices (ENER), Evergreen Solar (ESLR), First Solar (FSLR), JA Solar Holdings (JASO), MEMC Electronics (WFR), and SunPower (SPWRA). Solarfun Power (SOLF) is on the cusp.

The solar stocks that performed above average for the sector in the first trading week of 2010 were:

Solarfun Power                    (SOLF)       Up 32%
ReneSola                             (SOL)         Up 21%
Energy Conversion Devices  (ENER)      Up 19%
China Sunergy                     (CSUN)      Up  19%
Evergreen Solar                   (ESLR)       Up  19%
JA Solar Holdings                (JASO)       Up  16%
Yingli Green Energy             (YGE)         Up  14%
Ascent Solar Technologies   (ASTI)        Up  14%
LDK Solar                          ( LDK)        Up 14%
Canadian Solar                    (CSIQ)       Up  13%
Trina Solar                           (TSL)         Up  13%

Except for momentum traders with very short-term trading horizons, it is generally not a good idea to chase performance. Pullbacks almost always take place after a good rally. Investors interested in the sector should wait for these and take advantage of them.

Disclosure: Long ASTI, ENER, ESLR, and WFR.

NEXT: The U.S. Dollar in Early 2010 Trading

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.

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.