LDK Solar Has Caught My Attention

I’ve stumbled on an exciting investment idea. I found a company that has no need for financing for the next 2 years, is doubling capacity by 2010 using existing funds and cash flow from its profitable operations, has its capacity contracted for 10 years, has a 30% US federal tax credit for its product for the next 6 years, and is in an industry targeted by the US presidential candidates as very important.  The shares are reasonably valued with a forward PE of 3.25, a PEG Ratio of 0.11, and cash and equivalents equal to about 20% of market cap.

Apparently I’m in the minority thinking this is an attractive opportunity.  LDK Solar Co Ltd’s (LDK) stock went down 5.95% yesterday.

In my screens I have identified at least 5 other solar companies with similar characteristics. Having watched solar stocks for the last two years, I have never committed funds due to their lofty valuations or their extreme volatility.  But after the recent massive correction that has driven Camino’s SOLAR index down 75.0% YTD, I think many solar company valuations are compelling.  I don’t know if an investment in these companies will perform tomorrow or next week, but unless there is a total meltdown in solar industry demand, these valuations have my attention.

Disclosure: Mark has a position in LDK.

Comments

[Joe Eifrid:]

"In my screens I have identified at least 5 other solar companies with similar characteristics."

The other five please..........

Thanks.

2008 Oct 28 06:37 AM

[tngff:]

agree with you !......would also like names of the other five companies

2008 Oct 28 08:34 AM

[xz1:]

Did German and Spain serious recession caught your attention? Which is much severe than US and who are almost the sole buyers of these solar products. The solar industry is artificially inflated by government subsidies, was long due for correction. It is far from over!

2008 Oct 28 08:35 AM

[maxbid:]

Let me see if I can guess the other 5 besides LDK in no particular order:
1.) SOL
2.) TSL
3.) CSIQ
4.) SOLF
5.) STP

2008 Oct 28 08:37 AM

[gebby:]

if germany is in a severe recession the last thing they are going to do is stop supporting solar. there is nothing artificial by government incentives to drive demand. it has happened in the u.s. also for the next 8 years. these stocks are screaming buys. triples in next 2 months. are you a professional or a spectator? buy

2008 Oct 28 08:57 AM

[NOWHEREMAN:]

Why bother to cherry pick, if they are all screaming buys.

Just go with the Solar ETF. If there is one.

2008 Oct 28 09:03 AM

[billp37:]

"[a] total meltdown in solar industry demand, ..."

We are concerned that many, if not all, in the solar industry are not reporting the HEAT RATE for their technologies.

Heat rates for other technolgies are reported in FOILS 5, 6, and 7 on website.

We'll try to do some investigation into heat rates of solar technologies ... and maybe wind too.

If the first two laws of thermodynamics are being violated, then there could be a meltdown in the solar industry?

2008 Oct 28 09:25 AM

[John Cordes:]

It is and continues to be a macro-trend. It doesn't hurt that LDK, SOL, etc. are located in an economy expecting to slump to a mere 9% GDP growth, with a government that subsidizes the tax rate and the energy costs for these companies, and whose population is in the billions, of whose governements main focus is on massive improvement of infrastructure.

2008 Oct 28 09:41 AM

[krazykat:]

The Solar ETF "TAN" is down 74% from its May 08 highs as of yesterday's close...

2008 Oct 28 09:44 AM

[Mark Henwood:]

add JASO

2008 Oct 28 11:05 AM

[MILESCFA:]

I love solar stocks (and loving stocks is a problem!). From my understanding of the decline in stock prices, Wall Street is saying that a huge amount of capacity is coming online the next couple of years, hence prices are declining. Wall Street hates significant increases in capacity.

I also think there was a huge rush of money into the solar stocks (evident by stock prices, companies coming public, and perhaps most tellingly - the number of brokers firms "suddenly" emplying "solar analysts").

The downside can also be attributed to the "bursting of the oil bubble". The oil move up was momentum (hedge) driven, so too is the down move - and momentum is a funny thing... it pays very little attention to fundamentals, so no one can possibly know when it will end.

Thus I find it personally very easy to be bearish on solar stocks.

Having spent 25 yrs in the investment business, I've learned that when I'm scared the best thing to do is to buy. Thus I have been nibbling - but I advocate a shotgun approach: I don't know the companies fundamentals well enough, so I'm buying a little stock in a lot of solar companies.

2008 Oct 28 05:39 PM

[oaksleeksbeans:]

I find it interesting that the Chinese Export Import bank recently helped out Yingli with their credit needs.

I believe the Chinese gov't will stand behind most of the larger Chinese solar firms... not letting them fall or run out of credit.

okb

2008 Oct 28 07:40 PM

[rimtas:]

does anyone knows ultrashort solar ETF's?

2008 Oct 29 08:00 AM

[Andre S:]

LDK raised US$200 million selling shares at $41 weeks ago and company is full of cash. They project net earnings of more than $ 4.50 per share for 2008 - $480 million profit - and LDK usually beats expectations. Share dropped to $16 from $50 since August. Today, 2008 Earnings are 28% of the valuation of the company. LDK closed huge and long contracts were they received 10% upfront. All production is sold until 2010. Profitability guarantee in a meltdown world. $16 per share is absolutely a bargain.

2008 Oct 29 09:28 AM

[borisb:]

i agree and like the concept of a PEG .11 how on earth is the valuation set so low? Maybe there is perception LDK's operates in the heavily commoditized part of the solar supply chain?

2008 Nov 02 05:32 PM