What's Up with the China Solar Stocks

by: Eric Savitz August 26, 2008 | about stocks: CSIQ / CSUN / JASO / LDK / STP / TSL / YGE    

Eric Savitz

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I’m not at all sure if there’s a catalyst for this, but China-based solar stocks  suffered a fairly substantial sell off today.

See for yourself:

  • JA Solar (JASO): Down $1.03, or 5.7%, to $16.94.
  • Suntech Power (STP): Down $2.84, or 6.2%, to $43.13.
  • China Sunergy (CSUN): Down 90 cents, or 7.48%, to $11.13.
  • Canadian Solar (CSIQ): Down $1.76, or 5.42%, to $30.69.
  • Yingli Green Energy (YGE): Down $0.69, or 3.86%, to $17.19.
  • Trina Solar (TSL): Down $2.94, or 8.66%, to $31.02.
  • LDK Solar (LDK): Down $2.84, or 5.67% to $47.22.

I’m sure there is a perfectly rationale reason for this, but I can’t find one.

UPDATE: Collins Stewart solar analyst Daniel Ries suggests several factors may be pressuring the shares.

  • The dollar continues to strengthen against the Euro, which is “a headwind for solar companies revenue growth.” He notes that most solar modules are sold in Europe in Euros; a weak dollar translates to higher revenue and margins.
  • The group rallied last week on bullish comments from Trina and Suntech on expectations for strong 2009 demand in Italy. He notes that Trina sees Italy using 600-800 MW of modules next year, while Suntech projected 1 GW of demand. That compares to an estimated 200 MW of consumption in 2008, and Ries’ estimate for 2009 of 450 MW. Today, he says, the group is giving up some of last weeks gains.
  • Ries also notes that weak economic data from Germany also could be hurting the shares. Evidence of weakness in Germany, he says, raises fears of a downturn in Europe, which could make European governments less likely to back solar incentives. The fear, he says, is that if things get really tough, you could see reductions in government subsidies in 2010 and beyond.

Meanwhile, he notes that next week brings the European Photovoltaic Industry Association conference, one of the industry’s biggest events. Ries says module companies have been reporting good demand conditions for 2009; he expects a better read from buyers at next week’s conference.

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This article has 15 comments:

  •  
    Aug 26 07:46 PM
    For god's sake, it's one @$#%!^@ day. Now it's the 'fear' of German subsidies being cut in 2010. I'm surprised there isn't a mention of the future government of Mars possibly cutting solar subsidies in 3112.
    Reply | Link to Comment
  •  
    Aug 26 08:04 PM
    Ha! More opportunities for us the investors to pick the stocks of the future. Solar is our only hope and only energy solution. Get it now, while still cheap.
    Reply | Link to Comment
  •  
    Aug 26 10:00 PM
    how good do STP's earnings and guidance have to be in order for the stock not to get beat down?
    Reply | Link to Comment
  •  
    Aug 26 10:35 PM
    It could be just a pullback from a phenomenal couple of weeks for solar. Look at the one month charts to put it in perspective.

    Stocks move all the time for no fundamental reason. There is no need to over analyze this.
    Reply | Link to Comment
  •  
    Aug 26 11:02 PM
    Thanks for the article Eric.

    I don't buy the excuses given, but I don't have any of my own to offer. There are a lot of great companies trading at huge discounts with very bright futures. Solar seems to be an industry with that characteristic. We could have a good bull market coming up if we quit telling ourselves how bad things are. All this gloom is becoming a self fulfilling prophecy. We put a terrible spin on the good news and over state the bad news. Intel said it in their cc, something to the effect that they saw good customer demand, but they also watched cnn, implying that the news was different than their business.

