The market has been rough for many companies but one of the worst sectors has been the solar stocks. The negative news has been coming in from many sources ranging from concerns over weak European economies to low profit margins due to pricing pressures. Just recently, another solar firm named Solyndra filed for bankruptcy, even after receiving strong praise from the Obama Administration and over $500 million in government-backed loans. I had been bullish on solar stocks, and I was wrong. It's too hard to invest in this sector because of the dependence on government subsidies, which may not be easy to come by in the future due to strained budgets, and also because there is a strong bias against Chinese companies, which has made them easy targets for short sellers. Also, it appears some solar companies were far too optimistic with guidance and other statements that were made earlier this year. Much of the short selling in Chinese stocks has been justified due to accounting issues, lack of transparency and other problems that some China based firms have brought on.
I was very disappointed when LDK Solar (LDK) reduced guidance a few weeks ago. The reduced expectations was so different from guidance provided by the company earlier this year, that it prompted me to sell my shares. One of the latest negative developments just came from Jinkosolar (JKS), which announced that it has idled operations at one factory due to possible pollution issues. This news combined with a weak market, resulted in a drop of about 25% on Monday for JKS shares.
Clearly, this sector appears to be fraught with downside risk lately and I am basically watching from the sidelines. At some point, the industry will find a bottom and some of these stocks could be attractive, but for now these stocks appear to be better as trading opportunities rather than long-term investments. Most of these stocks will likely remain under pressure in the coming months as investors sell for tax loss benefits. It's also going to take a long time for the charts in this sector to look healthy. Here are some of the stocks worth watching:
LDK Solar (LDK) is trading at $4.59. The 50-day moving average is $5.99 and the 200-day moving average is $9.42. LDK has earnings estimates of about 30 cents per share for 2011, and 65 cents for 2012. These estimates are sharply lower than what they were a few weeks ago due to margin pressures and a significant reduction in revenue guidance from LDK. I believe the big reduction in guidance from LDK has hurt management credibility with some investors.
Jinkosolar Holding Co., Ltd. (JKS) is trading at $6.53. The 50-day moving average is $17.55 and the 200-day moving average is $23.32. JKS has earnings estimates of about $5.39 per share for 2011, and $4.15 for 2012. This puts the PE ratio at under 2. JKS just announced idling of one factory due to possible pollution issues that came to surface after protests from local residents. Cutting corners is often more expensive than doing things right in the long run. With this stock just hitting a new 52- week low, it's too early to say if there is a solid bottom.
ReneSola, Ltd. (SOL) trades at $2.68. The relative strength index is about 39, which indicates the stock is at oversold levels. The 50-day moving average is $3.72 and the 200-day moving average is $7.46. SOL is estimated to earn about 42 cents per share in 2011, and 49 cents in 2012. SOL has a book value of $7.11, so these shares are trading well below book value. Renesola is the only solar stock I currently have a position in and it is a small one.
JA Solar Company, Ltd. (JASO) trades at $2.18. These shares have fallen, from a 52-week high of $10.24. The 50-day moving average is $3.88 and the 200-day moving average is $5.92. JASO has earnings estimates of about 51 cents per share for 2011. This puts the PE ratio at about 4. JASO has a book value of $6.76.
Trina Solar, Ltd. (TSL) has pulled back to about $9.42. These shares have a relative strength index of about 26, which indicates the shares are oversold. The 50-day moving average is $15.24 and the 200-day moving average is $22.77. TSL is estimated to earn $1.70 per share in 2011, and $2.06 in 2012. TSL has a book value of about $17.41 per share.
Yingli Green Energy Holding Co., Ltd. (YGE) is trading at $3.48. The relative strength index is about 23, which indicates the stock is very oversold. The 50-day moving average is $6.12 and the 200-day moving average is $9.60, so the shares are trading well below support levels. Estimates for YGE are about 93 cents per share in 2011, and 84 cents for 2012. This puts the PE ratio at about 3.7.
Hanwha SolarOne Company (HSOL) shares are trading at $3.01. Hanwha SolarOne is a leading maker of wafers and solar modules and is based in China. The 50-day moving average is about $4.35 and the 200-day moving average is $6.65. Earnings estimates for HSOL are expected to be 27 cents for 2011, and 53 cents for 2012. HSOL shares are trading way below book value, which is $9.85.
Daqo New Energy Corp. (DQ) last closed at $4.39. DQ is a leading polysilicon manufacturer, based in China. The relative strength index is about 34, which indicates the shares are oversold. The 50-day moving average is $5.93 and the 200-day moving average is $10.05, so the shares are trading well below support levels. Estimates for DQ are about $2.47 per share in 2011. This puts the PE ratio at about 2, which is a huge discount to the stock market average. Book value is $8.56 per share.
Data sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long SOL.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.