Lehman Recommends Pair Trades in Solar Stocks

by: Tiernan Ray posted on: May 29, 2008 | about stocks: AKNS / CSIQ / CSUN / ENER / ESLR / FSLR / JASO / LDK / SOLF / SPWR / STP / YGE    
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In contrast to Merrill Lynch’s negative note on solar stocks today, Lehman Brothers analyst Vishal Shah says in his own note today that Germany’s tax burden as a result of subsidies for renewable energy is “not significant,” perhaps a fifth of a Euro per kilowatt hour per month on every bill, and of Germany’s total renewable energy burden, less than 20% is due to subsidies for solar, in particular.

Moreover, Shah estimates that if all existing supply of solar panels was sold into all subsidy markets in Europe, the total burden would come to about 7 to 9 billion Euros in 2010, up from perhaps 2.8 billion Euros this year. That’s not that much, he concludes, given rising fuel costs. As for politics in Germany, Shah thinks “the probability of a proposal being passed [regarding subsidy reductions] is very low […] as none of the two largest alliances have dominant power in the Parliament.” And things could well drag on into September, he argues.

But how to trade all that is more complex.

Shah recommends some pair trades, based on which solar manufacturers have exposure to different challenges in different markets. Thing is, for any one stock, you can find issues that don’t affect others, so it’s kind of, pick your flavor.

Suntech Power Holdings (STP), Canadian Solar (CSIQ), and Yingling Green Energy (YGE) are relatively more exposed to a slowdown in Spain than are Evergreen Solar (ESLR), First Solar (FSLR) and Energy Conversion Devices (ENER). But Suntech, Canadian, Yingling and LDK Solar (LDK) are relatively more exposed to high prices in polysilicon, versus Energy Conversion, First Solar and SunPower (SPWR). But The latter, and Akeena Solar (AKNS), are all more exposed to the US market, relatively speaking, and the risk of a cut in the US’s Investment Tax Credit [ITC] than are Canadian, Yingling, and LDK. Finally, Sunpower, First Solar, Suntech, JA Solar Holdings (JASO) and Yingling are of higher quality than Solarfun (SOLF), China Sunergy (CSUN), Canadian, and LDK, with “strong track records and good reputation among the investment community,” in Shah’s view.

Which factors matter most? You decide!

As I mentioned in the Merrill post, all the solar stocks traded down today, in several cases by 10% or more.

This article has 10 comments! Add yours below...
Tiernan Ray

Tiernan Ray

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This article has 10 comments:

  •  
    tessant
    May 29 10:05 PM
    My Website
    solar really disappointed me today. have a real bad taste in my mouth.

    -scott
    solarfeeds
  •  
    Kevin O
    May 29 10:57 PM
    My Website
    What about MEMC (WFR), who makes their own polysilicon?
  •  
    Leofox
    May 29 11:49 PM
    My Website
    I think TAN ETF would be a good buy based on the above recommendation
  •  
    oguh
    May 30 05:17 AM
    nobody is talking about the laws of the European commission.
    Every compagnie has to reduce there CO2. To do that. Sunpower is the solution. If the compagnies produce to mutch CO2 they have to bye clean air emissions. This cost a lot of money. In Belgium is it so if i place solarpanels my electricwire is going down instat of going up and i get money for it. Think about that.
  •  
    oguh
    May 30 06:43 AM
    Belgium, Antwerp may 30,

    I just received my newspaper.
    The flamisch goverment (5.000.000 people)decided to gave higher premiums for sunpanels for small compagnies. For the period of januari-April 2008 small compagnies invested for 391,5 million Euro in renewed energysystems.
    Belgium is one of the smallest countries in Europe.
    Please, mister Heller, find anather job.
  •  
    SHABBAZZ
    May 30 06:55 AM
    Hello from Belgium. (Leuven)

    YGE + JASO are the two winner.

    Good quality, a lot of cash, good margins.

    I would like to see an article comparing the margins between all this players.
  •  
    steve pluvia
    May 30 09:25 AM
    My Website
    Worst case scenario: Germany cuts subsidy by the maximum discussed [30%]. Thin film avg sales price [ASP] is dropping to $2.00-2.20 ASP in 2009; $1.80-2.00/watt in 2010 due to new product from AMAT plants and CIGS companies, [Nanosolar, ASTI, Miasole, Global Solar].

    ***Bottom line: the subsidy was too high for product that at these prices is at grid parity with coal power.***

    WHAT THE MARKET MISSED YESTERDAY -- THIN FILM PV IS AT GRID PARITY

    Grid parity with coal power = installed cost below $3.50-3.75 -- this is possible with ASP below $2.20/watt. Every thin film mfgr will be selling below 2.20 in '09-'10.

    Now is the time to LOAD UP on thin film, particularly CIGS companies. ASTI is the ONLY CIGS public play. Thin film profit margins will be 50-70% and sales will be max-plant-capacity for more than 7yrs.

    Take advantage of the baby being thrown out with the bathwater; most on the street don't understand the difference between thin-film PV and c-SI -- take advantage of this opportunity while its available.
  •  
    buyforeclosu
    res
    May 30 09:08 PM
    YGE, LDK, SOLF, JASO... YGE is the best valuie with a .40 PEG and a Forward P/E of just 1.64
  •  
    Agent
    Provocateur
    Jun 10 10:57 AM
    Interesting article, though I haven't heard of Yingling before, are they the ones that make wafers AND beer? ;)
  •  
    akapital
    Jul 02 05:59 AM
    Lehman is yelling fire again,the whole solar industries is being manipulated and heavily shorted by by the new york specialist's and they're hedge fund bosses

    Some speculate that illegal naked short selling is behind some of the manipulation of solar and alternative energy stocks by traditional brokerage houses and hedges...they're not quite embracing the future...and it's obvious why, they're deep in oil.

    Everyone knows Subsidies are not what are currently driving the solar or alternative energy market right now. Certainly this was the case for many years but it is evident now that higher traditional energy is the prime mover. Thus, these observations are anachronistic.

    Interest in alt energy is being driven by the prohibitive cost of oil and other traditional energies. In addition, alt energies are cleaner and have less geopolitical impact as well.

    But traditional analysts and investors alike are slow to change...even worse, enemies to it...

    The U.S. industrial complex is currently sending bodies to Iraq to fight for oil...is it so far fetched to think that it might be fudging markets in favor of big oil? Big oil is use to getting what it wants. In free market capitalism the stakes are high, very high...and when a whole way of life is threatened (big oil) success will not be left to chance. When the stakes are this high, there will be cheaters...
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