Those Bubbling Solar Stocks

“These stocks (Ag/Solar) keep making higher highs and higher lows. And no one wants to short them. Pete Najarian noted that Terra Industries (TRA) is the only stock of the bunch with any material short interest, and that could actually push that stock higher if the shorts are squeezed.” CNBC’s Fast Money, 4/14/08.

When guys on CNBC are saying nobody wants to short these stocks, it becomes increasingly appropriate to do so. Trina Solar (TSL) was up 16% that day. A new ETF, Claymore/MAC Global Solar Energy Index ETF (TAN), started trading the following day. Intrepid Potash (IPI), a fertilizer company, had its IPO finish 60% above the projected debut price offering on 4/22. No one even knew what potash was a year ago. At a time when the word green is attached to any technology, even those of oil companies such as BP (BP), we can sense the kettle beginning to boil.

Not every solar company will be able to maintain these massive P/Es. Only one wind company will win the Texas-Oklahoma corridor contract, and that is years away. As our own farmers begin to look at futures contracts to determine what crops to plant, the demand for high-priced fertilizer can’t be maintained. Emerging nations are still dependent on coal and have few environmental restrictions that would necessitate clean energy. And, as people have already begun to starve, hoarding of food will diminish the exportation of all-time high crops (rice, wheat, soybeans, corn, etc.) and refute the necessity of ethanol.

Here is a chart of some of these bubbling stocks (Data from MSN Money as of 4/20/08).

click to enlarge image

Disclosure: none

Comments

[HKL]

It's envitable that green energy is the future, either you like it or not, oil will run out, coal will run out. Investing in green tech needs lots of study and out of the bunch, Ying Li has the best fundamental, lots of cash to expand without having to borrow heavily. Soy, wheat and other crops planting needs different approach and it won't be easy for farmers to switch from corn to wheat vs. Hence ethanol is still the best solution for our cars. It's short sighted to judge that green energy is still light years ahead.

[larsson]

Man, you don't know any actual P/E's of 2008 and you are still using P/Es of 2007. TSL has an actual P/E 2008 of 13 - you mention 21. Make your research and stop posting trash please.

[Jmichael]

Do they just let anyone write incorrect info in this forum? Your data is is wrong. You must be short.

[larsson]

It looks like this guy tries to fool others. This is a crime, and they should stop this incorrect wrtings! Do your homework!

[gebby]

for some reason tsl is hard to borrow. so there are shorts. these stocks are far from bubbling. they are cheap. compared to the rest of the stock universe. show me a better investment. people bearish on solar dont believe in the arguments and the fundamentals. i think it is some kind of built in bias. look at the facts.

[Jack Yetiv]

I don't think the author is attempting to mislead anyone. He has used 2007 PE's. In my article, I use 2008, which I think is reasonable because many of these companies have 2008 production sold or close to it so modeling earnings is much easier than other companies. And because several of these companies will more than double earnings in 2008 versus 2007.

Jack Yetiv

[Tim Plaehn]

Since we are only 1 quarter into 2008, any 2008 PE is just a projection. This article, as are all articles here, the author's opinion. If you do not agree with his opinion, state your reasons.

[supershort]

Finally a voice of reason here on SA. Although those bubbleheads on CNBC are frequently wrong. I have short positions and am unable to borrow more. I held them even though I was down 30% on SPWR at one point because it ran to 100. The problem with shorting is that when there are no shares available to "borrow" anymore, that usually means the stock is set to tank, even during a run up as SPWR and FSLR had. So if you cover and take the loss, you won't be able to get back in. The bubble has burst friends. Get out while you can. SPWR is a crashing.

[larsson]

Why would anyone short Chinese solars? Most of them have more than 50% EPS growth and have attractive P/E's. Short scrap, but not such growth stocks. You guys really will face difficulties to cover, especially TSL...

[adam axler]

For full disclosure, I don't own any of these stocks/ETFs short or long. As Jack said, it certainly wasn't my intention to mislead, only to inform that these stocks have had a meteoric rise which I think is unsustainable across the board.

I posted my data source. If you would like to use more forward looking data, feel free. But again, as Tim wrote, those are merely projections.

Larsson, clearly you are long this basket. Have you seen the performance of the Chinese stock market this year? Ouch for you. As far as the inevitability of green energy, the inevitability of the internet was clear as well. Not every dot.com made it, did they?

Adam

[Global Warming Examiner]

The amount of annual production for all the solar stocks is only on the order of a couple of Giga Watts (GW) per year. That is about 2 nuclear plants. The world could use 10 times or more capacity easily as long a governments are going to provide incentives to buyers. These stocks could easily all grow production at 100% or multiple rates for several years before they reach a level of production that saturates demand.

