Sunny Day for Solar Stocks and the Shorts Come Off
Solar energy stocks took a huge jump today in U.S. trading. While the sheen faded slightly as afternoon skies turned overcast in the eastern U.S., as of the NYSE closing bell about half the sector was up 20% or better. Absent major industry news or earnings blowouts, short covering is the most plausible explanation for the sudden sharp rise. Among the biggest winners were:
- Hanwha SolarOne Co. Ltd. ADS (HSOL) +36.80%
- JA Solar Holdings Co. Ltd. ADS (JASO) +34.72%
- JinkoSolar Holding Co. Ltd. ADS (JKS) +31.86%
- ReneSola Ltd. ADS (SOL) +30.23%
- Trina Solar Ltd. ADS (TSL) +29.18%
- Suntech Power Holdings Co. Ltd. ADS (STP) +25.78%
Recently lagging stocks moved to the head of the pack, evidence that short covering helped power the move up. The graph below shows 3-month stock charts (since shortly after the broad market low in early October) for six stocks that made new 52-week lows in December 2011: FSLR, SPWR, WFR, SOL, HSOL, and JASO. Three of these - Hanwha SolarOne, JA Solar, and ReneSola were among the big winners in today's trading. JinkoSolar nearly fits the pattern, as the stock's December minimum was barely above its 52-week low in September. Though the big jumps today were not enough to catch up to the sector's better performers over the same interval, this lends credence to the old saw that every dog has its day in the sun.
Few other catalysts are available to explain the dramatic move. Last week LDK offered to purchase Sunways, another welcome milestone on the industry's long and tortuous road to consolidation. The announcement seemed to give solar stocks a boost early in the new year's trading. But this deal by itself it not likely to take much production capacity out of an oversupplied market. In a contrary vein on the M&A theme, the CFO of Jinko Solar was recently quoted as saying that Chinese solar firms would rather shutter production or operations than be acquired by a competitor.
Many solar stocks were trading well below book value and arguably primed for a jump on that basis alone. Among today's big winners, several had recently traded at one-third of book value or lower. The denominators are dubious because not all companies' physical plant and equipment will maintain its value through the end of the supply glut. But the new year helps resolve some lack of clarity as the lower price for solar panels sustains growth in installations, even with fewer subsidies available. So some reversion toward nominal book value is reasonable.
The solar sector has been extremely volatile lately, and today's jump somewhat resembles the spike in stock prices in late October, which accompanied (and extended by one day) a big run-up in the broader market. Most of those gains faded before the recent recovery. A partial replay of that pattern seems likely: prices for most stocks in the sector will pull back from current or slightly higher levels, and a few hardy short sellers will rush back in. In the medium and longer term the heavens should smile upon solar stocks, but the industry remains sickly for now.
DISCLOSURE: I am long TSL, LDK, YGE, ITRI, AMSC
L. Myron Clark is an independent industry analyst based in the Boston area. He previously covered the technology services industry as an analyst with Gartner Inc. He has an undergraduate degree from Cornell and also pursued postgraduate studies there. Mr. Clark has traveled extensively and has a broad range of interests in energy and environmental topics.