Follow the Mutual Funds: Solar Is Bottoming

by: Kelvin Schulle December 01, 2008 | about stocks: CSIQ / CSUN / FSLR / JASO / SOLF / STP / TAN / TSL / YGE    

Kelvin Schulle

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I have been bearish on renewable energy since September, when I wrote "Solar selloff may be in the early innings". Since then, solar stocks have tumbled 80-90% from their 52 week highs, and wind energy stocks also crashed. The financial crisis poured oil on the fire, making things even worse. In the last few weeks, most solar companies guided lower for their next quarters due to mainly two reasons: sluggish sales in Europe and weakening of the Euro.

So does this mean investors should abandon solar stocks? Absolutely not - on the contrary, it is the time to buy stocks at this moment. What Warren Buffett said is so true: “Buy stocks when everybody else is panicking.” But, the fact is, not many investors follow it because when the market declines to the bottom, fear destroys proper judgment, hence no average investors purchase at the bottom. Only professionals such as market makers, mutual fund and hedge fund managers have the guts to bottom fish and get the maximum profit.

The solar sector is under such an environment. Everybody sees gloom for solar and renewable energy in the near term; downgrades are flying every day on Wall Street. Yet the stocks are bouncing back from 52 week lows nicely, and apparently the bottoming process is underway.

There are a few reasons why solar may be bottoming. Crude is bottoming out; the downside extreme is apparently overdone, just like the extremes when oil was trading $147. Both President Obama and China government will bring new life into the solar sector, and this time it will be truly different, “green” thinking may change many generations to come.

For investors, two companies may deserve your attention: Suntech Power (STP) and First Solar (FSLR). STP is unique because it has market shares all over the world including China, Europe and US. Many other solar companies only have sales in Europe, such as Solarfun (SOLF), Canadian Solar (CSIQ), Trina Solar (TSL), Yingli Green (YGE), China Sunenergy (CSUN), and JA Solar (JASO). While STP is the No1 PV maker in terms of volume, FSLR is definitely the leader in the US. The stock rallies of the two leaders in the sector indicate that the market is looking forward 6 months ahead instead of just to next quarter. Last Friday, STP closed above its 10 day moving average, and the MFI index is pointing upwards nicely. This is also true for First Solar.

The following is an example of what mutual funds made solar sector purchases (only big holdings are listed). All data are based on MFFAIS.com.

Institution
Current Shares
Shares increased
report date
Symbol
Wellington Management Co
11,046,020
3,878,315
2008-11-21
STP
Goldman Sachs Group
2,646,958
592,313
2008-11-19
STP
Capital Guardian Trust
1,021,200
617,000
2008-11-14
STP
Goldman Sachs Group
375,272
92,685
2008-11-19
YGE
Miura Global Management
1,639,200
139,200
2008-11-14
YGE
Goldman Sachs Group
820,331
292,694
2008-11-19
SOLF
Adage Capital Partners Gp
3,900,000
2,169,000
2008-11-17
JASO
Goldman Sachs Group
770,193
223,967
2008-11-19
JASO

Disclosure: Author is long FSLR.

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This article has 22 comments:

  •  
    Dec 01 07:38 AM
    It would be good to know when else these funds have added purchases of shares. Since they have existing holdings, I can only assume that late Nov is not the only time they have added to holdings....and that would mean that their buying is not a strong bullish signal. The latest bounce in solar stocks is also not the first. The bounce alone is not sufficient to mark a bottom. For example, FSLR ran up 70% in late October and into the election, only to make fresh 52-week lows by Nov 20.
    Reply | Link to Comment
  •  
    Dec 01 07:50 AM
    Author to two-faced. Just last Friday he posted article on "expecting continued drop in solar". Not quite sure what his agenda is, although I do give him credit for calling the fall in solar back in September.

    seekingalpha.com/artic...
    Reply | Link to Comment
  •  
    Dec 01 08:07 AM
    solf has business in california, csiq has offices in the united states. jaso said expect a big u.s. deal announcement with in 90 days. so the author has overlooked these developments.
    Reply | Link to Comment
  •  
    Dec 01 08:17 AM
    Author is trying to find the bottom, no one knows. But 8o% to 95% drop
    is there
    Reply | Link to Comment
  •  
    Dec 01 08:51 AM
    I am a convinced solar defendant and I think that the geopolitical context will help lift the sector comes the Obama administration. However, the important threat of cheap oil prices continues to weigh on solar so I wouldnt be surprised to see 52 week lows again...

