Solar stocks have been ripping higher since President Obama was re-elected. The ETF Guggenheim Solar (TAN) is up 60% over the last quarter while First Solar, Inc. (FSLR) is up 45%, LDK Solar Co., Ltd. (LDK) 91%, SunPower Corporation (SPWR) 181% and MEMC Electronic Materials Inc. (WFR) up 134%.
President Obama has been very direct regarding his position on green energy. Solar power is a major part of this effort. Obama discussed these initiatives at his inauguration and again at the State of the Union address.
Furthermore, a turnaround in demand coupled with major production cutbacks has created an increase in pricing. German polysilicon maker Wacker says it's ramping production due to strong demand. The news follows a major decline in plant utilization rates due to soft demand and high inventories.
On the other hand, China, the world's largest solar power user, may soon impose tariffs on polysilicon imports. This would be in retaliation for tariffs imposed by the U.S. and Europe. According to a recent Reuters report,
"After a year of inactivity, China's biggest polysilicon plants are resuming output to meet a demand recovery anticipated when Beijing imposes a retaliatory tax on U.S. and European imports of the material key to solar panel production."
Although they have had a significant run already, it seems an industry turnaround coupled with a ramp up in plant utilization rates could spur solar stocks even higher. Nevertheless, with the tremendous run they have already achieved and a potential impending Chinese tax, is now the time to buy or sell?
In the following sections, we will perform a review of the fundamental and technical state of each company. The following table depicts summary statistics and Tuesday's performance for the stocks. The following charts are provided by Finviz.com.
First Solar, Inc.
The company is trading 20% below its 52-week high, yet 27% above the consensus mean target price of $26.45 for the company. First Solar was trading Tuesday for $36.13, flat for the day.
Fundamentally, First Solar has some positives. The company has a forward P/E of 8.92. The company is trading for 90% of book value and one times sales. Insider transactions are up 20% over the past six months.
Technically, the stock looks solid. The stock has been on a roll and is in a well-defined uptrend. All major moving averages are now trending upward and the golden cross has been achieved. Nevertheless, the stock is not showing signs of being overbought with an RSI of 66. The stock looks like a buy at this level.
LDK Solar Co., Ltd.
The company is trading 71% below its 52-week high, yet 46% above the consensus mean target price of $1.05 for the company. LDK was trading Tuesday for $1.93, up nearly 3% for the day.
Fundamentally, LDK has few positives. The company is currently not profitable. Nevertheless, EPS next year is expected to rise by 39%. The company trades for 20% of sales.
Technically, the stock looks like it may be ready to breakout. The stock just achieved the coveted golden cross. With an RSI of 59, the stock is not overbought at this level. I am long LDK.
The company is trading 8% below its 52-week high, yet 40% above the consensus mean target price of $8.07 for the company. SunPower was trading Tuesday for $13.39, up nearly 17% for the day.
Fundamentally, SunPower has a few positives. The company is currently trading for 1.61 times book value. EPS is up 89% quarter over quarter and expected to rise by 22% over the next five years.
Technically, the stock has gone parabolic recently. With an RSI of 81.35, the stock is currently overbought. I would wait for a pullback to get in.
MEMC Electronic Materials Inc.
The company is trading 5% above its 52-week high and 15% above the consensus mean target price of $4.52 for the company. WFR was trading Monday for $4.83, up 6% for the day.
Fundamentally, WFR has some positives. The company has a forward P/E of 14. The company is trading for approximately two times book value and 52% of sales. WFR's EPS is up 99% quarter-over-quarter and expected to rise by 70% next year.
Technically, the stock looks like it may have put in a bottom at the $2 mark. The stock has been on a roll and is in a solid uptrend. All major moving averages are now trending upward and the golden cross has been achieved. Nevertheless, the stock is currently overbought with an RSI of 86. Wait for a pullback to get in.
The Bottom Line
It appears the solar industry is on the comeback trail. With the potential for a pick-up in global growth, high short interest and the supple demand situation improving, solar stocks may provide an opportunity for significant alpha. If you want to take the conservative route, the Guggenheim TAN ETF offers a way to play the sector as a whole.
On the other hand, you can take a position in one of the stocks individually. But take care. These stocks have had significant runs. Many are not currently turning a profit which makes them highly speculative plays. The impending move by China may cause a pullback in U.S. and European providers while boosting the Chinese providers. I chose LDK due to the recent golden cross and possible catalyst of new Chinese import restrictions. This is a small speculative position. Furthermore, be sure to have a well-balanced diversified portfolio. You should never commit your entire portfolio to one stock, sector or asset class for that matter.
Disclosure: I am long LDK.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.