[larsson]

Adam,

sure not all of the named Chinese Solars will make it. But this is a question for 2010-2013. If you do your research, you will find out from the CC's of the a.m. companies, that demand is so big, that they can't catch up with producing. So a shake out is far away, and there are several years to go before it happens.

You are right, 4-6 months ago, most Chinese solars have been overvalued in a hype, but today -some of the names you mention are trading under P/E 2008 of 15. For such grwoth stocks, there is just no bubble like you predict.

To mention the stock with the lowest P/E, according to analysts they say now that TSL will earn 3.4 US$/Share, while the company guided for 4-5 EPS 2008. We are still at P/E 8-10 at TSL.

This with more than 100% EPS growth 2006-2010 (Sold out 2008 and 75% 2009).

Would you call this a bubble or a fantastic investment?

If you talk about bubbles, mention the right names, US Solars - but leave the names not to be mentioned for your own reputation...

[larsson]

Further:

I do undertsnad everyone not beeing long some of those stocks, but beeing short at actual values on some of those stocks (TSL,CSIQ,LDK...) could lead to big losses.

So, before misleading others, remove stocks which are trading extremely low as of 2008 P/E from your "posting"!

[adam axler]

Larsson, if you read my own website, 4/19, you'll see I question whether a time frame for the bubble to burst out to 2010 may not even be reasonable. I even recommend perhaps buying TAN and MOO/DBA in the short-term may provide opportunity to make money on both ends. I certainly didn't imply shorting the basket immediately. But to not include a stock such as FSLR, with its $250 gain in a year's time, I think would be negligent as well.

Adam

[beandog]

Adam, you're fired! Keep buying solars!!!!

beanieville.blogspot.c...

[alphameister]

The search for energy, including hydrocarbon but more importantly cleaner alternatives (especially solar), will be the defining investment theme of the next ten years. There are incredible bargains to be found in the oil-service and solar sectors.

[User 183938]

Larsson:

I really can't agree with you more on your statement. One thing which Adam is fundamentally incorrect in this analysis for solar stocks bubble is that "All the
Stocks Current Price contains the future projections of growth.
Just looked at the
Google : P/E is 38 , why the stock price is so high. Because:
1. The current revenue topped estimate a lot ( 30% )
2. The future projections for internet search is still bright.
there are tons of stock have lower P/E ratio with the everdropping price because there is no bright future. If you want to site the evidence , then let me ask you how much profit/revenue growth for
SPWR in this quarter? The revenue soar 92% and Net Profit has 10 times growth. That's a strong evidence to shut up anyone's mouse
who said solar is a bubble. My point is that "the potential growth" and the current revenue/profit composed a stock price.
Like:
Intel : Flat , slowly up
Broadcom : Sharply up
Because the communications sector has "MORE" potential growth than PC. Even though both company has very good revenue/profit.
But you can see the price/difference.

[beandog]

FSLR really is the next solar intel!
beanieville.blogspot.c...

[jacksplace1o2]

Adam you are an idiot. You write a subpar article talking about the "meteoric rise" of solar stocks, and you claim the bubble is about to burst... The stocks were inflated in 2007, but that is already baked in the price as illustrated by "most" of these stocks trading near there 52 week lows. Many of the stocks mentioned above trade at very reasonable pe's, and while its true many of these stocks will be phased out when a clear market leader emerges, in the next 2 years most of these stocks are poised to make huge gains. Many of these company have sold out much of their inventory for 2008, and after the renewable energy bill was passed by the senate, i see further, and accelerated adoption of solar energy in this country. Chinese, and American solar firms stand to benfit from this, and if you benchmark these solar stocks based on 2008 earnings, they are as group fairly valued at current prices.

[sgleichman]

What garbage... FSLR may be expensive but may be priced correctly if they continue massive growth. Other stocks like CSIQ. TSL and YGE have PEG's under .5 with forward PE's near 10 (which is 20-33% of growth rates) That is deep value in a high growth stock. There are 10 baggers here and POT and FSLR are not the likely candidates. You should be pointing out the hidden value as opposed to calling out FSLR and hinting that the sector is overvalued.

Next point, with a new administration, especially if Dem, there may be an alternative energy industrial revolution on the way and companies like ESLR (US Based) might then fly with subsidies big oil has thrived on until now.

[STR]

did i miss something? i thought every dot.com company made it.

[taxmarc]

last i looked the short interest on SOLF was over 16 million shares. Last week when this article was written the short interest was 15 million. Who said these stocks weren't short?

[Filoralf]

Adam, your article is full of inaccurate imformation. Wrong PE's, yes,massive shorting on most stocks listed ,and LDK has about 15 million shorted shares with a float of around 5 million tradable shares. LDK on the "failed to deliver " list since nov.,2007. If you want to write about a subject, try a little research first and get it correct. Pure waste of time...