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Solar Stocks - Looking for a Bottom?

By Peter Lynch
Exclusively for InvestorIdeas.com
July 30, 2008

The stock market has now slipped into “official” bear market territory and the press is full of negatives.  The world is obviously ending and all hope is lost. These are probably the times that separate normal investors from “great” investors. I think it was John D Rockefeller who once said:

The way to make money is to buy when blood is running in the streets”.

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Well, if you go out into the street, especially Wall Street, there is indeed blood running and of course the press, who are ALWAYS far behind reality are pumping up the gloom and doom.  When you start to see stuff popping up on national magazine covers you can be SURE it has already happened and that the market has more than likely discounted it fully.

Amongst this general malaise our little universe of solar stocks has moved even further to the downside, by an average of 43% since January 2008 versus the Dow, S&P and Nasdaq moving down an average of approximately 15%. This should be no surprise, since younger companies, in emerging industries generally have a much higher BETAs (higher volatility) than the normal more mature stock.

Symbol

Company Name

Performance %

AKNS

Akeena Solar, Inc.

-44.5

ASTI

Ascent Solar Technologies, Inc.

-66.3

CSIQ

Canadian Solar Inc.

-3.2

CSUN

China Sunergy Company Ltd.

-55.4

DSTI

DayStar Technologies Inc.

-52.8

EMKR

EMCORE Corporation

-68.4

ENER

Energy Conversion Devices Inc

82.2

ESLR

Evergreen Solar, Inc.

-49.2

FSLR

First Solar, Inc.

-0.1

JASO

JA Solar Holdings Co., Ltd

-39.8

LDK

LDK Solar Company Ltd.

-30.4

SOLF

Solarfun Power Holdings Co.

-61.7

SPIR

Spire Corporation

-51.6

SPWR

Sunpower Corporation

-44.6

STP

Suntech Power Holdings

-60.3

TSL

Trina Solar Limited

-52.4

WFR

MEMC Electronic Materials, Inc.

-49.2

YGE

Yingli Green Energy Holding

-62.0

 

 

 

 

Generally Followed Indexes

 

 

 

 

DJIA

Dow Jones

-16.1

SPX

S& P 500

-15.9

NASD

Nasdaq

-14.6

 

 

 

As a result of this, I guess you would say that the bad news is that solar stocks have fallen 3 times more than the averages and the good news is that hopefully they are close to a bottom.  One thing for sure, is that when they do turn up they will move just as fast to the upside as they have to the downside. So far to date, their higher volatility has worked BOTH ways.
One of the simplest short term methods I have used over the years to determine trading points for stocks is the 50 day moving average.  To summarize:

  • If a stock is trading OVER its 50 day moving average it is in an uptrend.
  • If a stock is trading UNDER its 50 day moving average it is in a downtrend.

As you can see below EVERY SINGLE solar stock (prices as of the close 7-28-08) we follow is BELOW its 50 day moving average.  This certainly tells us that the entire solar sector is in a downtrend.  The 200 day moving average (also shown below) is a longer term indicator that would NOT be utilized as a short term trading tool but is more an indicator of how deep a stock has fallen. When the sector does turn up, the stronger stocks will generally turn around and advance first ABOVE their 50 day moving averages – that will be a sign of the turn and traders can make the appropriate moves at that time.


Photovoltaics Related U.S Traded Stocks

 

 

 

 

 

 

 

 

Symbol

Company Name

Recent Price

50 Day MA

200 Day MA

AKNS

Akeena Solar, Inc.

4.42

5.544

6.797

ASTI

Ascent Solar Technologies, Inc.

8.39

11.051

15.288

CSIQ

Canadian Solar Inc.

27.25

37.955

24.899

CSUN

China Sunergy Company Ltd.

7.37

9.907

9.593

DSTI

DayStar Technologies Inc.

2.95

3.951

3.978

EMKR

EMCORE Corporation

4.84

6.631

9.086

ENER

Energy Conversion Devices Inc

61.3

65.904

38.57

ESLR

Evergreen Solar, Inc.

8.78

9.863

11.056

FSLR

First Solar, Inc.

266.9

270.374

232.329

JASO

JA Solar Holdings Co., Ltd

14.02

18.735

19.465

LDK

LDK Solar Company Ltd.

32.7

38.554

36.818

RSOL

Real Goods Solar, Inc.

6.37

6.396

6.56

SOL

ReneSola, Ltd. (United Kingdom) ADR

14.5

19.366

15.619

SOLF

Solarfun Power Holdings Co.

12.51

18.549

17.213

SPIR

Spire Corporation

11.44

12.667

16.234

SPWR

Sunpower Corporation

72.21

77.197

90.585

STP

Suntech Power Holdings (China) ADR

32.71

38.994

50.494

TSL

Trina Solar Limited

25.63

36.998

41.067

WFR

MEMC Electronic Materials, Inc.

44.99

60.505

70.924

YGE

Yingli Green Energy Holding

14.69

18.172

23.795

There are three things that are important to understand regarding investing in the current renewable energy industry:

  • Just the Beginning - This is “just the beginning” of the birth of the renewable energy industry. The renewable energy industry is at the same stage now as the automobile industry was in 1900. We are seeing the first few companies becoming public and we will see hundreds more over the next decades. It will be an exciting time for investors and there will be plenty of opportunity for investors to make money and also help the environment, which is a welcome change from the fossil fuel dominated energy sector of today.
  • Highly Volatility - At this early stage of development there will be plenty of volatility in this sector until it becomes a more mature industry. Investors must carefully select their entry points and be patient. This sector is NOT for the faint of heart. An investor has to be careful to only invest a portion of their portfolio, which they have designated for “higher risk” investments. These will be the stocks that you can make the most money on, but also the ones you could lose the most on. Risk and reward have always been intrinsically linked and this is no exception.
  • Pending Legislation – I expect that we will see some pending solar legislation pass in the congress before year end, perhaps sooner. Once this occurs I think it will light a fire under solar stocks and they will make a strong run up before year end.  Next year there will be problems in the industry – excess silicon supply, margin compression and PE contraction. But in the shorter term, I see solar stocks making another run up as just another step in their eventual movement to a booming industry of the future.

Mr. Lynch has worked, for 31 years as a Wall Street security analyst, an independent security analyst and private investor 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 field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com.

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