DayStar Technologies: A Rock Bottom Stock That Will Bounce Back

| About: DayStar Technologies, (DSTI)

DayStar Technologies (NASDAQ:DSTI) is an emerging developer and manufacturer of low cost, high efficiency thin film solar cell products that convert sunlight into electricity. The firm manufactures thin film solar cells which are attached to metal foil using a process originally developed for manufacturing computers. DayStar's products are marketed as an alternative to conventional silicon wafer cells. The company claims its proprietary manufacturing process will lower production costs and make large-scale deployment of solar energy feasible.

DayStar has a producing factory and its now shipping solar cells to customers. According to a recent press release, the company recently retooled its manufacturing process and increased efficiency by 60 percent. About 1700 Gen II solar cells are being produced per week.

DayStar has completed buildout of a new facility where 15 engineers and technicians are working on the initial design of a new Gen III product line. Once financing is in place, the firm estimates the Gen III product will begin shipping in one year.

DayStar has established a number of strategic alliances. Among these is a $1 million funding grant from the U.S. government for a project to research "Lighter Than Air Vehicle" applications.

Last month, the company hired Stephan DeLuca to replace DayStar founder John Tuttle as CEO. Tuttle will reportedly continue as chairman.

Blazing trails into the future is a costly proposition and DayStar needs cash to advance its agenda. Cash burn accelerated during the last quarter as capital expenditures rose to pay for ramping up its manufacturing operation. In addition, a steep decline in DayStar's stock price has forced the firm to escrow $3 million to satisfy lender terms.

Of course, DayStar's deflated stock price is the reason why DSTI turned up in one of my "rock bottom" screens. The stock hit a 52-week low of 4.67 on Wednesday. The stock had traded at a 52-week high of $15.75 in February. The 50-day moving average is 6.07 and the 200-dma is 9.10. DSTI closed yesterday at 4.69.

Last month, DayStar announced plans to put its financial house in order. Cost cutting measures are being implemented and the firm has hired Tejas Securities Group as a financial advisor to explore funding opportunities and other strategic alternatives.

Before the market opened Thursday, I reported that the technical indicators I follow suggest DSTI has hit rock bottom or is close to it. Two of three indicators that were sharply declining had leveled off, and the third was a few days shy of reversing into an uptrend. I also reported that I did not own this stock, but if I saw evidence of a confirmed bottom in the next day or two, I would likely "go fishing" and try to snag some shares at or near $4.58.

When the market opened Thursday, trading in DSTI was choppy and I began to see signs of a double bottom forming. This would set the stage for another down day. I lowered my buy target to $4.26 and decided to go fishing. The stock hit a new 52-week low of $4.25. My order filled at $4.26, a penny above the low. Which means, in the interest of full disclosure, I am now long in DSTI.

With rock bottom stocks, a confirmed bottom will typically be followed by a bounce. This is even more likely with double bottoms, and I expect DSTI will behave accordingly. The classic swing trade is buy on a dip, sell on a spike, and bank the profit. But as I reported earlier, I may hold DSTI a while, as I think it could rebound back above its 200-day moving average by spring or summer, provided, of course, that the company secures additional funding.

I like solar -- or, rather, I like the idea of what it could become over time. Cheap oil is a thing of the past, and that fact makes development of alternative energies not only more commercially viable but a must, unless industrialized nations are planning to revert to horse and buggy travel and candlelight. The fact that pro-green Dems will take control of Congress next month should also bolster the prospects of solar energy and various other alternatives to the world's finite supply of fossil fuel.

DSTI 1-yr chart