    JASO is an interesting company to look at: Strong balance sheet and little debt/equity. Abundant cash will allow it to stay away from the capital markets for some time. The author also forgot to mention the important BP solar/JASO deal that is very likely to give a huge boost to the company sales.
    Reply | Link to Comment
  •  
    Dec 01 09:35 AM
    Solar business looks to be the next big effort, or scam depending on how you look at factors in Albuquerque, NM.

    "In addition to the benefits provided by tax incentives and other renewable energy requirements that are easing the expansion of the solar market, Schott has also benefitted from local government incentives to build the plant here. The state of New Mexico provided $1.9 million in job training funds in June, and the city of Albuquerque earlier this month approved $1 million in infrastructure improvements, including road work, for the company. "

    Eclipse Aviation Chapter 11ed this past week.

    "Eclipse Aviation, had built up more than $1 billion in debt owed to more than 5,000 creditors and shareholders during its 10 years of existence, triggering this week's filing for Chapter 11 bankruptcy protection, according to court documents. "

    New Mexico is desperate for new business, other than new home construction which is unsustainable for water and energy shortage reasons.

    Here's what happened to New Mexico's investment in Eclipse.

    "The State Investment Council, which invested $19 million in Eclipse, is listed in the filing as having a total 2.7 percent stake in the jet maker. The percentage of ownership is big enough to rank New Mexico as the fourth biggest shareholder.

    The investment council stands to lose about $13 million of that investment, while $5.6 million is reported to be secured debt and thus in line for at least some potential repayment. "

    www.prosefights.org/nm...

    Eclipse Aviation may have been a scam from the beginning. Solar is suspect too because of possible heat rate and capacity factor problems.








    Reply | Link to Comment
  •  
    Dec 01 09:57 AM
    Are these puchases investments or trades? They may just be playing the volitiltiy in the market, and not looking for a real, long-term price recovery.
    Reply | Link to Comment
  •  
    Dec 01 10:06 AM
    This author knows absolutely nothing about the solar sector, and it is offensive seeking alpha published this report. First of all, YGE, CSIQ, and SOLF all have sales in other countries and continents outside of Europe. They also lowered their 2009 guidance because of slowing demand worldwide due to the global recession, not weakness in the EURO. Poor exchange rates due to a strengthening dollar may marginally effect earnings, but asp price declines, falling commodities prices, and the global recession are the reasons why solar companies have been slashing guidance. The bottom in solar will be reached when oil, natural gas, and coal bottoms, because solar stocks are pegged to the prices of the commodities they compete with.
    Reply | Link to Comment
  •  
    Dec 01 10:31 AM
    billp37 says
    "Eclipse Aviation may have been a scam from the beginning. Solar is suspect too because of possible heat rate and capacity factor problems"

    This statement makes no sense. What is your source?
    What heat rate and capacity factor problems?
    Schott's plant in Arizona is to produce receiver tubes for solar thermal power plants.

    Solar thermal plants need cooling to condense steam back to liquid so it can be turned into steam again. This can be done with air or water cooling.





    Reply | Link to Comment
  •  
    Dec 01 10:38 AM
    Over the weekend the Saudi oil minister stated that their goal is $75 oil because this price reflects that needed for the Marginal players in Opec to meet their economic budgets. The next meeting is scheduled for Dec. 17th.

    The only way $75 can be achieved is with a cut in the 3 miilion or so range( my guestimate), Russia which wants Opec status is expected to participate.

    Whether they can get their act together is moot but I would think that the Solars would move up in anticipation and in the aftermath, if a cut of this magnitude occurs.

    IMHO
    Reply | Link to Comment
  •  
    Dec 01 12:59 PM
    Jim Rogers says the most important investment rule is to Buy Low and Sell High.

    Jim Rogers is also very bullish on chinese stocks. LDK Solar and Trina Solar might very well be good bets.

    www.jimrogers-investme...
    Reply | Link to Comment
  •  
    Dec 01 08:16 PM
    "This statement makes no sense. What is your source?
    What heat rate and capacity factor problems?
    Schott's plant in Arizona is to produce receiver tubes for solar thermal power plants.

    Solar thermal plants need cooling to condense steam back to liquid so it can be turned into steam again. This can be done with air or water cooling. "

    Cite data please.

