Chinese Solar Stocks Become More Attractive on First Solar Deal

First Solar (FSLR) wasted no time in securing a deal from China. One day after announcing the arrival of senior Chinese government leaders from the Standing Committee of the National People’s Congress of China, FSLR announced that it had secured a major contract in Inner Mongolia. This 2 gigawatt desert solar power plant is exactly the kind of large-scale, solar utility that First Solar has said it is pursuing as it transitions to the next phase of the solar market. This contract also indicates that the Chinese are serious about blunting growing charges that they are dumping panels on the market and engaging in unfair trade practices in the solar market.

While this contract is a positive for First Solar (and the stock market responded quickly to the news – although the initial surge was met with some high volume selling), I think it is even better news for Chinese solar companies. If the Chinese government is willing to throw FSLR this big a bone, the largesse that it will spread on its own companies should be “spectacular.” As I have stated in the past, Suntech Power (STP) is my favorite short-term play for Chinese solar stocks. In the past month, I have also become impressed with Trina Solar (TSL).

In the meantime, I am still net short FSLR. Wednesday’s big move shifted the position to neutral, and I sold calls to get back to net short. Ever since FSLR hit my downside target of $130, I have been looking for reasons to get long. The downtrend that persisted up until last week was enough to convince me that FSLR is now likely to go even lower as on-going macro (and some company) issues continue to weigh on the shares over the intermediate term. In the meantime, the current bounce could carry FSLR back to $145-150 before topping out (convergence of the 50 and 200-day moving averages). For now, I am staying net short.

Another solar name to watch is Energy Conversion Devices (ENER) as rumors were rampant Wednesday that Applied Materials (AMAT) is looking to acquire the company. At the time of writing, ENER had surged almost 30% on the news in what must be at least partially a short squeeze. Before the news, ENER was still making new 52-week lows and had around 31% of its shares sold short. I was fortunate enough to be in a position to buy calls Wednesday, but I sold out after the stock had hit “just” 15% on the day.

Be careful out there.

Full disclosure: long STP, net short FSLR, short ENER put spread

Comments

[skylake:]

i am glad to see that

Sep 10 02:03 AM

[chinastakes:]

China's economy should be undented by the steep fall in the country's stock market, but private investment and consumption must pick up for the recovery to be sustainable, a senior government economist said on Monday.Chen Dongqi, vice-head of the macro-economic institute under the National Development and Reform Commission (NDRC), said the government should not make policy decisions based on volatile stock market movements.

www.chinastakes.com/20...

Sep 10 05:07 AM

[Dave Marsh:]

FSLR will soon be hurt by a new entrant - privately held Nanosolar. They just announced full production of their thin-film panels which are a few percent more efficient than FSLR's, and cheaper. According to NY Times, they have already booked $4 billion in orders. And they don't use toxic Cadmium, like FSLR. No word of an IPO, yet.

Sep 10 08:16 AM

[stonedinvestor:]

Nice piece Dr D. ENER has been a most terrible stock for me, I love it madly and lose money on it each time. I've owned Trina in the past, was wondering if you had a take on Canadian Solar which is not Canadian. CSIQ.~ stoney

Sep 10 08:46 AM

[KBEMN:]

Nanosolar isn't that impressive, IMO. They announced "commercial" production in December 2007. Today that plant is producing only 1 MW per month! The capacity is supposed to be ~500 MW/year - eventually. No word on actual price of the panels, price of the installed systems, or costs of production, and their customers are having lots of trouble getting financing. But yeah, they're a competitor to watch I suppose.

Sep 10 10:18 AM

[Zenfar:]

Is the difference between NanoSolar and ASTI, that ASTI is building integrated? The both seem to be using CIGS on flexible material.

Sep 10 12:07 PM

[robdoc:]

Chinese solar stocks have been attractive for quite a while now for the long term investor. The title of this article should have been "Attractive Chinese Solar Stocks Become More Expensive on First Solar Deal".
The Chinese will push forward on alternative energy...and will probably do so at a pace that will not be able to be matched by the U.S.
"Buy when there is blood in the streets".

Sep 10 02:26 PM

[Stone Fox C...:]

when i read that it was going to take 25 sq miles to generate the same electricity as 2 coal plants it made me wonder about solar in general. That is a huge amount of land.

Sep 10 04:17 PM

[ZeroCred:]

I wish you the best of luck being short FSLR. My prediction is that you will get trounced along with man others; the short play is over. The stock has went from $190 to $112 FD: was short from $140 to $115. There has already been a rash of downgrades and the like and the bears have had their day in the sun. Now seemingly out of the blue they fire their CEO and ink the LARGEST deal ever in the history of solar in of all places China. Will they make money on this 10 year project riddled with hurdles and moving variables? Unlikely and the bulk of buyers at this time will not hold the stock long enough to realize an ROI on that project. But what is clear is that the sell-side has found a reason to trot out new research notes touting this to their substantial respective retail bases and lord help you if this finds it way on Goldmans conviction list. I like your work and respect your analysis however when the bulls run folks get gored. IMO there are much better shorts in this space.

Sep 10 05:26 PM

[Road Runner:]

Stone Fox Capital, Have you ever been in a desert? There is miles and miles of nothing. And, I am mean nothing. I lived in the Mojave desert, near Edwards Air Force Base, for a while. The Mojave desert goes on and on and on, and it is a small desert. Inner Mongolia is the Gobi desert which is much larger.

I have this vivid memory from 20 years ago driving to San Diego from Illinois. Right after we crossed into California from Arizona there was a sign that read "next services 100 miles".


On Sep 10 04:17 PM Stone Fox Capital wrote:

> when i read that it was going to take 25 sq miles to generate the
> same electricity as 2 coal plants it made me wonder about solar in
> general. That is a huge amount of land.

Sep 10 06:56 PM

[boisterousbob:]

No doubt some people would have been commenting how much cheaper and more reliable horses were as the first motor vehicles were being launched as well.

I don't think efficiency or cost or size will ultimately be the breakers for Solar. We can certainly expect renewables to ramp up to providing all the "non-dispatchable" generation a country can use as efficiency rises and costs fall. However that will still leave us generating 80%+ of our electricity from coal or gas etc. You can't store electricity, and only having electricity when the sun shines or the wind blows just isn't good enough for the majority of uses.


On Sep 10 04:17 PM Stone Fox Capital wrote:

> when i read that it was going to take 25 sq miles to generate the
> same electricity as 2 coal plants it made me wonder about solar in
> general. That is a huge amount of land.

Sep 10 08:49 PM

[boisterousbob:]

I like the authors geo-political comment on FSLR and no doubt the Chinese would be willing to pay for lobbying effort in the US to prevent anything restrictive happening to their imports here.

Only time will tell whether this project does indeed get completed by 2012-14, or whether the objective of defending the domestic chinese industry may be complete by then.

Sep 10 08:52 PM

[ZeroCred:]

How is that FSLR short going?

Would be interested on your input here since the stock has run 30 points from your article.

FD: We have been long and remain.

Sep 18 10:13 PM