The solar sector as represented by The Guggenheim Solar ETF (NYSEARCA:TAN) is finally beginning to recover over the last six weeks, after a brutal near-80% collapse in the index since the end of 2009, with smaller solar companies faring even far worse than that. While the profit outlook near-term continues to be challenging, and there is widespread consensus that the upcoming FY may see even a further contraction of profits, the clouds are beginning to lift over the long-term.
The market is reacting to speculation that global demand maybe rising, as evident in rising utilization of solar module factories, and that demand may receive a further leg-up if Chinese government plans of generous subsidies for new solar installations pan out. Furthermore, European demand may resurge, including subsidies in key markets such as Germany, as the EU definitely deals with the fiscal crisis on the continent.
In this article, we analyze the investing activities of legendary fund managers or gurus such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, in the solar group, based on our research of their latest available Q3 institutional 13-F filings. Most of the information is based on the latest available Q3 filings, but we have updated our data with Q4 filings from guru fund manager Yacktman Asset Management that filed earlier this month. Taken together, these guru managers were bullish on the solar group, adding a net $105 million in Q3 to their $476 million prior quarter holdings in the group.
The following are the major solar companies that these guru fund managers are most bullish about (see Table):
First Solar Inc. (NASDAQ:FSLR): FSLR manufactures and sells solar modules using a thin-film semiconductor technology for residential and commercial markets in the U.S., Europe and Asia. In addition, it also designs, constructs, and sells photovoltaic solar power systems. Guru funds added a net $57 million to their $152 million prior quarter position, and together they hold 5.5% of the outstanding shares, greater than their 4.1% weighting in the group. The top guru fund buyer was Maverick Capital ($49 million), and the top holders were Maverick ($157 million) and Ruane Cunniff & Goldfarb ($43 million).
FSLR currently trades at a respectable current 6.9 P/E on a TTM basis, and at 0.9 P/B, compared to averages of 7.3 and 0.6 for its (mid-cap) peers in the solar group, while earnings are expected to fall further this year from $5.84 in 2011 to $4.18 in 2012 as the solar industry works through the glut based on over-supply in the industry and a drop in demand due to cut-back in subsidies in key markets.
However, although earnings are projected to fall further this year, the profit picture at FSLR is a lot better than many of its smaller peers that have seen precipitous drops in earnings, and even to losses in many cases. We believe that FSLR shares have fully discounted the negative profit outlook, and arguably are the safest bet in a very risky sector. Its shares have already suffered a multi-year slide since their peak in 2008, and are now down about 85% from the highs, including a crippling 74% drop last year that earned it the ignominious merit of being the biggest loser in the S&P 500.
GT Advanced Tech Inc. (GTAT): GTAT provides poly-silicon production technology and multi-crystalline ingot growth systems, and related photovoltaic (PV) manufacturing services for the solar industry worldwide. Guru funds added a net $2 million to their $35 million prior quarter position, and the top holders were Columbia Wanger Asset Management ($28 million) and Gotham Asset Management ($7 million). GTAT released its Q4 report almost two weeks ago, beating analyst revenues ($153 million v/s $147 million) and earnings (12c v/s 8c) estimates; the stock is off almost 50% from its highs in July of last year, and trades at 5-6 forward P/E and 4.8 P/B compared to averages of 7.3 and 0.6 for its (mid-cap) peers in the solar group.
Trina Solar Ltd. (NYSE:TSL): TSL is a vertically-integrated Chinese manufacturer of mono-crystalline ingots, wafers and cells to the assembly of high quality solar modules. Guru funds added a net $45 million to their $95 million prior quarter position, and together they hold 17.7% of the outstanding shares, far above their 4.1% weighting in the group. The top guru fund buyer was Platinum Investment Management ($56 million), and the top holders were Platinum ($72 million) and Maverick Capital ($68 million).
TSL shares have been strong over the past few days, and they received a lift Monday based on an upgrade from Bank of America that raised its price target to $17, well above the current $10'ish price, based on the company's long-term prospects and what they see as an emerging bottom in the solar business.
The following are the major solar companies that these guru fund managers are most bearish about (see Table):
- Yingli Green Energy (NYSE:YGE), a Chinese manufacturer engaged in the design, development, marketing, manufacture, installation, and sale of photovoltaic products, including PV cells, PV modules, and integrated PV systems, as well as poly-silicon ingots, blocks, and wafers, in which guru funds cut a net $3 million from their $79 million prior quarter position;
- Canadian Solar Inc. (NASDAQ:CSIQ), a Chinese manufacturer of ingot, wafer, solar cell, solar modules and other solar applications, in which guru funds cut a net $2 million from their $16 million prior quarter position;
- JA Solar Holdings (NASDAQ:JASO), a Chinese manufacturer of mono-crystalline and multi-crystalline solar cells for solar modules and systems, in which guru funds dropped completely their $1 million prior quarter position;
- Suntech Power Holdings (NYSE:STP), a Chinese manufacturer of photo-voltaic cells and modules for worldwide distribution, in which guru funds dropped completely their $1 million prior quarter position;
- Energy Conversion Device (NASDAQ:ENER), engaged in the design, manufacturing, and sale of thin-film solar laminates that convert sunlight to renewable energy for commercial and industrial rooftop applications, as well as for residential applications, in which guru funds dropped completely their $1 million prior quarter position;
- Satcon Technology Corp. (SATC), a manufacturer of utility-grade power conversion solutions and system design services for the renewable energy sector, primarily for large-scale commercial and utility-scale solar photovoltaic (PV) markets, in which guru funds dropped completely their $1 million prior quarter position; and
- LDK Solar Co. (NYSE:LDK), a Chinese manufacturer of multi-crystalline solar wafers that are the principal raw material used to produce solar cells, in which no guru fund held a significant position (save a $0.3 million unchanged position held by Zweigh-DiMenna Associates), which is all the more striking, and bearish, given that this is a high-visibility solar company with almost a billion dollars in market-cap.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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