First Solar, Sunpower Likely to Be Added to the Nasdaq 100 This Month

Each year the Nasdaq 100 is reorganized to include most of the 100 largest non-financial stocks from the exchange. Market underpeformers which are no longer among the top 100 Nasdaq stocks by market cap are removed from the index each year in December and replaced with new large caps.

For example, in 2005 Google (GOOG) was added to the QQQQ on Dec 13th. In 2006 Infosys (INFY) was added on Dec 11th. Assuming about 10 stocks are removed this year, any non-financial with a market cap over about $8 billion should make it in. This would make First Solar (FSLR) nearly a lock and SunPower's (SPWR) addition is probable barring a major selloff within the next few weeks.

Being added to the QQQQ can definitely be seen as a bullish indicator. Market makers are forced to buy shares of the individual components of the QQQQ in order to match their clients' ETF holdings. In addition, it can bring recognition to companies that most retail investors have never heard of, essentially acting as free marketing.

Disclosure: Author is long FSLR and SPWR.

Comments

[solar jim]

Seeing SPWR added would be a nice development. I agree, getting into one of the index's is usually a free ride. It also acts, generally, to remove some of the volatility that a stock may have been exhibiting prior to being added to the index. All in all, a very solid move should that come to pass for either FSLR or SPWR.

Although some people were apparently dissapointed with FSLR's analyst day as they did not announce a new expansion I think people weren't paying attention. They increased the per line throughput from 30Mw per line in the 2nd qtr to 39.6Mw in the 3rd qtr. That's over a 30% capacity expansion right there without adding any plants, yet it's the equivalent of adding two to three plants with four lines. They already had announced expansion to total around 700Mw in 2009. Now that's close to 1 Gigawatt without adding any new plants based on increasing from 30 to 39.6 per line. Not bad. Not bad at all.

Mark Anthony, where are you? I know you're somewhere around here. I'm surprised you haven't spammed this post yet with your Te "chicken little" panic routine.

[Andrew Ling]

Yes the throughput increase was about the best news I can imagine. Still, it was old news and already priced in. All in all I think the stock is more attractive at these levels than before the earnings announcement. Much like I said that FSLR was a better value after their first earnings report at $45 than before at $33. That first earnings report basically put the company a year ahead of schedule. This latest earnings report puts them another year ahead of an already accelerated schedule. Remember FSLR upon IPO was not expected to turn a profit until 2008.

[solar jim]

I do remember that fact (not profitable til 2008). Although from my recollection that was analysts estimates, not the company. The analysts have been behind on this one from the first quarter as a public company and that has continued to today. As for the increased throughput being priced in already - I agree. I was simply trying to illustrate that increases in annual production capacity can be achieved without having to actually build a new plant. It can happen through increased conversion efficiency, increased throughput (speed of the line), solutions to previous bottlenecks in the chain of production, etc... Building a new plant is pure gravy right now considering they are advancing on all the other fronts continuously as well.

[solar jim]

Here's an item I saw on the Internet today regarding FSLR. The interesting item here was the 2010 earnings estiamte they put on FSLR of $7.25/share. Considering past performance of not only the company, but the lag time from analysts trying to catch up, this estimate seems to very beateable in 2010 based on previous performance of trying to gauge this companies profitablility. The item from the internet page follows below...

Analyst Sanjay Shrestha of Lazard Capital Markets is sticking with his Buy ratings this morning on shares of First Solar (NASDAQ:FSLR) and Capstone Turbine (NASDAQ:CPST).

On First Solar (NASDAQ:FSLR):

We maintain our BUY rating on First Solar shares following the company's analyst day and tour of the company's Perrysburg, Ohio, manufacturing facility.... elaborated on its overall strategy to garner leading and defendable market share in the mainstream electric power generating market, without subsidy, while maintaining a superior return on capital through people, processes, technological leadership, scale, strong financial discipline, and risk control..... reiterated its cost-reduction goal of achieving module ASP of $1-$1.25/watt by 2010-2012.
Shrestha adds, "We believe this strategy will allow First Solar to successfully migrate from subsidized markets, to renewable energy markets, to mainstream electric power markets over the next several years.... We are raising our price target to $250 from $225. Our new target equates to a 40x multiple on our 2010E EPS of $7.25 (up from $6.50), discounted back 15% for one year.

[Andrew Ling]

Part of the reason the analysts are always behind is because their numbers use current data to extrapolate future earnings. For example they should've known there would be new plants coming online by 2009 and figured those into 09 earnings long before the official announcements. In terms of the "valuation" of the stock most people understand some of FSLR's advantages but few understand them all. In order to truly appreciate the business you have to understand them all. The throughput improvement was one that was overlooked all the way up until the most recent earnings. I remember a few months ago someone in the message boards insisting that FSLR's accounting was fraudulent because they were already producing more than their nameplate ratings. He had no clue about the throughput improvements and conservative ratings.

