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The Mark

The Mark
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  • First Solar Is A Buy As Share Price Drops [View article]
    1) FSLR's new strategy is to convert itself from a technology developer & manufacturer to a big project construction company. First investor question is what are the valuation multiples big project construction companies trade at? The second investor question is multiples of what?
    2) The recent announcement confirms what some investors suspected. The company was revenue stuffing in the last quarter or so which inflated revenue and earnings at the expense of the future. The construction company version of inventory channel stuffing. Why would they do that?
    3) Construction companies trade on profitable backlog. FSLR's has little to no visibility past 2013 except for lots of wishful thinking. All of the company's existing backlog is highly subsidized by government entities. Many of the entities, like CA, are bankrupt or nearly so. What are the RFQs out in the market now that will supply backlog and who are the bidders?
    4) BTW krr711, the analyst you have in mind is Gordon Johnson, Managing Director, Axiom Capital Management. Excellent report on FSLR and the industry. He did essentially the same research we did: not just talking to the Solar industry and government people whose jobs depend on spending money on solar; but talking to utilities engineering and planning departments around the world (the ultimate customers who write checks). One of the first things we always do is talk to the customers and ask, what are you spending your money on, what do you plan to spend your money on, and why?

    Don't believe me. Do your own research.
    Sep 3, 2012. 08:13 AM | 3 Likes Like |Link to Comment
  • First Solar: Don't Sell [View article]
    Solar won't be economically viable for the remaining lives of most of these publicly traded solar companies. They are following the same path as their ethanol brethren. Once that conclusion was arrived at from a lot of very expensive and time consuming research we committed. We have been shorting the solar stocks since 2008-2009 when we ran out of ethanol related stocks to short. The ethanol stocks kept going bankrupt on us. I've laid out part of our research in a couple of comments before. You may want to check that out.
    Jun 14, 2012. 04:33 PM | 1 Like Like |Link to Comment
  • Groupon: What's Going On Before Earnings? [View article]
    Social media stocks are not an area where we usually invest. With that disclaimer, we have been on the short side of this stock. We suspect not the earnings so much as the outlook on the conference call will be disappointing. The reason is the entire accounting and reporting process will likely have moved to taking conservative if not ultra conservative handling of transactions and reserves. This will reduce forecasted profitablilty. Why?
    1) The CFO is under the microscope and has made several very public mistakes. He is not going to run risks again.
    2) The company's general counsel is likely to be leaning on them to be very uncontroversial due to the class action suits.
    3) The new board members are like to have gotten assurances of review and conservatism before they agreed to serve to limit their own exposure. I don't know either of them personally. But, I strongly suspect the new audit committee board members are likely to be by nature very conservative.
    4) Fixing past reserve estimates, even if it is not indicative of true business fundamental deterioration (which I think it is) will change the calculations going forward. So, we are expecting lower than expected margins in the quarter and in forecasts.

    Finally, I believe a lock-up period ends early in June, Typically, employees with a lot of stock/options have mentally spent some of it. Some will have actually spent some of it and will need to sell more stock than expected to pay for it. They may be more likely to sell, more and faster, fearful of the future in a broken IPO situation like this.
    May 14, 2012. 03:42 PM | Likes Like |Link to Comment
  • First Solar Will Lose Value Through 2013 [View article]
    Our Contra Climate Change investment partnership was started in 2007 when we finished up the detailed research and developed our investment thesis. The life-to-date CAGR is 47% through 2011. The fundamental investment thesis is based on the scientific research, the attendance at several meteorological/climate change conferences plus, personal interviews, and the cynical view of the motives of the authors of many of the climate change studies. The result of our research is as follows:
    -- The climate has been in a general warming trend for centuries long before the advent of the industrial age
    -- Over geologic time periods the climate cycles don't change in a linear fashion but the (delta) change tends to accelerate near the peak of a cycle. These changes happen over centuries not decades.
    -- The authors of many, not just a few, of the climate change studies are either authors or students of authors of studies discussing: nuclear winter in the 1980's and/or a possible global cooling due to industrial carbon dioxide and rain forest depradation in the 1970's. These are not unbiased scientists. We suspect, but aren't expert enough to prove, that some of the studies of global warming are the same models used for the alarms about global cooling in the 1970's. It appears that changes were made in the assumptions about the effects of cloud cover and particulate matter in the atmosphere.
    -- In attending the conferences we found that a number, not just few, meteorologists and climatoligists told us directly that no funding or publication was available for studies showing either ambiquity or conclusions that the warming of the global climate is not exacerbated by human creation of carbon pollution. If you want funding or publication you already know what you have to conclude.

