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Solarfun's Huge Run: Time To Lock in Solar Profits

by: Kelvin Schulle August 25, 2008 | about stocks: ENER / FSLR / SOLF / SPWRA    

Kelvin Schulle

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Solarfun (SOLF) had a stunning run last week, up almost 30% in 4 days. Investors chose to take profit and sell into this rally. From an investment point oif view, this rally shows a lack of fundamental support. Actually, the big investors started pulling out on Thursday and S&P downgraded Solarfun Power on Friday on valuation. The risk/reward ratio of Solarfun stock has jumped during the last week's rally. I would not be surprised to see a significant pullback in the solar stock prices. This includes Sunpower (SPWR) and Energy Conversion Devices (ENER) and First Solar (FSLR).

Fundamentally there are a few reasons solar may have peaked for the time being. First, China so far has no plan to subsidize solar energy nationwide. Looking around, all the Chinese solar companies have the bulk of their sales overseas, with less than 10% of their sales in China. The country still embraces crude and coal as its 'cheap' energy sources. In other words, there is no root for Chinese solar to take hold of domestically. With solar subsidies diminishing worldwide, the demand for solar PV may reach a pivotal point to the downside in the near future.

Second, tumbling oil prices cannot be ignored. If oil prices continue to go lower at their current pace, no solar or wind energy company will survive. The grid parity many solar companies are eager to see in the future is actually widening further with oil prices falling precipitously. Fed chairman Bernanke predicted continous strength for the greenback into 2009. This will put extra pressure on solar company earnings, especially for company such as Solarfun, as most of its sales are from Eurozone nations. A 10% rise in the greenback will easily kill the company.

Third,  a CNN poll also shows 69% of Americans prefer McCain's offshore drilling plan. As a solar investor, I am worried about the future of solar and other renewable energy companies, without support from the new president. This sector has had a tremendous run partly due to the momentum built into it by Obama's earlier commanding lead. This may disappear in a flash.

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This article has 33 comments:

  •  
    Aug 25 06:41 AM
    Dear Author:

    Besides all the grammer mistakes in this aritcle it is clear you do not have adequate knowledge about alternative energies, much less corporate equity. Oil prices fluctuate with the seasons, they hit record highs every summer during the peak of demand, then drop around the start of Fall. The record high this summer was 147 and the price Friday it was 121... While this seems significantly lower, four months ago the price of 121 would have been the record high. Even though I believe oil will drop lower, It will not last for long. Next summer we can expect to see prices around 200. It is absolutely ridiculous for you to suggest that solar companies are in trouble. Solar has been around for a long time and for you to suggest they are going to fail now, when energy prices are soaring is absolutely absurd.
    Reply
  •  
    Aug 25 07:18 AM
    From a longs in the solar sector- we need more people like you. By the time you end up feeling like it is okay and "safe" to take a long position in the solar sector- you will have missed a huge percentage move in the marjority of the stocks in the sector. It is when people such as you decide to take a long position that concerns me- this is a sell signal for the longer term holders.....much like the fertilizer stocks this year, it seems everyoned decided that fertilizer stocks were the "place to be"-- well, once everyone and their siblings decided to ""jump in" the sector peaked and will likely not see it's old highs for the forseeable future. It is not said that great stocks climb a "wall of worry" for nothing. So thanks for the comments- I'll be sure to save it and take a look at it again in a few months, maybe respond again when the sector has doubled from current levels. Go buy some bank stocks...they're "cheap" right???? just make sure you buy twice the amount of puts if you go long and are up to date on Chapter 11 rules and regulations.
    Last point- buy stocks with the highest earnings growth in the most rapidly growing sectors. Buy stocks going up, not down. Stocks that break to new highs, as ENER is about to do, tend to keep hitting new highs and people such as you sit back and shake your head wondering how this is possible.....
    Best of luck to you.
    Reply
  •  
    Aug 25 07:27 AM
    It's so pitiful to see another "shorter" desperately came up w/ bogus reasons to scare the market in order to minimize loses. Check it out:

    "First, China so far has no plan to subsidize solar energy nationwide".....
    what about Japan in 2009 plan to subsidize solar and remember Japan is #2 eco., not to mention the other like S. Korea, Australia etc.

    "Second, tumbling oil prices can not be ignored. If oil prices continue to go lower at their current pace, no solar or wind energy company will survive"....this is a big if, what if oil stay at current pace or even go higher? GS and others think oil could go to $200/barrel !! Remember world oil is not renewable and limited. We could go dried w/in 50yrs according to some sources!