    Check out "money and investing", Ken Fisher's website or Briefing.com. They speak to the much better economy than the MSM will print. Look at the negative slant in the MSM to even good news.
    Reply | Link to Comment
  •  
    Aug 26 11:21 PM
    I think there's been a reluctance to commit to solar stocks given the volatility they've shown, concerns about liquidity, the quickness with which this technology develops, and, well, they've just been neglected. Look at a 6-month chart and you'll get perspective on this drop. All summer they've seen low volume and been unable to hold gains. That may be changing, but not without shudders like today.
    Reply | Link to Comment
  •  
    Aug 27 09:46 AM
    Stocks go up and down - most solar stocks have had nice moves from their recent lows prior to the past 2 weeks of earnings announcements
    - with ENER left for tomorrow.

    While a pause was exepected [and may be over this morning] the worries over polysi supply is waning [LDK increasing production forecast for example] and module makers will be able to ramp and push out more revenues at ASP's around $4 per peak watt.
    Solar may be the only group with real growth [50+] in earnings and revenues as the economy falls off the cliff.
    Where are you going to get your alternative enregy as more and more state and country mandates are being made?
    If you do not like solar, then you might as well buy SBUX how smart is that when people will no longer pay-up for $4 coffe?
    Reply | Link to Comment
  •  
    Aug 27 10:05 AM
    Irrational. Like oil futures. Demand decreases, production increases, prices increase on rumor. Did the dollar go up 6% yesterday? That doesn't account for the sell off levels. Will the trend toward solar subsidies increase world wide in spite of a given country's rumored pull back from subsidy levels? Of course, it's a macro-trend. More solar support is invevitable especially by 2010. Perhaps even the US Congress will finally pass a bill by then.

    So why are the Chinese solars undervalued compared to American solars like FSLR? Why are they so volatile in spite of consistent earning and sales improvement? It's similar to oil in my opinion. Many investors do not quite understand the near term dynamics of the situation, so they trade on rumor and momentum, even though the long term has a seeming inevitable outcome. Is China a reliable economic and political environment for business? Or will they somehow nationalize or confiscate the ownership of these businesses? (Answer; No, China's never looking back again from this economic success. They have taken the lesson of the Shanghai experiment and the abosorption of Hong Kong to heart and it has shown the path. China will broaden theses effects throughout the country.) Even Cramer has irrational bias against China for this fear and lack of understanding. Although, admittedly, its more opaque by American standards, without GAAP reporting and SEC filings. Any China investor has to take a little bit of a leap of faith that the numbers are real. (I recently explained to a friend that I don't consider this as big a problem as he did because the penalty hanging over the head of a publicly held Chinese company CEO or BODs is most likely more onerous than anything the SEC is likely to do to malfeasant American CEO's and BOD. Unlikely you'll see any ENRONs in China. In the United States, a CEO is more likely to get a "golden parachute" than go to jail for gross negligence or fraudulent insider activity. The penalty in China is likely a bit more draconian after all.)

    Will inflation kill the goldern goose in China? (Possibly, but how can analysts constantly predict the China slow down and simulaneously tout inflation as the biggest problem?) China's problem is similar to ours, as oil explodes up, so does inflation, if it's pulling back, at least for awhile then we and China will also feel relief on most of the COLI indices, along with the rest of the world. In the United States, we don't quite believe the solar revolution is going to happen, even though Europe is already in the throws of it. After all, Congress has had the renewables bill blocked or defeated 8 times this year, one candidate keeps talking about a nuclear reactor in every back yard, and our current energy policy is the product of oil company CEO's meeting in the back room. Therefore there is yet an element of unreality to Solar in this country. (Because of this I consider the best current play to be ESLR, constantly beat down for lack of net earnings, yet increasing 2008 sales by a factor of ten and manufacturing infrastructure to go with it. ESLR has the one advantage that no Chinese Solar has, it's American, and any likely renewables bill will undoubtedly favor American companies over Chinese. Ergo, the value play and the future momentum play is in this stock.)

