Confessions of a Shallow Solar Trader

Why do I refer to myself as a "shallow" solar trader? Because I make little in-depth effort to figure out, at this stage of the solar curve, which companies and stocks will be the biggest long-term winners and which are likely to lose their ability to compete at some point. I love all the Chinese stocks in this sector, but I'm a fickle lover quick to shift my allegiances from week to week based on constantly shifting valuation ratios and chart patterns. I'll rely on the numbers and the charts to steer me to the long-term winners.

My love of the solar sector begins with my belief that the world faces a serious energy shortage that will persist for a very long time notwithstanding a certain amount of demand destruction in the face of high prices. The search for new oil/gas reserves is in the early stages of a secular bull market as one vector of addressing the shortage. Alternatives to carbon-based fuels will prosper even more handsomely into the distant future as people seek to deal with environmental issues at the same time they seek to alleviate energy shortages.

Among alternative energy opportunities, solar is my first choice. I had formed this opinion even before reading a provocative report by Nathan Lewis to the Materials Research Society entitled "Powering the Planet," but that report greatly strenthened my conviction that energy is the place to be as an investor and solar the place to be as an investor/trader. As Lewis observes, Willie Sutton robbed banks "because that's where the money is." I like solar because the sun is where a virtually inexhaustible and clean energy source can be found. The sun dumps more energy onto the planet in an hour than all the energy consumed on earth during a year, according to Lewis. There are obviously serious space and efficiency limits entailed in tapping into this mega-source of energy, but anyone familiar with the history of technology advances should have a high level of confidence that those challenges will be met over time.

I can understand the P/E applied to the explosively growing earnings of First Solar (FSLR), but as a GARP (growth at a reasonable price) investor, I am unable to buy the stock. I like Sunpower (SPWR) also, but I've preferred to own it at a lower level of risk through Cypress Semi (CY), which is attractive in its own right and is considering a spin-off of its huge stake in SPWR.

I really love the Chinese solar stocks, almost without exception. They seem to be ideal opportunities for a GARP investor seeking diversification away from a stagnating US economy. Last year, CY was one of my largest holdings until its chart became asymptotic in October when I sold most of my holdings. I hadn't been following the Chinese solars at that time because of concerns about the reliability of their financial reports. But as I began to investigate this group early this year, I became hooked. Chinese solars have become the largest single sector in my portfolios, though the composition of that overall position often changes dramatically from week to week.

While I described myself as a GARP investor, my major accounts are sheltered from taxes, so I love to trade attractive GARP stocks. I might also have titled this article "How I Prosper Selling Solar Stocks Well Below Their Fundamental Value." When any stock deviates by two standard deviations or more from its trendline, I am going to be selling all or part of my position in that stock even if I deem the stock undervalued. So the high volatility of Chinese solar stocks further adds to their appeal. I believe that most of these stocks would not be overvalued at two or three times their current price levels, but closing that gap will not happen overnight. And since these deeply undervalued stocks typically score their best gains in response to individual bullish news developments, only to give back substantial parts of those gains when the buying subsides, there are always attractive alternatives when a particular stock runs "too far, too fast."

Loving the sector rather than one or two particular stocks in the sector makes it so much easier to maximize gains from this sector. After selling heavily in mid-May, I added to my Renesola (SOL) position today below 21 based on great fundamentals and the most attractive chart in the group. I like Trina Solar (TSL) very much on fundamentals (though I sold a large chunk on the latest earnings report) and I see it building a base near 36; I'm likely to be adding to this position in the next week or two. I have a large stake in Yingli Green (YGE) and smaller stakes in Evergreen (ESLR), Canadian (CSIQ) (after selling half my position on the recent upward guidance), and CY. I sold all of my Solarfun (SOLF) on its run to the high 20s last month but I rate it a buy now at 19-20 technical support.

Disclosure: Author holds positions in some of the above-mentioned securities

 

Comments

[chi:]

Article is aptly titled, though drivel of a shallow solar trader might have been closer to the point.

2008 Jun 23 08:41 AM

[pachanguero:]

solar stocks =loser! Why not just buy real energy like nat. gas?

2008 Jun 23 08:48 AM

[Stockguy456:]

It is more like a blog than an article.

2008 Jun 23 09:10 AM

[Spider jones:]

Nice article...

You call it as you trade it on a technical stock basis, But I would suggest that you start building more conviction. I think you're gonna end up daytrading away something really big comng.

also you really may want to consider the electrical efficiency and manufacting advantages. If you do that, you may find two stocks extremeley undervalued, ESLR and SOLF..

ESLR panels get 2 X's the electricity than Ener's and 50 % over FSLR's, and ESLR manufactures from start to finish including the wafers from theie propietary string ribbion process.

Also consider solar infrastructure required and look at penny stock SATC. They sold 10 inverters to spain and they go for about $270,000 each! Industrial level inverters for solar farms, Google bought some too to power their own facilty. Google has other facilities all around the world.

Well nice article, I liked it cause you were honest in how you treat the sector. I think they are becoming more than daytrades and will be a growing phenomena over the next 10 years/ See my blog for more and scroll down for the post on electrical effciency.