    "Third, Democratic hopeful Barack Obama has picked Joe Biden, and many supporters have shown their disappointment...This sector has had a tremendous run partly due to the momentum built into it by Obama's earlier commanding lead. This may disappear in a flash." Solar sector will be better either Obama or McCain in office, solar tax credit will be renewed or extended that almost a given. It's just a matter of time.

    SOLF ran up to 40/sh before, what if it does a "retest" it again? What if it has a blown out quarter again? for SPWR, it's just signed deal w/ PG&E and what prevents it from signing w/ more others?

    In conclusion, the prospect of solar is bright and it will get brighter into the future. All that bs are noises along the path. If you have 5-10 yrs to invest, just relax and enjoy. After all, beside oil price, China's subsidize and US election issues, every country needs solar partly for their own energy security and independence and the world needs solar for cleaner place to live!
    Reply
  •  
    Aug 25 07:49 AM
    A little background check reveals: "Kelvin Schulle (the author) is a new contributor to Seeking Alpha". And obviously one with his own short agenda.
    Reply
  •  
    Aug 25 07:54 AM
    A follow up to your comment on S+P downgrading their opinion on SOLF. This is very positive...do the opposite of what S+P says in their picks. For instance, take a look at LDK and their very positve news this morning- S+P actually downdraded them on 8/22!!!! WOW!!
    What were they thinking???? S+P had a "Strong Buy" on shares of Synchronoss Tech (SNCR) all the way from the 30's down to 13!!! I could name other examples of S+P making terrible calls on stocks but it would take too long..To the longs out there- Ignore "valuation" calls on the solar stocks- the anaylysts are way behind the curve in terms of forward #'s and will have to adjust their 09 numbers grossly higher.
    Good Trading.
    Reply
  •  
    Aug 25 08:04 AM
    you are either a scardey cat daytrader or have a short agenda. That short scare tactic worked before, not this time bucko. More real investors have the flick now. Shorts are DEAD meat in this secor!
    Reply
  •  
    Aug 25 08:57 AM
    Your arguments are very shallow, they are not worth refuting.

    Sign of a short desperately trying to get out.
    Reply
  •  
    Aug 25 10:39 AM
    dear author, you are not who u say u are. namely a solar investor. you are concerned obama and mccain what? and that china is not subsidizing solar? off shore drilling? aint happening as u think. look at earnings. look at who is owning these stocks. how do u know all the large investors sold last week? you would be crazy to give up on any of the solars. the only group making money in this awful economy world wide. besides mccain beilieves global warming is real and it is. so mankind needs solar.
    Reply
  •  
    Aug 25 10:56 AM
    CAN THE GUY, Kelvin Schulle, BE HELD LIABLE FOR MAKING (IN MY OPINION) BUYEST STATEMENTS ESPECIALLY IF HE HAS A SHORT INTEREST IN THESE STOCKS?
    Reply
  •  
    Aug 25 11:19 AM
    huuge run....if earnings are good might go higher...the earnings thus far in the sector have been unreal!

    scott
    Reply
  •  
    Aug 25 12:17 PM
    I normally don't comment, but want to comment here since many readers have different opinions, I am not bearish on Solar and SOLF at all. The LDK announcement this morning changed my view on SOLF totally. I am bullish on SOLF especially before earning. Relatively Solar is the only strong sector in the market.
    Reply
  •  
    Aug 25 12:28 PM
    was this article written by some in the 2nd grade or were they drunk?
    Reply
  •  
    Aug 25 12:32 PM
    "Kelvin Schulle is a new contributor to Seeking Alpha. We hope to have a bio for this author soon."

    You post his article and say ABSOLUTELY NOTHING regarding the credentials of this person. Why such a rush to post the article then? How many minutes does it take someone to write you a brief bio? Are the solar short trades at SA not doing so well lately?
    Reply
  •  
    Aug 25 12:48 PM
    To Rct, solar feeds, spiderjones and especially "I WANT THE TRUTH" (oxymoron actually, because the author has given you the truth).

    There is nothing wrong with shorts or shorters. I have lost plenty of money by going long and then dollar cost averaging down, buying the dips blah blah blah. It never worked well for me. Shorting overpriced, overhyped pigs like in the solar industry has been very good for me. And it should be good for you also, unless of course you believe in the tooth fairy and think any company can support these liudicrous p/e ratios. Don't quote forward because that means squat and that is why these are the perfect shorts, one miss and these will crumble.