    Reply | Link to Comment
  •  
    Dec 01 08:30 PM
    "Schott's plant in Arizona is to produce receiver tubes for solar thermal power plants. "

    What is Scott's heat rate and capacity factor?

    Please respond with numbers.

    Reply | Link to Comment
  •  
    Dec 01 09:03 PM
    New Mexico recently got had BAD.

    www.prosefights.org/nm...

    Let's do something about this.

    Reply | Link to Comment
  •  
    Dec 02 10:54 AM
    I was thinking.... Green energy is still expensive... and we are deep in a recession... and the world has followed... and credit is very tight.... and people are needing cash for food and cheap energy... and credit is very, very tight...

    So... the bottom may be another 24 months away...

    Or tomorrow if the Fed. Govt. were to get involved... but they want infrastructure... not Green energy...

    So... maybe 48+ months away...

    and credit is very tight...
    Reply | Link to Comment
  •  
    Dec 02 02:25 PM
    If people would quit buying friggin chinese products for a 10% gain, maybe we could get our act togethor. I have nothing against FAIR trade, not slave labor. The chinese should, by now, be in a middle class stage with US equivalent salaries not state slaves.
    Reply | Link to Comment
  •  
    Dec 02 04:27 PM
    Disagree, solar in general is in for a bumpy ride these enxt two years. Credit for financing projects is non-existent, neither at the retial level nor at the commercial level. The subsidies provide dby Europe are expiring so that goes out the window as well. You will see some Solar companies go bust in the current environment and the liquidation of their inventories will crush panel prices in the short term. Throw in the fact that oil at these prices makes traditional energy dirt cheap, and solar is in for some serious heartache.

    The frustrating part is that this has happened before, in the late 70s/early 80s. We NEED solar to mature but the economics of it simply will not hold up. I see Obama keeping the solars on life support, but I dont think he will be able to convince customers to buy solar without credit given how cheap oil is. The weaker players will go under. Stronger players like FSLR will hopefully survive and when the economy turns around, be there to siphon off oil demand. Here is to hoping.

    I do think FSLR will survive so I like that recommendation, I dont care for the weaker solar players. A long FSLR/short SPWRA might be an interesitng position.

    No positions in Solar at the moment.
    Reply | Link to Comment
  •  
    Dec 02 07:20 PM
    First Solar might be the best fundamentally and technically in the space.. STP looks mighty sick still on a technical basis and looks like it will at least test the lows again. I'm long FSLR
    Reply | Link to Comment
  •  
    Dec 02 09:06 PM
    FSLR is a great short based on sector valuations, they have the best cashflow and outlook at last glance was good, but they acknowledged credit difficulties for projects which does not bode well! also they have the lowest efficiency except maybe ENER and that is not good with falling ASP's and sub $50 oil!!

    YGE actually decent valuation here imo, TSL as a spec play... the sector will probably bounce into Jan inauguration etc but big pressure will remain on profits imho... also potential for near term oil contrary spike, so solar for that as well...
    Reply | Link to Comment
  •  
    Dec 02 10:32 PM
    FSLR is far too optimistic about the future availability of tellurium. The viability of thin-film solar depends on more rare earth metals than there are to be found.

    Check out Jack Lifton's articles at ResourceInvestor.com for background.
    Reply | Link to Comment
  •  
    Dec 07 03:14 PM
    billp37

    I honestly don't know what you mean by heat capacity and heat rate problems. I've not seen that mentioned anywhere. However I will give you some links on solar thermal that may be helpful.
    I do know that solar thermal plants can be air or water cooled.
    When water cooled, they can even be used to desalinate salt or brackish water at the same time.

    This is part of a series of articles on core climate solutions.
    climateprogress.org/20.../

    www.salon.com/news/fea...

    solarsouthwest.org/ Solar Southwest Initiative

    This article concerns the cooling of solar thermal plants to re-condense water.
    www.nrel.gov/csp/troug...

    peakenergy.blogspot.co...
    Good article on solar thermal power

    Here are some of the players in solar thermal.
    Abengoa Solar, Acciona Solar, Ausra, BrightSource Energy, Iberdrola, Sener, Solar Millennium, Solar Reserve, SkyFuel, eSolar, Solel,
    Stirling, Infinia, Sun Power(not the PV company)








    Reply | Link to Comment
  •  
    Dec 19 03:18 AM
    why didn't you say it was a good time to buy a few weeks ago when fslr was at 85? it's risen 61% since then. now you're just a band wagon jumper.
    Reply | Link to Comment
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