Tom Konrad CFA
Renewable Energy stocks have been suffering for over a year. but the sector’s poster-child has also been the whipping boy. While the S&P 500 has risen 8% percent in 2010, the broader alternative energy sector is down 10% and solar has fared even worse. Solar is down 27% for the year, with a 17% drop in the last 2 weeks (see chart.)
Ian Tharp – CIBC World Markets
These numbers were brought home to me by a presentation by Ian S. Tharp, CFA, an Executive Director and Cleantech and Renewable Energy Analyst at CIBC World Markets. He was speaking at The Future of Energy Investing Conference last Thursday. The sharp down move in recent weeks made me wonder if this might be a sign of capitulation. I don’t follow the solar sector closely, but given its historic volatility, I think there is a lot of potential for astute traders to make money in the sector.
I asked Mr. Tharp if he thought the sector showed signs of bottoming. He said “Yes” and gave the following reasons (some of this may be slightly garbled because I’m working from memory)
- 2010 installed capacity is double what it was in 2009. This may not be what the industry hoped for, but it’s still impressive growth.
- Silicon prices have stabilized.
- Solar module prices have also stabilized.
With that background and current low prices for solar stocks, the stage may be set for a strong rally.
The Motley Fool
Travis Holum at the Motley Fool also thinks Solar stocks are ready to rally, and he quotes management of several solar companies as evidence of continued strong demand:
- First Solar (NASDAQ: FSLR) said the majority of its production has already been sold for 2011.
- JA Solar (NASDAQ: JASO) has agreements and received prepayments from customers for 1.2 GW of its 1.35 GW to 1.45 GW of capacity for next year.
- At Sunpower (NASDAQ: SPWRA) the CEO Tom Werner says “demand is greater than the supply” and the North American commercial business is “70% booked for 2011.”
- This week, Suntech Power (NYSE: STP) said analysis of customer demand saw “it was 30% above our ability to supply for the entire year.”
- Solarfun (NASDAQ: SOLF) sees “healthy market demand” going forward and is adding capacity accordingly.
It seems like there is a good case for a solar rally, so I sent off a couple quick emails to a couple other solar stock experts, asking them the same question.
J Peter Lynch
J Peter Lynch is an investment banker with a focus on the solar sector at Salem Financial, which he tracks closely. He says:
I think solar stocks are poised at a critical point. 19 of the 22 stocks I follow have positive momentum (longer term indicator), 20 of 22 stocks have negative weekly momentum (short term indicator) and 21 of 22 stocks are oversold an average of 30.9%. I think we may see a short term bounce and possibly the continuation of the longer term positive trend indicated by the overwhelming positive monthly momentum.
So the technicals seem good for a rally, although there’s some question about how long it might endure.
Jeffery Cianci is Chief Investment Officer at Green Science Partners, a hedge fund that invests in both public stocks and private equity. I wrote about him in my roundup of the cleantech experts at the most recent San Francisco MoneyShow. Mr. Cianci uses a combination of fundamental and technical analysis, and clearly has a depth of understanding of the stocks he trades. He is more cautious:
I’m not sure if stocks have bottomed yet. There needs to be some constraint on the building cycle. Until then, with European problems possibly limiting the demand side, as well as FIT [Feed-In-Tariff] reductions, there will be 2H11 oversupply worries, and may take time to disprove a negative. I would feel safer with the solar cap equipment names, not as sensitive to pricing: GT Solar [SOLR], Amtech Systems [ASYS], and STR Holdings [STRI] the faves, as well as solar inverters, Power-One [PWER] and SatCon [SATC]. The ETF’s are too concentrated on the module guys, so I would avoid them.
I found Mr. Cianci’s critique of the Solar ETFs (TAN and KWT) particularly interesting because it parallels my own critique of the general alternative energy ETFs: they tend to be over concentrated in particular sectors.
I tend not to be a short term trader, and the opinions of the experts above are mixed, with even the more bullish hedging their opinions. Based on the above, I’m not ready to jump into solar stocks, but if I were, I’d be looking at the capital equipment manufacturers Mr. Cianci likes.
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