Analyst Expresses 'Extreme Skepticism' on First Solar

Extreme skepticism? You wouldn’t know it, judging by the more than nine-fold appreciation in shares of solar panel technology vendor First Solar (FSLR) this year.

But that’s how Ryan Dietrick, senior technical analyst at boutique research firm Schaeffer’s Investment Research, spun it on Bloomberg television this morning.

In an interview with Bloomberg’s Ellen Braitman, Dietrick says the market is reflecting a lot of pessimism in general, judging from the rising number of put option purchases relative to call options purchases.

In particular, the high level of short interest in shares of First Solar (it has 6.7 million shares short as of December 14, of 73 million shares outstanding and a float of 60 million, according to data from Dow Jones), and the numerous negative analyst recommendations, mean the stock is a buy.

(Not so sure about that last one: Bloomberg data shows 17 Buy recommendations on the stock, 6 Holds, and zero Sell recommendations. But, whatever.)

In a climate of pessimism, Dietrick argues, a stock that’s shown upward momentum should continue to go higher because “any good news could lead to short covering rallies,” and First Solar is just what the doctor ordered, in his view.

“It has an extremely high short interest and has continually gone higher,” continued Dietrick. “When we see the shorts try and pick a top in a sector that we think has a fundamental reason to go higher, we really do like these stocks. We think they should definitely outperform the overall market in 2008.”

Dietrick likes SunPower (SPWR) as well. He notes the chart of SunPower broke above “the $140 level, where there was resistance, earlier this month,” and “the next level of resistance is at $163, $164.” About the tremendous run-up in First Solar this year, he remarked, “[First Solar stock] was up 700% when I first recommended it.”

When asked by Braitman for a sell sign for SunPower stock, Dietrick remarked, “We looked at some longer-term moving averages. If [SunPower] were to break below those levels, and if we were to see that coupled with more optimism in the options market, that could signal a continued decrease [in the share price]. But we’re not seeing that [optimism], we’re seeing skepticism in pullbacks.”

Oh, the one stock he would short? Apple (AAPL). “We continue to see more optimism [about Apple] … there are better chances to make money on stocks that go higher amid skepticism; we would still avoid Apple.”

Well, today, the market’s continuing its skepticism: in a bad tape, the solar stocks are for the most part taking a pounding, with First Solar down 1.62% at $276. SunPower is down 3.76% at $136.20. China Sunergy (CSUN), which rose 27% yesterday, is one of the only solar stocks doing well today, rising over 15% to $17.74.

Comments

[jonreagan]

We've been hearing that about AAPL for some time--most of it from analysts trying to create buying opportunities. Its growth has been explosive, but steady--not the kind of +20 point days you saw in FSLR last week. Beyond that, wait for AAPL's earnings report on Jan.16th: it will offer the best explanation there is for why this company is such a success story, and will continue to grow.