    Finally, volatility begets volatility. Burned once, you'll be very careful in the future, prepared to pull the trigger on any hint of implosion. When the stock seems to be moving in either direction, you don't want to be left behind. It may be trading for undecipherable reasons, but the direction is clear. All this means is trust the fundementals and your own analysis. If LDK has beat estimates by 200%, increased earnings out look, never failed to surprise upside, has planned and completed vertical intigration, manufacturing capacity and secured raw material, then it will be a winner in the end. (So trust your own analysis.) Argueably the smaller company's may dillute holdings to underwrite expansion, but even CSUN and SOL have shown that they can do this without ruining share value. Some might notice, that unlike many American companys in start up, in the first year mode undergoing extreme growth demands and vast new financial wealth through IPO offering, the Chinese companys will quickly show positive earnings, and reasonable M & A components, and option gifts and insider trading is not a significant line item expense at the end of the year. (Compare that concern with virtually any new American pharmaceutical or hot sector IPO on the OCBB. Such greedy malfeasance is not likely to be tolerated in China, and the CEO and CFO are not likely to be building an offshore bank account, unless their family lives in another country and their tolerance for a labor camp is very high.)

    Chinese capitalism seems to be an oxymoron, and solar hasn't yet been bought into by many investors. Chinese inflation is a subject of constant speculation and the European market for Chinese wafers is the only tangible measure many analysts can identify. What's left to trade on? Momentum, that's what. I say trust your own analyis, trust the reported numbers, trust in the macro-trend, and (this may be a bit harder to do) trust in the fact that the new China miracle is not going to go retro because of some ressurection of Communist self immulation. How do I know? How about the biggest two week display of new found pride and affluence paraded before the world in what was suppose to be the Olympics, but actually turned out to be a Chinese coming out party. Or did anyone fail to notice that.
    Reply | Link to Comment
  •  
    Aug 27 10:58 AM
    E.Savitz...

    a writer that's very, very negative in regards to the Solar Industry, it's as if he'd prefer to see all Solar companies not only China stocks down and out on their backs.....hmmmm
    Reply | Link to Comment
  •  
    Aug 27 11:23 AM
    The solar stocks dropped because every time the chicken littles read a headline in the USA Today they run out and buy, buy, buy or sell, sell, sell. We of the cooler heads just need to sit back and wait until they buy or sell back and the normal progression will continue.
    The Money section of the USA Today for Tuesday had a lead article on the front page that said Wind, Solar projects race expiring credit, which referred to the fact that AMERICAN wind or solar companies MAY lose their federal tax credit at the end of the year. It said nothing about Chinese or other solars not being involved. It said nothing about this being a done deal for the US companies.
    I have seen this a hundred times or more. There are a number of CL's out there that don't pay any attention to the facts about a company. They run their (probably dwindling) portfolios based on headlines alone. I have TSL and STP. They're both up today. 'Nuff said?
    Reply | Link to Comment
  •  
    Aug 27 12:04 PM
    I'd agree that most of the reasons offered for such volatility are factors to one degree or another - but I really think that overall market conditions, e.g., threat of unabated inflation, S&P/DOW dancing with collapse, etc., have put most investors on the sidelines - leaving only the traders and hedge funds to move the market. Solar volumes have been pretty anemic - and therefore easily affected/manupulated by the relative few...
    Reply | Link to Comment
  •  
    Aug 27 04:52 PM
    Profit-taking, pure and simple.
    Reply | Link to Comment
  •  
    Aug 27 04:58 PM
    Agree with leh, profit taking across the board, solar is still a beautiful story.
    Reply | Link to Comment
  •  
    Aug 27 07:18 PM
    Profit Making &Taking - for Sure, but not simple
    Reply | Link to Comment
  •  
    Aug 27 11:49 PM
    When they say "profit taking" that means they don't know. It's the default answer given.

    Why not say "today more people wanted to sell than wanted to buy so the price went down"? It would provide just as much information... zero.
    Reply | Link to Comment
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