Renesola: Burning Hot Solar Stock

I have been watching Renesola (SOL) since it was first listed on the New York Stock Exchange back in late January. I bought my first round of shares at $11.60 and watched the stock price drop below $8 without breaking a sweat. I believed in the fundamentals of the company then and I still do now.

Of course, Renesola stock did not stay below $8 for very long and when it broke toward the $9 mark, I bought a significant number of shares for $8.90, recommended the company in the April edition of my newsletter Road Less Traveled and alerted subscribers that solar shares had put in a bottom. In the following three weeks, shares of SOL shot up 74%. While the entire sector has realized a lift in the past month, Renesola, along with SunPower (SPWR), have led the way. Another competing solar wafer manufacturer, MEMC Electronics (WFR), is actually down about 10% over the same time period.

Renesola is engaged in the manufacture and sale of solar wafers and related products, which are integrated into photovoltaic cells, the principal component of crystalline solar panels. Its customers include global manufacturers of solar cells and modules, such as JA Solar (JASO), Motech Industries, Solarfun Power (SOLF), Suntech Power (STP) and Topco Technologies.

I like Renesola because they are one of the lowest-cost manufacturers in the industry, have secured long-term supply contracts (mitigating margin risk) and have an impressive list of customers. Their stock is trading at a steep discount to its peers and the company has increased earnings by nearly 70% during fiscal year 2007. They are under-promoted and not nearly as well known as their counterparts in the solar industry and amongst U.S. investors in particular.

And lastly, Renesola just announced a 6-year deal to supply two Chinese companies with solar wafers starting in mid-2008. The future is bright indeed, with some analysts setting a price target of $25 or more by the end of 2008. Let’s take a look at the stock’s performance since being listed on the NYSE.

Renesola stock is starting to look overbought, but if the market can hold and break through current levels of resistance, I believe solar stocks will continue upward and outperform all other sectors. However, the markets are coming upon strong resistance levels that could spell the end to this mini-rally. Traders would be wise to have cash on the sidelines and await direction from the market as a break above resistance or another failure at this level will lead to a sharp move in either direction. Take a look at the chart below to illustrate just how important the Dow resistance around 12,750 will be.

If the Dow fails to break this resistance and is turned down again, we will likely see a drop to the bottom line of the trend channel (approximately 11,000) in a hurry. This would represent a decline of 13% from current levels. I bet this is the direction things will turn, but I prefer not to gamble too much and to simply wait for the technical set up and go with whatever direction the market chooses. I am not biased. Yes, we might miss a bit of the action, but the move is likely to be strong in either direction so not much will be missed.

If it breaks through resistance and closes two consecutive days above 12,750, I am going long solar stocks and increasing my position in Renesola. If the Dow is turned away at 12,750 for the fourth time in three months, I will be adding to my positions in the following ultra-short ETFs: UltraShort Real Estate ProShares (SRS), UltraShort Financials ProShares (SKF)
and UltraShort QQQ ProShares (QID). There are profits to be made in the markets at all times and particularly when stocks are moving so violently up and down. Swing trading opportunities abound in the solar, precious metals, real estate and financial sectors.

Comments

[AmesTiedeman]

When do they correct?

[maxbid]

Dam, I wish you wouldn't tell people about this stock, I need to buy more before it goes above $20!

[gebby]

i like the idea of buying sol and other solars at good price points. i would hate losing a position in sol as it trades higher because the overall market is under pressure. what are the earnings forecast for 2008?

[frflyer]

Comparing WFR with SOL is not quite valid because solar wafers are only part of WFRs business. The stock is reacting to forecasts of slowing computer chip demand.

[hksoljah]

SOL actually has THREE 6-year contracts now!!

[globalmacro]

So the Dow is now comfortably above that formidable point of resistance. Are you turning bullish now?

[jacksplace1o2]

Renesola is an absolutley garbage stock compared to its top competitors within China; LDK solar. LDK solar is currently building a major polysilicon factory in China contracted to fluor that is scheduled for completion by the end of 2008. When this factory is up and running LDK will obtain 42-50% margins resulting in unprecedented EPS growth. In the last year alone, LDK has more than tripled both its revenue and income growth. Above all, LDK has siphoned more long term contract that any other wafer, and ingot manufacturer in the world; including MEMC the current market leader. The company has also completely sold out all of its inventory for 2008, and 2009. EPS expectation for 2009 are expected to be over 8 dollars a share, and at its current price just shy of 35 LDK would have a pe ratio of 4. It also has one of the most experienced management teams in the business including numerous employees who used to work for the market leader MEMC. Why buy SOL, when you can buy the undisputed leader and premier player in this industry ldk solar? good post, but sol is GARBAGE.

[jacksplace1o2]

Renesola is an absolutley garbage stock compared to its top competitors within China; LDK solar. LDK solar is currently building a major polysilicon factory in China contracted to fluor that is scheduled for completion by the end of 2008. When this factory is up and running LDK will obtain 42-50% margins resulting in unprecedented EPS growth. In the last year alone, LDK has more than tripled both its revenue and income growth. Above all, LDK has siphoned more long term contract that any other wafer, and ingot manufacturer in the world; including MEMC the current market leader. The company has also completely sold out all of its inventory for 2008, and 2009. EPS expectation for 2009 are expected to be over 8 dollars a share, and at its current price just shy of 35 LDK would have a pe ratio of 4. It also has one of the most experienced management teams in the business including numerous employees who used to work for the market leader MEMC. Why buy SOL, when you can buy the undisputed leader and premier player in this industry ldk solar? good post, but sol is GARBAGE.

[Jason Hamlin]

globalmacro,
i am always cautious of "head fakes" in technical charts. i like to see 2-3 strong days of closes above resistance before jumping in.

solar expert,
i like ldk as well, but have not researched them as extensively. i doubt they will outperform sol over the next 6 months, but i could be wrong. calling renesola garbage is a bit extreme. their management team is very impressive and their financial performance backs up my confidence in the company. i think the entire sector will do well as a result high oil prices and increased government subsidies. the u.s. recession could dampen the outlook though, so i am cautious at this moment and balance my portfolio with ultrashort etfs and precious metals stocks. best of luck to all.

[hillbill]

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