Thanks, Spider

2008 Jun 23 09:44 AM

[Alphameister:]

I agree completely on the great 10-year outlook, Spider. Just trying to maximize my returns by taking advantage of the group's volatility. With all my trading, the sector's weight in my portfolio continues to expand. Thanks for your comments on ESLR and SOLF. I recently bought the first one below 10 and am looking to get back into the latter between 18 and 20 after recently selling between 25 and 28. If these firms have an enduring competitive advantage, I'm confident that fundamental growth estimates and their charts will lead to my increasing involvement.

2008 Jun 23 11:41 AM

[tessant:]

oy.....
all i have to say about this...

scott
solarfeeds

2008 Jun 23 11:57 AM

[User 182177:]

Steve Pluvia wrote and I quote: "I wasted 43 seconds reading this pointless scribble."
======================...

Steve: You are luckier than me. I am a slow reader, it wasted me twice as much time.

I see nothing of value but "self-aggrandizement".

2008 Jun 23 09:14 PM

[User 182177:]

I see nothing of value but "self aggrandizement".

2008 Jun 23 09:17 PM

[energreen:]

Wow, there's a lot of bitching and moaning here from people who "wasted 43 seconds" on this. I don't even read to the end if there's no content to absorb, but I found this pretty accurate - a balance between the "new energy paradigm" longs and the volatility-driven day traders. That's what makes this sector so interesting - it's clearly a long-long win (unlike nat.gas gimme a break) but there's so much knee jerk reaction to every bit of news. Its fascinating to see how the lemmings run to and fro with the turn of [oil price | consumer confidence | you name it]. Investing for the long (clear necessity for the planet) but still profiting from the madness of crowds - now THAT'S a market!

2008 Jun 24 09:02 PM

[High Voltage:]

Is there an ETF that you would consider for the long term rather than individual stocks ?

2008 Jun 25 11:59 AM

[Love to short:]

High Voltage, the best ETF to play the solar sector is TAN.

2008 Jun 27 02:47 PM

[supershort:]

I guess this guy might be Yetiv. Short the solars, especially the China stocks. What an oxymoron, China Stocks.

2008 Jul 02 12:09 AM

[oguh:]

an article found on the EU website


Date: 12/06/2008, 09:10

After a mixed year 2007, Solar Thermal comes again strong in 2008

Brussels/Munich 12 June 2008. Solar thermal encountered mixed developments in Europe in 2007. The biggest national market, Germany, declined while many other countries enjoyed double-digit growth rates. Sales in 2008 have started strong and the industry looks optimistically into the future. At Intersolar 2008, the European Solar Thermal Industry Federation publishes their latest market statistics for Europe.




“The Mediterranean countries have performed well last year. And some of the small EU markets have virtually exploded”, says ESTIF president Gerhard Rabensteiner. “Solar thermal sales grew by 74% in Slovenia and the Irish market tripled in just one year. The overall result was not stellar, but sales in the first months of 2008 have been very positive, especially in the German market”.



Last year, the total market for glazed collectors in the 27 EU Member States and Switzerland decreased by 9% to 1,9 GWth of new capacity (2,7 million m2 of collector area). The total capacity in operation at the end of 2007 reached 154, GWth (22 million m2).



Several factors contributed to the shrinking of the solar thermal market in Germany in 2007. The increase of the VAT rate at the beginning of the year was only one of them. The development of the solar thermal market was strongly influenced by that of the overall heating equipment market, which showed a strong decrease last year. Fortunately, 2008 started much stronger: In the first four months, sales in Germany increased considerably and the German Solar Industry Association, BSW-Solar has updated their growth expectation for 2008 to +40%.



The ups-and-downs that the industry encountered over the years in several markets, are partly also a consequence of a stop-and-go dynamic of many public support programmes. Financial and other incentives are introduced into the market and then again reduced or completely removed just one or two years later. In the expectation of new support, consumers have often postponed their decision to invest into solar thermal until a new programme is actually in place. Stable and positive framework conditions are a pre-requisite for healthy long-term growth the solar thermal markets. This is why ESTIF is convinced of the great benefits of solar obligations for new and refurbished buildings.



Overall, the longer term outlook for solar thermal is very bright, everywhere in Europe. ESTIF is particularly satisfied that the European Commission has tabled a proposal for a European Directive to promote renewable energies. For the first time, this proposal fully covers also renewables in heating and cooling.



“Climate change and the now very visible finiteness of fossil fuels have put an end to the old solutions of our energy supply”, explains Gerhard Rabensteiner.”The solar thermal sector has already formulated a clear vision: In 2030 the 100% solar heated house shall be the building standard in Europe. It is only a question of time, until this vision becomes reality”



Characters (incl. spaces): 2 969







Download the latest solar thermal market statistics (551 kB) and this press release in Word format (116 kB).







Press Contact:



Uwe Trenkner, Secretary General



ESTIF



Renewable Energy House



Rue d’Arlon 63-67



B-1040 Bruxelles



Belgium

2008 Jul 02 02:27 PM