The solar stocks below are trading at valuations that would appeal to most value investors. These stocks have pulled back from their highs, and it could be time to start accumulating shares in these names.
Many solar stocks were hit hard yesterday, not just due to the big drop in the stock market but also over concerns that Italy would drastically cut solar subsidies. These fears appear overblown, which often is the case with solar stocks. I doubt officials in Italy will want to cut subsidies too drastically, as it would result in lost jobs.
As recent earnings from all these companies have proven, the solar business is very solid and very profitable. To read more about the possible solar subsidy cuts in Italy, see here.
These shares have ridiculously low PE ratios, and as oil and other energy costs rise, solar should benefit. In particular, I am looking at the earnings power and the Relative Strength Index (RSI) levels which can indicate oversold conditions. Stocks with an RSI rating of about 30 can signal that the shares are oversold and due for a rebound.
LDK Solar (LDK) has pulled back to about $12.80. Just days ago, LDK traded as high as $14.97. The RSI is about 46. These shares have fallen recently with the market, from a 52-week high of $15.10. The 50-day moving average is $12.29 and the 200-day moving average is $9.33. LDK has very strong earnings and, based on guidance from the company, it appears it could earn over $3 per share in 2011. This puts the PE ratio at about 4, which is extremely low for one of the leading solar companies. Recently the shares have received multiple buy ratings including one from Kaufman Bros. which has a $24 price target for these shares. Shares of LDK are not far off from hitting a new 52-week high; I believe the breakout over $15 per share to new highs is only a matter of time.
ReneSola, Ltd. (SOL) pulled back sharply yesterday, to close at $9.20. The RSI is about 34, which indicates the stock is at oversold levels. The company reported excellent fourth quarter earnings of 69 cents per share and, for the full year, $1.93 earnings per share. Despite this, the shares fell about 17% as the company said its first quarter revenues would be $310-330 million, which fell slightly short of analyst expectations of around $340 million. The 50-day moving average is $10.39 and the 200-day moving average is $9.28. SOL is estimated to earn about $2 per share in 2011. This puts the PE ratio at just over 4, which is as I've mentioned extremely undervalued for one of the leading low-cost solar companies. For those who like options, selling $9 April puts looks attractive as they bring about 85 cents. See more on SOL's earnings here.
Trina Solar, Ltd. (TSL) has pulled back to about $27.33. The RSI is about 47. Just days ago, the company reported blowout fourth quarter earnings of $1.87 per share, which beat analyst estimates of about $1.09. Despite this, the shares have dropped about 10% since reporting earnings and very positive guidance for 2011. The 50-day moving average is $26.47 and the 200-day moving average is $24.23. TSL is estimated to earn over $4 per share in 2011. This puts the PE ratio at about 6. Multiple analysts have price targets of about $40 per share for TSL. See more on TSL's earnings here.
JA Solar Company, Ltd. (JASO) has also pulled back sharply, to about $7.09. The relative strength index is about 43. These shares have fallen from a 52-week high of $10.24. The 50-day moving average is $7.34 and the 200-day moving average is $6.89, so these shares are trading near support levels. JASO has earnings estimates of about $1.40 per share for 2011. This puts the PE ratio at about 5.
Jinkosolar Holding Co., Ltd. (JKS) has pulled back to about $27.61. The relative strength index is about 49. These shares have fallen from a 52-week high of $41.75. The 50-day moving average is $26.10. JKS recently reported earnings of $2.36 per share for the fourth quarter, which also blew away the estimates. JKS has earnings estimates of about $5.42 per share for 2011. This puts the PE ratio at about 5. The shares have received multiple buy ratings with price targets of about $40.
Yingli Green Energy Holding Co., Ltd. (YGE) closed at $11.57 yesterday. The relative strength index is about 45. These shares have a 52-week high of $14.29. The 50-day moving average is $11.32 and the 200-day moving average is $11.19, so the shares are trading close to support levels. Estimates for YGE are about $1.61 per share in 2011. This puts the PE ratio at about 7, which is higher than the other names above but still represents a huge discount to the stock market average.
These solar stocks are volatile, and I suggest scaling into any positions over time. I think the recent pullback represents a solid buying opportunity. I am adding shares on this drop today, and will add more aggressively on any further dips from these levels. These companies are established, and solar is here to stay. As time passes, I believe investors will give these and other solar stocks much higher valuations through PE multiple expansion.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long SOL, LDK, TSL.