Last Tuesday, shares of First Solar (FSLR) surged 10.3% on volume that was more than double the daily average after the company said it will lay-off 2,000 staffers and close a plant in Germany due to slack demand for solar panels. That might be interpreted to be good news for the downtrodden solar sector. After all, First Solar is the largest U.S.-based maker of solar panels.
However, in today's session First Solar tumbled more than 7% after Wunderlich slapped a Sell rating on the stock and a target price of $14 per share. The firm cited dwindling market share along with strategy that lacks barriers to entry.
If the solar sector has taught investors anything over the past 12 to 18 months it is to be careful because what looks like good news rarely is anything more than a one-day phenomenon. For myriad reasons, First Solar and its rivals have been savagely repudiated for over a year. Just look at the performances of the Guggenheim Solar ETF (TAN) and the Market Vectors Solar Energy ETF (KWT) over the past year. Both funds are down almost 70%.
Talk about value destruction. Regarding First Solar, Tuesday's 10.3% jump took the stock to $22.96. Once upon a time, the stock traded above $145. The company said it's taking the aforementioned cost-cutting actions because of weak demand in key solar markets and increased competition from Chinese rivals with lower-priced products.
By no means should First Solar's statements about its Chinese peers be taken as an invitation to buy Chinese solar stocks. Just look at the statistics. Yingli Green Energy (YGE) is down over 71% in the past year. JA Solar (JASO) has plunged more than 77%. Suntech Power (STP) has dropped 69%. Trina Solar (TSL) has shed 76% in the past 12 months. We could go on, but you get the point. Chinese solar stocks have stunk up the joint, as well.
There's little reason to believe that this scenario will change anytime soon. First Solar said demand is waning, not the first solar company to say as much, recently. European nations, among the biggest consumers of solar power in the world, have trimmed solar subsidies, hammering publicly traded solar firms in the process.
More obvious reasons exist to avoid solar stocks. It used to be rising oil prices were good for solar stocks because high oil prices renewed the debate on embracing alternative energy sources. That's a thing of the past. Oil futures are higher in 2012. Solar stocks are not. Another big factor could be natural gas, which is trading at record lows below the $2 per MMBtu. This has spurred an interest from utilities and other energy intensive users to take advantage of low prices and outsize supply.
Not to mention, President Obama has been adamant about the U.S. shift to more renewable and alternative energy sources. Simply put, the President loves the solar industry, but even that haven't been enough to save these stocks. Combine all these factors and you got a sector worth shorting or avoiding, not one to be long with.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