    But now truly for the truth:

    1. There will have to be a trillion dollar bailout of the financial sector, maybe more. Worldwide, the financial mess has writedowns of just over 600 billion. The period in question has 7 trillion in "loans" well, with falling house prices (today), high unemployment, hard money loans, look for a malestorm and a trillion dollar bailout of Freddie and frannie very soon. Congress will not have the money to throw at this feel good expensive warm and fuzzy farce. So the tax credits will be reduced. It is enevitable. That is why it hasn't cleared congress again. They are waiting out the financial storm that is building even more.

    2. Solar is not a stand alone alternative energy. It requires a complete back up of conventional power, something that will work when the demand goes up. Solar plants like the 20 sq mile project that was recently announced will not be built. Dow you understand how much land it takes up and it cannot stand alone? It is a travesty if this much land gets used for such a waste of natural resources. The EPA will never let this happen. They will be killing scorpions, coyotes, rattlesnakes and other animals in a large scale and for what? to power just a few hundred thousand homes. I think all the nations coal and nuclear power plants occupy less land than this absurd project.

    3. The insiders have been selling. What does that tell you? These guys obviously don't think it's going to double or tripple in the near term, or else they would hold. Cypress itself dumped 2.5 million shares right after this bogus announcement. The SEC should look into this. This is truly criminal, not the shorts. Ignorant people like to scapegoat and the shorts are the goat of the day when we are the ones that keep everyone honest.

    4. Taking profits is what trading is all about. The author has given very good advice which you longs are greedy and still trying to pump. Just as it's wrong to yell fire in a crowed theater it is also illegal to yell "free beer" outside the theater to have everyone rush in.

    That my friend is the truth and it shouldn't hurt, uless of course you are a sheeple and will be beguiled by all this subterfuge.
    Reply
  •  
    Aug 25 05:08 PM
    Yep, I am laughing all the way to the bank.
    Reply
  •  
    Aug 25 08:26 PM
    I think he is very wrong......just look at the earnings...what more do you need to know ? Guidence ? going up !!
    Reply
  •  
    Aug 25 08:47 PM
    The Chinese government is working with YGE to form a new entity to build China's first solar power plant in Bejing. Bejing is where the olympics were held in case the author hasn't kept up on the news lately. If this recent development isn't confirmation that China is supportive of solar development and use in it's country then I don't know what is. Usually they start with one, and you know the routine. I can't imagine how many power plants the Chinese will build if the project is successful. China most likely will have thin film solar from LDK's sister company Best Solar.
    LDK's has proven itself beyond anyone's expectations and I would expect more shockwaves sooner then later. I just don't see the short argument here.
    I commute to work 20 miles round trip. I'm going to have solar on my home and plug in my Chevy Volt overnight by the year 2010. I will no longer be supporting the transfer of wealth making our enemies wealthy for pulling something they don't own out of the ground.
    S+P downgraded a stock because they are unsure of LDK's ability to produce poly as are many analysts. It seems almost criminal to have clients sell their shares based on this reasoning. I would put my faith in LDK's customers who have signed on for the long term and take LDK's execution to date as a sign of things to come. Do the numbers folks.. Either LDK is lying, or the street is holding back because they haven't scared enough of your shares from you yet. 3 billion * current margins of 25% divided by 106 million equals a lot of earnings.. margins are expected to go up significantly with poly production..
    Reply
  •  
    Aug 25 10:08 PM
    The author expressed his change from bearish to bullish in a comment. Most people don't read the comments.
    A new objective article on SOLF would be a better thing to do.
    Reply
  •  
    Aug 26 12:00 AM
    SOLF CLOSES UP ROUGHLY 1.2%, LDK FINISHES UP 9.25% (WITH STRONG VOLUME) AND THE MARKET AS A WHOLE DROPS MORE THAN 2%. ENOUGH SAID!!!
    Reply
  •  
    Aug 26 12:05 AM
    AND YES, CORRECT VERSION IS CORRECT, THE AUTHOR DID CHANGE HIS OPINION TO BULLISH ON THE SIMPLE FACT THAT LDK BLEW AWAY EXPECTATIONS. IMAGINE WHAT SOLF IS GOING TO DO, THIS WILL BE EXCITING!
    Reply
  •  
    Aug 26 04:49 AM
    I normally don't comment in the negative, but this article really irked me. How the author managed to link Obama/Biden with SOLF is beyond me...if there's any politician to reference it's the Governator (Schwarzenegger) in CA...who's state inked a big deal with SPWR recently.

