2 New Pressures On Beaten-Down Solar Stocks

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Includes: FSLR, JASO, JKS, LDK, SOL, STP
by: Hawkinvest

It seems solar stocks just can't get a break. Most have plunged to lows in the recent market correction, and the losses have been staggering. Some stocks are down about 75% from their highs. Most of the problems for this sector began early in 2011, when some European countries began to cut subsidies for solar power. This led to reduced demand, excess inventory and lower prices which has crushed profit margins for many companies.

Some stocks have rebounded slightly in recent days with the market, but there are two new reasons for the sector to stay weak. One reason is that the markets are just starting to enter the traditional tax loss selling season in which investors sell stocks that have performed poorly in order to harvest tax benefits.

The other reason is newly proposed government subsidy cuts in Europe. A recent Bloomberg article states:

The U.K. government proposed a reduction of as much as 55 percent for the price paid for solar power, part of an effort to keep a lid on electricity costs and reflect lower costs for panels. Feed-in tariffs granting above-market rates would be scaled back at least 51.5 percent for solar projects installed starting Dec. 12, the Department of Energy and Climate Change said in an e-mailed statement today.

Suntech Power Holdings (NYSE:STP) is one of China's largest maker of photovoltaic products. This stock looks like an interesting speculation on dips to $2 per share or less. The stock looks cheap based on book value, but earnings estimates look very weak, so this stock might drift lower as investors sell for tax loss reasons.

Here are some key points for STP:

  • Current share price: $2.66
  • The 52 week range is $1.70 to $10.38
  • Earnings estimates for 2011: a loss of about 31 cents per share
  • Earnings estimates for 2012: 7 cents per share
  • Annual dividend: None
  • Book value: $9.16 per share

LDK Solar (NYSE:LDK) is a leading low-cost maker of solar products. This company is trading at nearly half of book value an a price to earnings ratio of less than 3. Historically, buying LDK at these levels has always paid off. However, this company has debt levels that are high enough to concern many investors. High levels of debt are a big warning sign in an economic downturn.

Here are some key points for LDK:

  • Current share price: $3.79
  • The 52 week range is $2.55 to $15.10
  • Earnings estimates for 2011: 19 cents per share
  • Earnings estimates for 2012: 31 cents per share
  • Annual dividend: none
  • Book value: $9.53 per share

First Solar (NASDAQ:FSLR) is a leading solar company that is based in the United States. This stock was able to close up almost 8% on Monday, and has started to rebound off recent lows. This company has good growth prospects and rarely stays this low for long. This stock has dropped about 50% since early August and the shares seem oversold. However, it could be that earnings estimates are too high, and there are plenty of investors who are likely to sell this stock in the coming weeks to harvest tax losses.

Here are some key points for FSLR:

  • Current share price: $47.23
  • The 52 week range is $42.50 to $175.45
  • Earnings estimates for 2011: $8.86 per share
  • Earnings estimates for 2012: $10.10 per share
  • Annual dividend: None
  • Book value: $42.66 per share

JinkoSolar (NYSE:JKS) is a leading maker of solar products in China. This stock was trading over $20 per share in July, and has since plunged due to a market correction, a highly negative outlook for solar stocks, and news that came out recently about a possible pollution issue from a JinkoSolar factory which caused it to be idled temporarily.

Here are some key points for JKS:

  • Current share price: $8.86
  • The 52 week range is $4.55 to $41.75
  • Earnings estimates for 2011: $4.23 per share
  • Earnings estimates for 2012: $1.57 per share
  • Annual dividend: none
  • Book value: $21.30 per share

ReneSola Ltd. (NYSE:SOL) is a leading maker of solar wafers, photovoltaic cells and modules. ReneSola is based in China and is one of the lowest-cost producers of solar products. The balance sheet is also better than certain competitors. The company and some insiders have been buying stock but until demand and pricing power improves these shares will likely remain in a low trading range.

Here are some key points for SOL:

  • Current share price: $2.13
  • The 52 week range is $1.46 to $14.13
  • Earnings estimates for 2011: 42 cents per share
  • Earnings estimates for 2012: 41 cents per share
  • Annual dividend: none
  • Book value: $7.24 per share

JA Solar Holdings Company Ltd. (NASDAQ:JASO) is leading maker of photovoltaic solar cells, and is based in China. JA Solar has a solid balance sheet and is now trading at about a fifth of its 52-week high. This stock looks like it will be scraping the bottom for the rest of 2011. However, it could be a solid rebound candidate once the solar industry washout is over.

Here are some key points for JASO:

  • Current share price: $2.08
  • The 52 week range is $1.46 to $9.77
  • Earnings estimates for 2011: 31 cents per share
  • Earnings estimates for 2012: 29 cents per share
  • Annual dividend: none
  • Book value: $6.66 per share

Data is sourced from Yahoo Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.