In our research, we looked at how solar companies typically do in the month of October to find any seasonal patterns. We looked at the average gains of 11 companies as well as their max drawdowns and gains for the past 10 years provided the company has been public during that period. September has been very negative, historically, for solar companies as the subsequent analysis will show. The companies we investigated in the report were Yingli Green Energy Holding Company (NYSE:YGE), Trina Solar Limited (NYSE:TSL), Suntech Power Holdings Company (NYSE:STP), SunPower Corporation (NASDAQ:SPWR), ReneSola Ltd (NYSE:SOL), MEMC Electronic Materials (WFR), LDK Solar Company (NYSE:LDK), JA Solar Holdings Company (NASDAQ:JASO), GT Advanced Technologies (GTAT), First Solar, Inc. (NASDAQ:FSLR) and Canadian Solar Inc. (NASDAQ:CSIQ).
Below you can find their average gains for the month of October for the past 10 years.
As we can see from the chart above, October has been a weak month for solar companies. Only YGE showed any positive average gains with the other 10 companies showing negative gains. Particular mention should go to TSL and SOL with -27.53% and -16.78% gains respectively.
We continued our research by finding the max drawdowns or max gains that these companies usually have during the month of October. Solar companies are in an industry that stock prices are extremely volatile with the average beta of these 11 companies being 2.74 therefore explaining these large max drawdowns and gains. With this said, we cannot hide from the fact that the majority of the companies have higher max drawdowns than they do gains with special mention again going to TSL with its max drawdown of -88.29%. This information can be used for potential Bear Call spreads with October 20th expiration. On the other hand, YGE continues to impress with a max gain of 62.43% which is the highest of the 11 companies.
We consolidated this information by looking at the times the stock prices had increased or decreased over the 10 year period therefore allowing us to find out if any outliers influenced our results. From the chart below we can see that the general movement of TSL and YGE support our claims.
In our view, solar companies will continue to have negative gains in October and even into October. Our analysis shows this but fundamental news seems to suggest this as well. STP reported this week that it is shutting down some if its solar cell production capacity, while TSL reported that it plans to cut 200 employees. LDK, also, reported that it will cut 22% of its staff because of the shrinkage of its current market. This shrinkage is largely due to the budget crisis in Europe and the increase in tariffs from the US that cut sales. Countries like Italy also had their government stop giving incentives to state governments when it came to solar panel usage. Overall, the weakness of September should continue for solar.
Trade #1: Trina Solar Limited Bear Call Spread, Oct20, 5/6
Trade #2: Pair Trade: YGE Long, SOL Short
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The Oxen Group is a team of analysts. This article was written by Bruno Massinga, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.