Chinese solar stocks potentially offer investors some nice gains, not only now, but for the long term as well.
These solar companies are foremost backed and subsidized by the Chinese government, and many other world governments subsidize them as well. This gives these companies a unique advantage over many companies that do not receive government subsidies. I believe as China grows economically stronger, The solar energy companies from there will grow stronger as well.
Let's take a quick look at 3 of these Chinese companies that had their stocks take a beating in 2011. In part because of this beat down, I feel these stocks have become grossly oversold and offer very good investment value moving forward, notwithstanding the fundamental reasons.
LDK Solar (LDK), PPS: $4.95. 52 week rage: 2.55 - 14.97. Avg. Volume: 2,264,920. Market Cap: 650 Million.
LDK Solar Co., Ltd., together with its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. It offers solar-grade and semiconductor-grade polysilicon; and multicrystalline and monocrystalline solar wafers to the manufacturers of solar cells and solar modules. The company also provides wafer processing services to monocrystalline and multicrystalline solar cell and module manufacturers; and sells silicon materials, such as ingots and polysilicon scraps.
In addition, it engages in the production and sale of solar cells and modules to developers, distributors, and system integrators; and design and development of solar power projects in Europe, the United States, and China, as well as provides engineering, procurement, and construction services. LDK Solar Co., Ltd. operates in Europe, the Asia Pacific, and North America.
| Fiscal Year |
| Fiscal Year Ends | Dec 31 |
| Most Recent Quarter (mrq) | Sep 30, 2011 |
| Profitability | | Profit Margin (TTM) | 2.95% | | Operating Margin | 14.11% | |
| Management Effectiveness | | Return on Assets | 3.80% | | Return on Equity | 8.45% | |
| Income Statement | | Revenue | 2.66B | | Revenue Per Share | 18.21 | | Qtrly Revenue Growth (yoy) | -30.20% | | Gross Profit | 557.84M | | EBITDA 6 | 543.27M | | Net Income Avl to Common | 78.47M | | Diluted EPS | 0.67 | | Qtrly Earnings Growth (yoy): | N/A | |
| Balance Sheet |
| Total Cash (mrq) | 262.55M |
| Total Cash Per Share (mrq) | 2.00 |
| Total Debt (mrq) | 3.62B |
| Total Debt/Equity (mrq) | 257.05 |
| Current Ratio (mrq) | 0.69 |
| Book Value Per Share (mrq) | 9.13 |
LDK has been increasing its revenue at the rate of 23% annually over the past three years. Over the past 12 months revenue grew at a rate of 40%. The company did well in the early part of 2011 before subsidy withdrawals in key European markets and the European debt crisis took the wind out of their proverbial Solar Sails in the last 2 quarters of 2011.
LDK is a major player in the fast-growing Chinese solar market and more than one-third of its revenue comes from this region. Because China is taking a bigger role moving forward in the solar industry, and because of Chinese government subsidy, LDK may be a good bet at its current price level.
Yingli Green Energy (YGE), PPS: $4.45. 52 week range: 2.75 - 13.59. Avg volume: 3,349,870. Market Cap: 703 Million.
Yingli Green Energy Holding Company Limited, together with its subsidiaries, engages in the design, development, manufacture, marketing, sale, and installation of photovoltaic products in the People's Republic of China and internationally. The company offers PV cells, PV modules, and integrated PV systems, as well as polysilicon ingots, blocks, and wafers.
It sells its PV modules to distributors, wholesalers, power plant developers and operators, and PV system integrators in Germany, the United States, Italy, China, Spain, the Netherlands, Greece, the Czech Republic, the United Kingdom, South Korea, and Japan under the Yingli and Yingli Solar brand names. The company also offers its integrated PV systems directly to end-users or to contractors for use in the electricity projects, as well as to mobile communications companies in the People's Republic of China.
| Fiscal Year |
| Fiscal Year Ends | Dec 31 |
| Most Recent Quarter (mrq) | Sep 30, 2011 |
| Profitability | | Profit Margin | 6.71% | | Operating Margin | 12.57% | |
| Management Effectiveness | | Return on Assets | 4.92% | | Return on Equity | 11.55% | |
| Income Statement | | Revenue | 2.56B | | Revenue Per Share | 16.29 | | Qtrly Revenue Growth (yoy) | 29.70% | | Gross Profit | 630.19M | | EBITDA 6 | 418.22M | | Net Income Avl to Common | 171.77M | | Diluted EPS | 1.07 | | Qtrly Earnings Growth (yoy) | N/A | |
| Balance Sheet |
| Total Cash (mrq) | 937.86M |
| Total Cash Per Share (mrq) | 5.93 |
| Total Debt (mrq) | 2.19B |
| Total Debt/Equity (mrq) | 125.95 |
| Current Ratio (mrq) | 1.03 |
| Book Value Per Share (mrq) | 9.03 |
The numbers above look good, and in my opinion, YGE looks very undervalued at the current pps level. YGE issued a press release on 1/19/11 that looks rather positive.
