Selling LDK and Leaving Solar Mania

First Solar (FSLR) is pushing the entire group up. I think it's a bit of a mistake since First Solar is it's own animal on the profit line - the whole group is enjoying revenue surges but most of the companies are reliant on polysilicon, and hence have some profitability issues.

Only First Solar is immune at this point. Even the company that has been in this space a long time and has yet to figure out how to make a dime, Evergreen Solar (ESLR) is up about 50% in the past week. Hence I know, things are getting ahem... frothy.

LDK Solar (LDK) has been the biggest loser in the fund and the stock is up 6-7% and is approaching some resistance areas. So I am closing the position with the last 350 shares out today; this raised about $15K, but I have a pretty sizeable loss in the position (12.4%). I actually like where LDK Solar is in the food chain, and if they report an 'all clear' from their audit, trust me this one could spike 40% instantly.

Well considering it is solar, I suppose it could spike 140% instantly... but this space feels like Chinese small caps about a month ago, like the dry bulk shippers about 2 weeks ago etc - investors are giddy, shorts are being destroyed, and longs feel invincible. That always gets me worried, but again I have a terrible track record in this sector of late, after being an investor in saner times (since late 2006). I knew one day these stocks would take off, but I never imagined the power of the herd....

As I said, my track record for mistiming this sector continues unabated. After selling the last of Suntech Power (STP) earlier in the week, the stock is up 16% alone today.

I have concluded that my style does not work very well in manias. I don't know; I suppose these stocks can continue adding 50% every 2 weeks indefinitely. After all valuation no longer matters....

With the sale of LDK Solar I am now completely out of the sector. Seems strange.

Disclosure: No positions

Comments

[Mark Anthony:]

You are completely wrong on FSLR's profitability. It's actually the opposite case. All solar players based on silicon will have no profitability issue in long term once the silicon production catches up.

FSLR, on another hand, used CdTe, cadmium telluride. Two fatal elements that says that fundamentallly there will be neither growth, nor profitability in this company, in mid to long term. FSLR has NO future whatsoever. But first I suspect how could they sell at US$2.48 per watt in Q3 when the sales were on long term sales contracts, and the average price per watt on those contracts were only $1.80 per watt? ($6B contracts of 3.354 GW to be delivered). The pricing structure is fixed price that goes down 6.5% yearly, not up. It spells a disaster in the future as inflation runs away.

CdTe, cadmium telluride, is the wrong material on the wrong planet. Cadmium is extremely toxic and harmful to environment. Tellurium is extremely rare on earth, rarer than platinum. Do a google on tellurium, the No. 52 element.

The bigger problem is with tellurium supply. FSLR uses 15 grams of CdTe, or 8 grams of tellurium per module. Sounds small? The whole world produces only 215 tons tellurium per year. In the past few years price already gone up from below $4 to over $100 a pound, without any significant CdTe demand yet, implying an extreme shortage. Tellurium is used in military equipments like heat seek missiles, night visition equipments, cooling devices. It's also used in metal alloys, computer flash memories, and DVDs, especially the new Blu-Ray DVD.

FSLR could be killed by either insufficient supply of tellurium, or much higher price of tellurium, or inflation of euro and other currencies. Their sales contracts are on fixed pricing terms. The price can not adjust up for inflation, and must go down 6.5% per year, forcing them to cut cost over time.

Do your research on tellurium.

Full disclosure: I am short in FSLR and intend to cover at low double digits. I also seek to hoard some physical tellurium. I have none.

2007 Nov 10 01:35 PM

[omooc:]

Talking about timing. With this volatily, an investor/trader sitting before a computer is no match to those in large firms. Am I giving away too much advantage? omooc

2007 Nov 11 07:21 PM