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  • The case for solar 0 comments
    Oct 25, 2009 5:08 AM | about stocks: YGE, FSLR, TSL
     Solar has been one of last year's melt down's biggest loser, with even
    first solar (NASDAQ:FSLR), one of the most established companies in the
    sector plummeting around 75%. Yet, Solar was also one of this year's
    biggest winners. While the technologies sector led the way in
    recovering, with nearing 60% in gain year to date, most solar
    companies have exceeded the gains comparing to the technologies sector
    as a whole. This was especially the case for Chinese solar companies.
    However, is it all smooth sailing from now on?

    First let's look at the industry as a whole: The industry couldn't
    possibly be in worse luck, it seems waves after waves of bad luck has
    hit the industry, the latest being of course the cut in solar subsidy
    in the world's largest solar market, Germany. Worse yet, the market had fallen more than 2% from the early morning gains on Friday (Which I predicted on my blog), which dragged down high risk stocks such as solar significantly.

    There are definitely some woes out there, the subsidy cut, the supply glut, the cheap oil... Wait, did I say cheap oil? Yes I did. People often think that natural gas is more relevant than oil, as they're both clean alternatives to oil. As natural gas price goes up, solar becomes more attractive and follows. This had been the case last year, but not so this year. Why? Because Oil is a substitute to green energies, so as oil becomes cheaper people are more likely to use oil than BOTH natural gas and solar power, which are still less efficient than oil despite being less harmful to the environment. As a result, it is possible to see a rise in natural gas price, which had been depressed for far too long, but see no rise in demand for solar, as oil continues to stay at a relatively cheap price.

    Then there's the economy and housing. Solar is a direct beneficiary of housing booms, and right now much of the developed world, especially the United States, has stalled in the real estate front. There is, however, one bright spot: China.

    Various solar companies such as Yingli green (NYSE:YGE) and Trina solar (NYSE:TSL) have signed various huge contracts both domestic and abroad, and the Chinese government have and will continue to subsidize the solar sector for three reasons.

    1: Pollution in China is becoming an increasingly visible problem, and greener alternative is not optional.

    2: Green energy technologies are still in it's infancies, and China has long wished to become a technological leader. Green energy offers one very real opportunity for China to establish itself internationally, which it has, and will continue into the foreseeable future.

    3: There is a huge market for solar in China, and spending in solar could spur that domestic demand they so desperately seek to break free from depending so heavily on exports.

    In addition, while it is true that Germany is currently the largest solar market, China will have the greatest potential in the future. There is currently an infrastructure boom going on in China, which inevitably benefit solar companies as a green emphasis is placed on future projects. so is Solar a buy? Yes, and especially Chinese solar companies.

    Personally, I like Yingli green energies, though I do not own any. The price is currently just above the 50 day moving average of 12.50, and the current market has been depressing the stock on a number of woes. However, with the exception of earlier this year, this stock has stayed above $10 as this is the IPO price in 2008, so as it goes down the incentive to sell diminishes. This can be seen in the last two pull backs along with the market in early July and late August.

    YGE is currently very much a market follower with a lot of volatilities (high beta), which offers high potentials for short term traders. However, it's long term prospect is also relatively rosy, having beaten estimates in the previous quarter and received positive praises from various analysts. Note however that the stock had declined despite the positive surprise due to the huge run up and market pull back, as well as a fall in margin.

    For the short term trade, an entry point between 12-12.5 on monday's opening weakness could offer some potential (but risky) short term gains, depending on Monday's market conditions of course, while long term investors should watch for a potential drop to 9-10 in the upcoming months.

    Disclosure: I have owned a significant amount of YGE until Monday, and I have also owned a put option until this Friday. I currently have no position in YGE, though I may add more in the Near Future. I do not own FSLR or TSL.
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