L. Myron Clark
A two-day surge on Feb. 8-9 took at least thirteen solar energy stocks more than twice their recent lows. These names represent about half the publicly traded companies in the industry (on an unweighted basis).
The “two-bagger” stocks follow somewhat different patterns, as indicated in the two graphs below. Several of them hit their 52-week lows in late September or early October 2011, close to the bottom in the broad market. Those lows ranged from 80% (YGE) to 86% (JKS) below the respective 52-week highs. The companies include: Jinkosolar Holding Co (JKS), LDK Solar Co (LDK), Suntech Power Holdings Co (STP), Trina Solar Ltd (TSL), and Yingli Green Energy Holding Co (YGE).
Note: prices through Feb 9th; shaded area in chart is for comparison to SPX
Others in this group bottomed in November or December, when portfolio purging hit the out-of-favor solar sector. Their lows were even more extreme, ranging from 88% (CSIQ) to 91% (HSOL) below the respective 52-week highs. The companies include: Canadian Solar Inc (CSIQ), Daqo New Energy Corp (DQ), Hanwha Solarone Co Ltd (HSOL), and Renesola Ltd (SOL).
Note: prices through Feb 9th; shaded area in chart is for comparison to TAN, the Guggenheim Solar ETF, as an industry benchmark
If you squint, you can find even bigger bounces off the lows among stocks categorized as “Deficient” for failing to meet NASDAQ Continued Listing Requirements. (You could call this the Icarus category, except that hardly any company in the industry can evade that label after the plummet of 2011.) These include: Ascent Solar Technologies Inc (ASTI), Daystar Technologies Inc (DSTI), Energy Conversion Devices Inc (ENER), and Westinghouse Solar Inc (WEST)
A backhanded honorable mention goes to Evergreen Solar Inc (ESLRQ) , which is operating under bankruptcy. The stock is up about 700% from its low: that is, from 1 cent to 8 cents.
The recent outperformance of many smaller stocks, after they had gone down longer and farther, indicates that investors in this sector have switched abruptly to a “risk-on” mode. While it’s a bit unseemly for speculative fervor to follow so closely on the heels of mordant despair, the shift in sentiment is not as dangerous as wild-eyed buying would be at the top of the market. However, an unsettling tug-of-war appears to be shaping up between momentum-fueled optimism and fundamental-based skepticism. This portends a lengthy spell of volatility until the solar industry undergoes further consolidation and pricing firms.
In my previous posting following the January spike in solar stocks, I predicted a partial repeat of the pullback that followed the sector’s bounce off the bottom in October 2011. That was fairly accurate for about two weeks, in contrast to the 2-month decline through late 2011. Another iteration seems like a reasonable guess. Short-covering rallies tend to have sharp reversals, so Part 2 of this analysis will examine short positions in these stocks.
DISCLOSURE: 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.