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I believe institutional ownership is one key to higher share prices for a handful of solar names. The low level of institutional ownership in some stocks seems to directly correlate with undervalued solar names and inversely, high levels of institutional ownership seems to directly correlate with solar stocks that are fully valued. While this might be viewed as a disadvantage now, it could be a real opportunity to buy now, before these stocks find increased levels of institutional buying. A stock that has institutional ownership levels of less than 20% has incredible potential for increased institutional ownership, whereas a stock that already has 70%, 80% or even higher levels doesn't have much room left, and therefore may not have as much upside.

It takes time and many other factors to build institutional sponsorship in a stock. I believe the stocks below which have low current levels of institutional ownership will in time, experience significant share price appreciation that comes with institutional buying. Compare the PE ratios, book values and overall valuations in the names below with their percentage of institutional ownership and you will see how much upside remains in some of these names if institutions increase their stakes in these companies over time.

An article by Investors Business Daily recently discussed that there are signs of institutional buys increasing in names like Trina Solar (NYSE:TSL). You can read that article here. The article also says that Jinksolar (NYSE:JKS) and LDK Solar (NYSE:LDK) lack institutional sponsorship.

I think this information shows that LDK Solar, and Jinkosolar shares have the most potential because there is so much more room for institutional buying. You can imagine where those stocks could trade at, if they have sponsorship levels similar to companies like Trina Solar or GT Solar. Jinkosolar is relatively new and LDK Solar used to have more debt than some investors cared to see, but institutions will develop interest in these names sooner or later. I think it's only a matter of time before it happens, so it makes sense to buy and own these names before the big buyers come. Here is the data:

LDK Solar (LDK) is trading at $12.03.

  • Institutional ownership level: 18.05%
  • LDK has very strong earnings power and based on guidance from the company, it appears they 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. Book value is listed at $7.80 per share.

ReneSola, Ltd. (NYSE:SOL) is trading at $9.91.

  • Institutional ownership level: This data was unavailable for SOL from all sources I checked.
  • SOL is estimated to earn about $2 per share in 2011. This puts the PE ratio at just over 4, which is extremely undervalued for one of the leading low cost solar companies. Book value is listed at $5.91 per share.

Trina Solar, Ltd. (TSL) is trading at $29.81.

  • Institutional ownership level: 57.5%
  • 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. Book value is listed at $16.73 per share.

JA Solar Company, Ltd. (NASDAQ:JASO) is trading at $6.94.

  • Institutional ownership level: 39.44%
  • JASO earnings estimates are $1.40 per share for 2011. This puts the PE ratio at about 5. Book value is listed at $6.22 per share.

Jinkosolar Holding Co., Ltd. (JKS) is trading at $25.64.

  • Institutional ownership level: 20.5%
  • JKS earnings estimates are $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 for these shares. Book value is listed at $17.05 per share.

Yingli Green Energy Holding Co., Ltd. (NYSE:YGE) is trading at $12.88.

  • Institutional ownership level: 35.21%
  • Estimates for YGE are $1.61 per share in 2011. This puts the PE ratio at about 7 which is higher than the other Chinese names above but still a huge discount to the stock market average. Book value is listed at $8.17 per share.

Now let's look at the stocks which have much higher levels of institutional ownership and compare the valuations to the ones above:

First Solar Inc. (NASDAQ:FSLR) shares trade for $150.60.

  • Institutional ownership level: 70.21%
  • FSLR earnings estimates are $9.52 per share for 2011. This puts the PE ratio at about 16. Book value is listed at $40.25 per share.

MEMC Electronic Materials, Inc. (WFR) shares trade for $12.47.

  • Institutional ownership level: 79.12%
  • WFR earnings estimates are $1.17 per share for 2011. This puts the PE ratio at about 12. Book value is listed at $9.88 per share.

GT Solar International Inc. (SOLR) shares trade for $10.49.

  • Institutional ownership level: 95.83%
  • SOLR earnings estimates are $1.18 per share for 2011. This puts the PE ratio at about 10. Book value is listed at $1.13 per share.

The data is sourced from Yahoo Finance. The institutional ownership percentages are sourced from MSN Money. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for educational purposes only.

Disclosure: I am long SOL, LDK, JKS, JASO.