    Sorry, Kevin, this isn't analysis. It barely event qualifies as drunken bar chatter.

    Solar Co's are growth stocks. Oil may go down in the short term, but in the long-term it's up up up.

    And as an aside, it's truly pathetic that the majority of Americans think we can drill ourselves out of our energy crisis. We need to conserve and develop alternative/renewable fuels.

    And yes, I am voting for Obama/Biden.
    Reply
  •  
    Aug 26 01:31 PM
    Kevin, you are proxy for shorts and doing their dirty work. Your article is totally off base and you don't know much about solar industry in general and Solarfun in particular. Go do something else.
    Magic
    Reply
  •  
    Aug 26 09:19 PM
    As a novice investor I am finding that the markets are a peculiar environment, indeed. It is difficult to fathom how it is that one day solar companies are in vogue, and the next (as predicted by the writer of the above article), they seem to fall in concert. As the saying goes, "something is rotten in the state of Denmark". I wonder if any one would care to offer an opinion as to and how this actually occurs. Obviously, it is not the result of individual investors waking up one day (the same day) and deciding that these stocks are overvalued.

    bossa
    Reply
  •  
    Aug 27 01:32 AM
    User 76581 --

    I'm speculating that since a lot of the daily market drama is driven by hedge funds...and since these hedge funds use an army of computers to make automatic technical trades...that's why you saw today's drop on solar stocks...they ran up to value "x", the hedge-funds grabbed their profits, and now they go down...but the fundamentals are still the same...so the overall TREND-LINE should be up...

    Again, this is pure speculation on my part. But i think it's the Quants (the algorithms the hedgies derive from their quantitative analyses of the market sectors) which drive these up and down prices.

    Black box trading.
    Reply
  •  
    Aug 27 01:32 AM
    User 76581 --

    I'm speculating that since a lot of the daily market drama is driven by hedge funds...and since these hedge funds use an army of computers to make automatic technical trades...that's why you saw today's drop on solar stocks...they ran up to value "x", the hedge-funds grabbed their profits, and now they go down...but the fundamentals are still the same...so the overall TREND-LINE should be up...

    Again, this is pure speculation on my part. But i think it's the Quants (the algorithms the hedgies derive from their quantitative analyses of the market sectors) which drive these up and down prices.

    Black box trading.
    Reply
  •  
    Aug 27 10:11 AM
    You know what? Kevin. Once I saw your comments, I decided to sell my shares bought exactly a month ago. I have to confess, after reading all the comments I was regreting that I sold all my shares. You all know what happened next.
    Reply
  •  
    Aug 27 11:43 AM
    I wonder what all of the solar diehards are thinking now that SOLF is down 10% on today's comments about average selling prices.

    I sold 2/3 of my SOLF and FSLR on this recent pop and have a tight stop on the other 33%. Don't get greedy folks. This will get real ugly once oil drops below $100 and the Euro government subsidies start shrinking.
    Reply
  •  
    Aug 27 06:35 PM
    Koolaid ran out, LOL!!!
    Reply
  •  
    Aug 27 07:00 PM
    SOLF is really just a trading vehicle since it is so volatile, and its movements are mostly based off technicals.

    Those fundamental reasons stated have nothing to do with the movement of SOLF. LDK and STP had big days despite the supposedly negative fundamental news.
    Reply
  •  
    Aug 27 09:05 PM
    These stocks should be sold and if you do decide to go long sell puts and collect the hugepremiums
    Reply
  •  
    Aug 28 04:10 AM
    people are still not getting it which means there is still time to get in.

    The solar sector is not dependent on subsidies (anymore) and what the U.S. (whether Obama or McCain) or China does is a non-factor. These companies are already growing exponentially even as an alternative energy!! Can you imagine when solar transitions to mainstream? And we are in the early stages of that transition...but you have to have vision to see this. If you are still talking about putting solar on roofs and subsidies you are way behind. Solar is going to go into the grid and its going to succeed without the huge subsidies that oil currently receives - no one is going to be invading another country for solar anytime soon.
    Reply
  •  
    Sep 24 03:12 PM
    Here is a more up to date interview and discussion of Solarrfun with mgnt thechinaperspective.co...
    Reply
  •  
    Oct 08 04:36 PM
    Silly guys. Hope you aren't holding these long. Brutal.
    Reply
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