Institutions appear to be getting more bullish on YGE:
PUTNAM INVESTMENT MANAGEMENT LLC: On 06/30/2011, held 0 shares. On 09/30/2011, held 949,200 shares, worth $2,942,520.
KINGDON CAPITAL MANAGEMENT LLC: On 06/30/2011, held 0 shares. On 09/30/2011, held 827,598 shares, worth $2,565,554.
DAIWA SECURITIES GROUP INC.: On 06/30/2011, held 0 shares. On 09/30/2011, held 158,000 shares, worth $489,800.
MORGAN STANLEY: On 06/30/2011, held 0 shares. On 09/30/2011, held 139,994 shares, worth $433,981.
TRADEWORX INC.: On 06/30/2011, held 0 shares. On 09/30/2011, held 65,547 shares, worth $203,196.
ReneSola (SOL), PPS: $2.35. 52 week range: 1.45 - 13.25. Avg volume: 1,620,490. Market Cap: 204 Million.
ReneSola Ltd, together with its subsidiaries, engages in the manufacture and sale of solar wafers and solar power products. It offers virgin polysilicons, monocrystalline and multicrystalline solar wafers, and photovoltaic cells and modules. The company also provides cell and module processing services. Its products are used in a range of residential, commercial, industrial, and other solar power generation systems. The company sells its solar wafers primarily to solar cell and module manufacturers. It principally operates in Mainland China, Singapore, Taiwan, Hong Kong, Korea, India, Australia, Germany, Italy, Spain, Belgium, France, the Czech Republic, and the United States.
| Fiscal Year |
| Fiscal Year Ends | Dec 31 |
| Most Recent Quarter (mrq) | Sep 30, 2011 |
| Profitability | | Profit Margin | 8.28% | | Operating Margin | 12.18% | |
| Management Effectiveness | | Return on Assets | 5.14% | | Return on Equity | 17.14% | |
| Income Statement | | Revenue | 1.18B | | Revenue Per Share | 13.64 | | Qtrly Revenue Growth (yoy) | -47.30% | | Gross Profit | 347.96M | | EBITDA 6 | 219.63M | | Net Income Avl to Common | 98.07M | | Diluted EPS | 1.03 | | Qtrly Earnings Growth (yoy) | N/A | |
| Balance Sheet | | Total Cash (mrq) | 408.12M | | Total Cash Per Share (mrq) | 4.70 | | Total Debt (mrq) | 822.16M | | Total Debt/Equity (mrq) | 130.27 | | Current Ratio (mrq) | 1.00 | | Book Value Per Share (mrq) | 7.27 | |
| Cash Flow Statement | | Operating Cash Flow | 69.24M | | Levered Free Cash Flow | -31.67M | |
As the numbers above clearly show, ReneSola trading at 2.35 is a travesty in my opinion. As mentioned prior, the last 2 quarters of 2011 saw growth reverse itself in this sector. Regardless, these companies are still very undervalued, and I expect growth to return again this year. As this growth returns, you can bet the stock prices will follow suit.
It is time for a correction to the upside for solar energy stocks. This presents quite an attractive opportunity for the aggressive investor type to take full advantage of this. Institutions appear to be buying more and more shares in this sector. I think it is time for retail investors to follow suite and buy into these companies as well.
Other companies in the solar energy sector you might want to take a look at include: Ja Solar (JASO), Trina Solar (TSL), Hanwha (HSOL), JinkoSolar (JKS), Suntech Power (STP), First Solar (FSLR), and SunPower Corporation.
The above companies are just a few to take a look at and do The DD on. I know many of you will read this and think to yourselves: "Common man, solar stocks have been taking a beating lately." This is a fact, and I do not blame you for seeing the obvious here. But consider that some of the best opportunities in the stock market occur when stocks get oversold.
I will reiterate: These stocks are badly oversold, and their fundamentals are solid. China is still growing at a good pace, and solar energy will eventually be the way we receive a good deal of our energy. We can see many of these companies have decent to good balance sheets. If you so choose to invest in any of these companies, my advice is to slowly build a position in the companies you like and cost basis average in.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