    Our investment thesis is that the hoopla over global warming would cool (pun intended) as the facts would eventually start leaking out. The consequence would be reduced government promotion through regulation and funding of "green" investments. The investment fad would fade as well. Therefore, our investment strategy has been to short every non-economic green investment where we could find the stock to borrow. That has worked out nicely hasn't it?

    I think that both wind and solar might eventually become economically attractive ways to generate commercial energy. Saying never, when evaluating technology is almost always a losing bet. However, in the investment horizon of most of us, I continue to expect the current crop of public companies to be largely lost to the forages of economic reality.

    Once again, I urge you not to believe me. Do the research yourself.
    May 14, 2012. 12:28 PM | Likes Like |Link to Comment
  • First Solar Will Lose Value Through 2013 [View article]
    This is a good article and is consistent with our research
    May 10, 2012. 04:16 PM | Likes Like |Link to Comment
  • Avian's upgrade of First Solar (FSLR +3.5%) seems to outweigh Auriga's downgrade, as the volatile shares are among today's top gainers. Avian sees FSLR addressing new markets where subsidy dependency is not the most important, while Auriga sees new strains on its balance sheet suggesting a longer path back to profitability than previously modeled.  [View news story]
    FSLR's business model is not economic on a non-subsidized basis and won't be before they run out of cash; plus, trying to raise additional capital at reasonable dilution cost is unlikely; we often find in companies like this, the next step will be to cut back on R&D spending to conserve cash which is another strategic nail in the coffin.

    The non-subsidized projects the analyst mentions in his call appears to be disingenuous. Our research indicates that all of the projects for every solar company are subsidized by either: utility/energy company R&D budgets, PR budgets, state and/or federal grants and tax credits -- beyond any direct subsidies. Solar electricity is not economic in the current energy market anywhere in the world that we can calculate.

    Additionally, as more and more analysts are realizing, almost all of the viability and BE studies for solar were done when nat gas was 200% higher than it is now. Discussions with utilities are indicating to us for example, that the capitalized cost of converting from coal to gas fired is a fraction of the cost of converting or building solar. Further, the per megawatt cost of nat gas fired generation is falling at a faster rate than the curve of solar costs. As usual, I suggest to readers, don't believe me. Do the research on your own and see if I'm right.
    May 7, 2012. 01:31 PM | 1 Like Like |Link to Comment
  • First Solar May Be Bottoming Out Ahead Of 1Q 2012 Earnings [View article]
    To go beyond the fact that FSLR's business model is not economic on a non-subsidized basis and won't be to be before they run out of cash; plus, trying to raise additional capital at reasonable dilution cost is unlikely; we often find in companies like this, the next step will be to cut back on R&D spending to conserve cash which is another strategic nail in the coffin. Watch for indications on the call.

    My experience has been:
    1) management and board changes within 30-60 days of a quarter end usually indicates worse than expected results and reduced expectations.
    2) Restructuring charges are almost always used (I've done it myself) to write-off expenses that would normally be operating essentially getting analysts to overlook the cash impact of the charges.

    We are expecting lowered expectations tomorrow beyond expectations and will be looking very closely at FCFF (free cash flow to the firm) results and what forecasts imply as the most important performance indicator. In FCFF, we always include the restructuring charges to keep real comparability.
    May 2, 2012. 04:54 PM | Likes Like |Link to Comment
  • Overstock Circus, Take #2 [View article]
    Let me parse the term "the auditors signed off on the first quarter numbers". Well actually that statement is true and false. It is true that quarterly numbers are not audited. However, most outside auditors generally request that they get to see the quarterly earnings press release and the 10Q for most public companies before filing or release. So, my guess is that the auditors did sign off on the release as part of the ongoing audit procedures that often occur throughout the year on a public company, but the level of assurance an investor should get from that statement is very low.
    Apr 25, 2008. 10:48 AM | Likes Like |Link to Comment