[Andrew Ling]

There is also potential for additions to the S&P 500. Although I'm not sure exactly how their reorganization schedule works there was an article yesterday about Gamestop, a 9B company replacing Dow Jones & Co a 5B company

www.chron.com/disp/sto...

[solar jim]

Enter your comment hereAnother reason analysts generally run behind new(er) growth companies is that it's not as important (as an analyst) that you were wrong estimating growth of the company rather than how wrong you were versus the rest of the analysts. As long as all the analysts under estimate future growth the same then they come out and say how unexpectedly well they company did over expectations, even though the company generally has said they will do that amount in conference calls. By being conservative, it is then a company outperforming rather than analysts being phenomanally wrong on the actual state of the business. I know someone that works at Cowen & Co. as a stock analyst and we have had this discussion multiple times. The result is that analysts are always more conservative than the company estimates. So wqhen you find a company that does UPOD (Under Promise Over Deliver) as FSLR has, you got a good bet that the analysts are going to continue to be behind this one for quite some time to come.

[beanieville]

You got that right. Bear smashin time!
beanieville.blogspot.c...

[Andrew Ling]

Exactly. The earnings estimates game is much like the buy sell or hold ratings game. In theory an analyst doing his job should have just as many "sell" rated stocks as "buy" rated stocks. In reality there are far more buy rated stocks. Similarly there are far more companies that "beat" expectations than miss. The analysts figure this is the safe side to error on. It reminds me of home appraisers who, on the west coast, simply appraise the house at it's sale price 95% of the time. I always felt I was getting ripped off paying an appraiser $300 just to satisfy the bank.

[User 128398]

You guys are all full of it. FSLR technology sucks and they will never enter US with CdTe because of EPA regulations. Their panels degrade in power over time thats why they have recycling program. It is matter of time before all analysts say run. This Andrew Ling guy thinks he knows it all, talk to experts in solar industry.

[solar jim]

Here we go again. Another post that is pure opinion. Hey, User 128398, are you sure you're not really Mark Anthony? Here's an idea, rather than just spit out that something "sucks", actually explain why it isn't the best. How about some, you know, data. This is what logical people do, look at data and extrapolate to a specific conclusion, or a future point. Since you've apparently already talked to these "experts" in the solar industry, why not save us some time and effort and actually post a link to these "experts" and/or actually sprinkle some of their wisdom into your posts rather than pure opinion with absolutely nothing to back up your assertion.

[solar jim]

And how exactly does having the lowest cost per watt in the industry regardless of type of substrate used, as FSLR does, influence your decision on how badly FSLR's technology "sucks", considering that they do have the lowest cost basis per watt of energy produced.

[User 128398]

Hey you solarjim, I am the expert myself, and here you go for a link

cat.inist.fr/?aModele=...

and I can find many more. Surely I am talking logic here and not something from my arse

[Andrew Ling]

"The amount of Cd in CdTe solar cells is very small, and could be reduced even further as the cells become thinner; a NiCd flashlight battery has more Cd (7g) than a square meter of today's CdTe PV module. About 20,000 tons of Cd are used worldwide each year, about half for Ni/Cd batteries. About 2,000 tons of Cd is thrown away each year in the form of used toy batteries. Using this quantity of Cd in CdTe photovoltaics would produce 35 GW of PV per year."

www.pv.bnl.gov/cdte.ht...

[setting therecordstraight]

FSLR does not meet the requirements to be added to the Nasdaq 100. A company has to be "seasoned", i.e. be on the exchange for two years. Please get your facts straight before publishing a misleading, hyped-up report about a momo stock.

[jmmx]

Dear Setting the Record Straight-

Thank you for the educating us on the details here.

One question (my apologies as I am not a professional trader), but what exactly is a "momo stock"?

Thank you.

[Andrew Ling]

Not exactly true. A company only needs to be seasoned one year is among the top 25% of Nasdaq 100 stocks in market cap. FSLR is currently in the top 30%. SPWR will not make it this year, however.

A momo stock is a momentum stock. Some put FSLR in this category. They probably discovered FSLR by looking at lists of this year's best performers. I'm not a momentum investor. I've been buying FSLR since Feb. simply because it's the best alternative energy investment I can find.

[Andrew Ling]

"The energy bill passed overwhelmingly with a 86-8 vote, but only after the Senate removed a tax package that would have extended tax breaks for wind and solar projects and cut tax breaks for big oil and gas companies."

money.cnn.com/news/new...

The renewables bill will probably be introduced again soon an a separate bill. Also, today, the US pull a 180 on the Kyoto protocol and is no longer opposed to it.

afp.google.com/article...