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What is happening with Solar Stocks and the Market as a Whole?

By Peter Lynch
Exclusively for InvestorIdeas.com
March 25, 2008

The stock market has been anything but predictable lately.  In fact, we are on track for the most volatile year in stock market history if we keep up this frenzied pace. At the current pace, 2008 would end up having over 50% of its trading days with movements of +/- 1%.

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To illustrate, a recent post by Howard Silverblatt on the BusinessWeek Investing Blog included the following statement:

"S&P 500 volatility as measured by daily changes of at least 1% have soared since last summer’s credit issues emerged as a critical issue, and now stands at a 70 year high. Since the bear-market turnaround in 2002, the number of significant daily market moves has gone down from 49.6% to 11.6% in 2006, and was 12.9% for the first half of 2007. Then, with the emergence of the credit uncertainty, market volatility shot up to 38.6% for the second half of 2007 and now stands at 51.9% for 2008 - a level not seen since 1938."

Certainly a great percentage of this volatility is due to the mania of the current credit crunch, the still weak housing market and the seemingly futile actions of the Federal Reserve, who sometimes give the impression that they are in a bit of a panic themselves. Of course, none of these items make investors confident and they tend to, as a result, create and compound uncertainly in the minds of investors. As we all know, investors and the market loath uncertainty above all.

Finally we are also starting to see the Great Evil word – RECESSION pop up in some remote places in the media. Of course both the President and the Chairman of the Federal Reserve have recently been quoted as saying that they DO NOT see a recession ahead for the U.S Economy.

Well, they are oddly correct in their statement and totally wrong as to the point of the statement - in my opinion.

What do I mean by that?  What I mean is, I think we have been in a recession since late October/early November of 2007 and as a result there is no recession AHEAD, since we are already in one.  So in effect, they are technically correct and totally wrong in the same statement. But then again, what do you expect when they are trying to be politically correct and not scare all the investors simultaneously? 

I think it is about time that we cut back on the politics and started talking to people as adults and not try to hide the truth from them, so as to not scare the American people. That is really an insult to the American people, because it is treating them like they are helpless, ignorant children.  In fact, I don’t know how many of you saw or read the recent speech by Senator Obama, but it was the only speech in recent times, where I recall a politician addressed the audience as adults – shocking. I certainly hope it is the start of a new LONG TERM trend.

What has been happening to the solar market sector during all of this volatility?

Unfortunately the solar sector had already been in a steep corrective phase toward the end of 2007 and when all of the above mentioned “problems” became more widely exposed out in the media it compounded the downside momentum of the group.  As you can see from the following tables, the solar sector in both the American and the German market have performed significantly worse than the general market as a whole.

U.S Listed Photovoltaic Public Companies Performance - January 1st to March 24th 2008

Symbol

Company Name

Performance %

ASTI

Ascent Solar Technologies, Inc.

-66.9

CSIQ

Canadian Solar Inc.

-40.6

CSUN

China Sunergy Company Ltd.

-58.2

DESC

Distributed Energy Systems Corp.

 +6.5

DSTI

DayStar Technologies Inc.

-60.2

EMKR

EMCORE Corporation

-59.7

ENER

Energy Conversion Devices Inc

-25.1

ESLR

Evergreen Solar, Inc.

-54.6

FSLR

First Solar, Inc.

-27.5

JASO

JA Solar Holdings Co., Ltd

-35.6

LDK

LDK Solar Company Ltd.

-50.9

SOLF

Solarfun Power Holdings Co.

-70.5

SPIR

Spire Corporation

-56.1

SPWR

Sunpower Corporation

-53.2

STP

Suntech Power Holdings ADR

-62.7

TSL

Trina Solar Limited

-47.7

WFR

MEMC Electronic Materials, Inc.

-7.6

YGE

Yingli Green Energy Holding Company Limited

-61.9

 

 

 

 

Average PV Stock Performance

-46.25

 

 

 

 

Major Indexes Performances

 

DJIA

Dow Jones

-6.8

SPX

S & P 500

-9.5

NASD

NASDAQ

-14.9

 

 

 

German Listed Photovoltaic Public Companies Performance - January 1st to March 24th 2008

 Symbol

Company Name

Performance %

AS1-FF

Aleo Solar AG

-29.5

CGY-FF

Conergy AG.

-51.2

CTN-FF

Centrotherm Photovoltaics AG

-45.8

ES6-FF

Ersol Solar Energy AG

-29.6

PS4-FF

Phonix Sonnenstrom AG

-10.6

QCE-FF

Q-Cells AG

-52.4

REC-OS

Renewable Energy Corp.

-53.4

S2M-FF

Solar Millennium AG

-16.1

SAG-FF

S.A.G. Solarstrom AG

-39.7

SFX-FF

Solar-Fabrik AG

-44.9

SOO1-FF

Solon AG Fuer Solartechnik

-42.3

SWV-FF

Solarworld AG

-35.4

SWW-FF

Sunways AG

-20

 

 

 

 

Average German PV Performance

-36.22

 

 

 

 

German Stock Index

 

SX5P

 

-20.2

Now that we have surveyed the damage, what can we expect from the solar sector in the near future?

A number of related thoughts come to mind:

  • The solar sector has certainly taken a beating and should be due for a correction to the upside.
  • The price of oil has spiked to a level that is probably not sustainable in the short term
  • Commodity prices have also spiked to levels that are not sustainable in the short term.
  • We are in the midst of a recession that will probably spread its effects around the world to other economies.

I think the price of oil will come down further along with all the other commodities that have spiked “too far too fast”. In addition, because of the slowing of global economies the demand for oil will also be affected on the downside.  None of these factors will really have any effect on the industry longer term – over the next few years.  But they could have various and contradictory effects short term.

As I have said in the past, this is a newly emerging industry and it will (by definition) have higher volatility than a more mature industry.  There will be winners and losers and plenty of innovation coming forth from the various centers of solar research around the world. There will also be plenty of opportunities as the industry works through its growth stages and develops into the foundation of our energy future.

As a result, I think it is still a wait and see market for solar stocks.  This the time to patiently wait for the solar sector to put in a more sustainable base and not try to jump in and out, unless you are a very nibble trader who has a high tolerance for risk. This is time to start to put together a solar stock “watch list” of the stocks with the strongest relative strength to the sector and the market  and when the current “chaos” subsides these will be the first stocks to move and will have the strongest and most sustained upside moves.

As I said, I think you could see a short term “technical” bounce off a very oversold condition, plus there could be other external events, such as the U.S. Senate, finally stepping up and serving their country as the leaders they were elected to be and passing a robust extension to the renewable energy tax credits.

After all I have it from the very highest authority (see below) who has vast oil industry experience that the oil companies DO NOT need ANY tax breaks at this stage and that they really do not need any more incentives to enhance their desire to explore and develop additional assets.

Last month President Bush said he will VETO the solar legislation that is pending.  Below is what he said 2 years ago. Let’s hope he remembers his accurate words of 2005 and steps forward and votes for the future and does not cast another dismal vote for the past.

President Bush on 5/14/2005:
“And so one of the initiatives that I will push, again, is to get an energy bill out. I will tell you with $55 oil we don’t need incentives to oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent. It’s really important. It’s an important part of our economic security, and it’s an important part of our national security.”

J. Peter Lynch has worked, for 31 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies.  He can be reached via e-mail at Solarjpl@aol.com.

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