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.

Bull Markets Climb a Wall of Worry

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.

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An old market adage from the 1800s is that bull markets climb a wall of worry. At almost every step of the way (except at the end), there is substantial hand wringing about stocks being over priced, overbought, overextended and ahead of themselves. You will hear and read over and over again how current prices are not justified and the rally has gone way too far. Despite all the numerous reasons cited, most of which seem quite reasonable, stock prices continue to go up and up. Based on these criteria, we are currently in major bull market.

This type of opinion for stocks has been pervasive in the mainstream financial media from almost the beginning of the current rally (the oil market is even worse, with a constant barrage of negative headlines and news of impending price collapses that are supposedly going to take place any moment). It has however reached new heights in this rally with the CEO of NYSE Euronext giving a public interview stating the current rally is likely to run out of steam and stocks return to their previous lows. Considering the NYSE Euronext makes its money on the amount of trading that takes place, widely publicized comments from its CEO to talk down the market and discourage people from trading are a bit curious to say the least. There is definitely more to this story than meets the eye.

As we pointed out in the blog a few days ago, the big money in rallies like the current one is made by buying very low-priced stocks with good fundamentals. A case in point would be diamond company Harry Winston (HWD). While the media was telling you to stay out of the market, you could have almost doubled you money in this stock in less than two weeks. The stock is indeed now overextended, but should offer some opportunity for buying it on a drop later next week or even earlier the following week. While oil the commodity is moving sideways, a number of oil stocks are moving up. We mentioned in this blog drillers was the place to look, one the best deals seems to be Precision Drillers (PDS). A few shippers, also mentioned here as a place to look, have had explosive rallies in the last couple of days.

If you have a longer term perspective, media coverage can actually be very helpful. Just look for stocks that they are bashing. One of the best examples I have ever seen of this was in an article published in yesterday's IBD ("Bottom Fishing Can Land a Smelly Catch"). While every point made in this article applies to HWD (try to find an IBD stock that went up a 100% in the last two weeks - don't bother looking, there aren't any), the article is actually about MEMC Electronics (WFR). While most of the article bashes WFR as one of the worst stocks in the world, a careful reader would note that WFR had similar problems in 2001 to those that it has today and it was selling as low as $1.05 at that time. Within 6 years, WFR went up to $96.08. So you could have made 95 times (or 9500%) your investment by buying the stock when things looked worse. But don't worry, IBD is doing its best to make sure you don't fall into that trap again!

NEXT: Nasdaq Confirms Double Bottom - 200 MA Next

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.