While the Solar Sector Bottoms in the Near Term, LDK Solar Stands Out

After one week of selloffs in solar stocks, the sector becomes attractive again for the near term. Even in bear market territory, a short term rally can be vicious. I have been bearish on the solar sector for a while since the peak earnings season. There are a few reasons why the solar sector may bounce back viciously in the short term.

First, republican and democratic popularity is basically tied, based on recent polls after the two conventions. The view that McCain is going to win the November election is not justified at this moment, and as a result, the last week's selloff was overdone and will likely be reversed.

Secondly, oil is likely to stabilize this week in front of $105, as the dollar has seen some resistance on the upside from here. Also continuous strikes from several hurricanes on the gulf region have boosted oil traders' confidence and they likely will stop selling into the future for the moment.

Thirdly, reports say Spain actually will boost its solar cap from 300MW to 450MW, and this is a bullish sign for solar sector. Meanwhile, the Japanese government started to ramp up the solar subsidy recently, and as a result, the solar industry in Japan will pick up the pace. Sumitomo (SSUMY.PK) last Friday signed an eight-year contract to purchase 750 MW of multicrystalline silicon wafers.

However not every solar stock is a buy at this moment, and picking a sound and well managed company is critical. Look around, LDK Solar (LDK) stands out as its stock trading at an extremely undervalued level. LDK solar trades at merely a forward PE [FPE] of 19, compared to SunPower (SPWR) at FPE 41, Energy Conversion Devices (ENER) at FPE 57 and First Solar (FSLR) at FPE 60.

More importantly, LDK Solar continuously inks contracts with PV makers. In the last week, only two deals were signed. The company signed a deal with Japanese Sumitomo for about $750M, and on September 3 LDK Solar delivered approximately 550 MW of multicrystalline silicon wafers to Solartech over a five-year period. The company is still expanding, and last week, in a $32 million contract with GT Solar International (SOLR)s, LDK's CEO said, "As the demand for solar energy continues to grow, so does our need to increase and accelerate our manufacturing capacity."

My take on LDK Solar: It's an easy 20% stock appreciation from here if the market cooperates.

Stock position: None.

Comments

[jbde:]

"and on September 3 LDK Solar delivered approximately 550 MW of multicrystalline silicon wafers to Solartech over a five-year period."

What a strange statement - time machine involved here?

LDK, SOL, HOKU, REC are ones to watch for solar growth as they are pure plays to wafers.

One question - will the a-si guys eventually win out with their lower cost 'printing' processes? FSLR, ENER, Nanosolar.

Do the 'ribbon' makers have a better production scheme? ESLR

As c-si is currently the volume production leader, will they set the pace as more poly-si production comes online and thus wafer prices begin to drop as market continues to expand? Still good for LDK as revenues and eps outpace dropping ASPs.

2008 Sep 08 08:22 AM

[InvestBaboo:]

Mr.Schulle correctly called the GE stock tumble way before earnings were due and he was castigated by GE shareholders foe his article. He also correctly called a sell-off in Solar shares this past week. He may be right yet again in calling for a resurgence in solar shares this week and beyond led by value-plays like LDK! Let us hope so because I am a long with a fairly big position in LDK.

A note from market research in the Phoenix, AZ area if you want solar panels installed. Good luck to you if you are a commercial user because in a haste to take advantage of tax credits there has been a mad rush to get solar installed before the credits expire (I believe this month) which supposedly take as much as 30-40% off of the cost of installation. It is somewhat easier to get a residential install (again if you have a good relationship with the solar installer) as residential needs only a few panels. Note -- panels are seriously sold out all over the U.S.! SunPower, a bigger player in the U.S., has informed its distributors it does not have any more panels to supply because of huge demand in Europe.

U.S. Congress is supposed to pick up the debate on the continuation of the energy policy TODAY. It is quite possible (the most likely scenario) that the congress will vote this week to renew tax credits as Bush as urged them to. If that happens expect another boost to the solar rally. If not there is enough demand to power solars on but I am just not sure how big the U.S. market is and how the investors will react.

2008 Sep 08 09:01 AM

[John Cordes:]

LDK forward PE is in the single digits.

2008 Sep 08 09:28 AM

[BrianZach:]

LDK's ttm PE is 19. Their FPE is about 9

2008 Sep 08 10:05 AM

[gebby:]

i understand ldk will earn $10.00 in 2009. is this correct or is it 2010?

2008 Sep 08 10:55 AM

[tessant:]

If you look at everything on a relative basis, LDK does look ripe.

2008 Sep 08 12:03 PM

[kkin365:]

9/5/08 issue of IBD had a favorable write-up of LDK and STP.

2008 Sep 08 12:07 PM

[NOWHEREMAN:]

Good luck to all.

IMHO, vertical integration is the route to go, YGE and TSL. But even they will continue to suffer along with the other Alt. energy plays. The CNG concept while intriguing will die with a cold winter or other Hurricane related disruption.

2008 Sep 08 01:01 PM

[NOWHEREMAN:]

LDK@$33 and FSLR@$180 might be good entry points.
LDK is better than FSLR.

2008 Sep 08 02:59 PM

[Globel E:]

The McCain/Palin perspective on science is unnerving. Palin has stated that global warming is not related to human activity and the general acceptance of creationism indicates a rejection of the advances in understanding of plate techtonics/continental drift that has allowed geologists to determine the limits of vast, "unknown" oil reserves. Solar would not be favored by these folks.

2008 Sep 09 12:47 PM

[NOWHEREMAN:]

Global Warming is directly related to human activity, its called breathing. Never has this planet had so many people, all doing the same thing.

These cycles come and go, how do you think Greenland got its name? Go to an Art museum, Venice in the Middle Ages was tropical.

The big problem is that we are exacerbating the current cycle, it would have occurred anyway but population exposion combined with "industrialization" has given it an assist. Mother Nature has helped mitigate things somewhat by only giving us earthquakes and Tsunami, A couple or more volcanic eruptions would really create more havoc.

They are overdue, Especially that puppy called Yellowstone. That goes, forget about global warming, We will have an Ice Age almost immediately.

2008 Sep 10 03:31 AM