Solar Stocks Continue Decline but Long Term Future is still Bright
"Solar stocks will give us a signal when they are starting to turn around" - J Peter Lynch
Point Roberts, South Salem, New York - October 3, 2011 www.Investorideas.com, a leader in cleantech stock research, releases a new solar stocks performance commentary from well – known solar analyst , J. Peter Lynch . Mr Lynch was recently featured in broadcast and print media as expert in solar, commenting on the Solyndra failing.
Solar Stocks Commentary with J Peter Lynch -
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Solar stocks have continued their weakness relative to the market since the beginning of the year continuing their sub-par performance since January of 2010. Our group of publicly traded solar stocks is down roughly 60% since the beginning of 2011. There has to bottom somewhere - but it is NOT in sight yet. In addition, most if not all of the major markets in the world are currently in "official" bear markets - a bear market is defined as a market that has declined MORE THAN 20% from its high.
As I have mentioned a number of times in the past one of the best and simplest indicators, from my experience, is to compare the price of any stock to its 50 day moving average (50 day MA) and its 200 day moving average (200 day MA).
IF a stock's price is below its 50 day MA it is a short term negative and if above its 50 day MA it is a short term positive. These two points can be very successfully used to trade a stock - when a stock moves above its 50 day MA you buy it and if it breaks below its 50 day MA you sell it.
If a stock's is below its 200 day MA it is a long term negative and if it is above it 200 day MA it is a longer term positive.
All 21 of our publically traded stocks are currently below BOTH their 50 day MA's and their 200 day MA's a clear cut sign of serious weakness. In fact, all 21 of our solar stocks 50 day MA's are BELOW their 200 day MA's - this is a very negative situation and not a time for "bottom fishing".
As you know from previous articles we exited our last position in our solar portfolio on July 29th and are currently in cash with a locked in 2011 YTD profit of 16.52%.
Note: Evergreen Solar (ESLR) has been removed from our list of solar stocks due to bankruptcy.
Why are Solar Stocks down and when will they turn around?
As to why solar stocks are down - there are ONLY various opinions and NO ONE has the real answer. However, just to mention a few possible causes to think about - it is more than likely a combination of many reasons plus the weak condition of the world's stock markets in general:
- Worldwide solar panel production capacity is almost double worldwide projected demand
- Profit margins are, as a result of #1, under serious pressure industry wide. Looking at the 2 nd Q reports you can see that many solar companies margins dropped as much as 50%.
- The U.S. Treasury Grant may not be renewed after it expires at the end of 2011 causing the usual, annoying and totally unnecessary year end uncertainty in the investment community.
- Recession has cast further doubt on the status of the funding situation in many markets worldwide - i.e. more uncertainty.
- General lack of any long term or coherent energy policy in the U.S. despite over 30 years of talking, talking and more talking and ZERO significant action.
- The Solyndra situation may have given the sector an additional push into greater, you guessed it, uncertainty.
It is important to understand that we will never know exactly why solar stocks have dramatically underperformed over the last 21 months. What is important is understand is when to buy them and when to sell them. This requires buying and selling utilizing some form of system and being consistent in following the system. The system can be as simple as buying when a stock goes ABOVE its 50 day MA and selling when it goes BELOW, but an investor needs to utilize some form of system that tends to take the emotion out of buying and selling.
What you should NOT do is to buy stocks because you "think" you know what they should be doing. Everyone knows that solar is a very positive thing, so why are the solar stocks doing so poorly? Right now it is as simple as the fact that there are more sellers than buyers - that is the ONLY thing that you know for sure at this time. If you make your decisions based upon emotion or what you "think" a stock should do - that is a system that will, without question, leave you with far less money than when you started.
You have to look at "what is" (whether you like it or not) and NOT what you think should be.
Remember the two key rules from the legendary investor Warren Buffet on how to make money in the stock market:
- Never lose money*
- Never forget rule #1
*What Buffet really means by "never lose money" is really to cut your losses short (minimize your losses) and let your winners run as long as they are technically strong (maximize your return).
When will Solar Stocks turn around?
Solar stocks will give us a signal when they are starting to turn around. Stocks first signal will be when their prices move above their 50 day MA's and then continue until the 50 day MA's move ABOVE their 200 day MA's - this will indicate a new, strong, sustainable uptrend. You must also keep in mind that no investor consistently buys stocks at the exact bottom and sells them at the exact top - that is unrealistic and very seldom ever happens.
Solar stocks will turn around right before our eyes and also, at the same time, you will probably read in the press how hopeless the solar sector is and that solar "doesn't work" and it will never amount to much. But what is really happening at that point, is that the final group of sellers will have finally given up and thrown in the towel (i.e. no more downside) and all that will be left will be buyers (i.e. start of an upside move). That is the way it has always worked and I certainly believe it will happen this way again.
Solar's long term future is still extremely bright
If everything is currently so bleak with solar stocks, why do I still believe that solar has a very bright future?
First - you have to remember that we are still in the very beginnings of the growth of the solar industry and in the beginning this is the natural progression of how industries develop - companies will come and go, there will be mergers and acquisitions, bankruptcies, new technology breakthroughs and maybe even some thoughtful legislative progress in the U.S. - but I would not bet on this last one, unfortunately.
Second - is the undisputed FACT that there is no other source of energy that can supply the world with the energy it will need in the future to grow and prosper in a sustainable way.
The table below shows the relative amounts of renewable energy resources that are available on an ANNUAL basis compared to the amount of fossil fuel resources that are currently available on Earth and can be recovered at a "reasonable" economic and environmental cost. As you can see the numbers speak for themselves and the obvious long term solution is renewables.
Annual Renewable Energy Resources & Remaining Fossil Fuel Resources
Note: all numbers expressed in Terrawatt (trillions) hours
|Renewable Resources||Annual Amount Available|
|Direct Solar Radiation||350,000,000|
|Total Renewable Resources||350,391,000|
|Fossil Fuel Sources||Total Amount Remaining|
|Total Fossil Fuel Resources||9,950,000|
|Summary:||The amount of direct solar energy that arrives on Earth during an average 2 week period, roughly 13,000,000 terrawatt hours, is greater than the TOTAL remaining (9,950,000 terrawatt hours) reserves of fossil fuels (i.e. non-renewable).|
|Conclusion:||Given the overwhelming supply advantage and renewable nature of solar energy the obvious strategy should be to accelerate the development of renewables worldwide as quickly as possible.|
|Benefits:||Enhance national security by lessening the U.S. dependence on foreign oil, create million's of new domestic jobs, increase domestic product exports, decrease huge cash drain ($800,000,000 per day in 2010) from buying foreign oil and clean up the environment for our children and all future generations.|
Keep in mind that there are two basic types of equity (stock) analysis. Below are a brief description of each and its primary purpose:
Fundamental Analysis – this is the analysis of the fundamental financial condition of a company to identify which stocks you may want to buy when the timing is right. This form of analysis will give you NO indication of the best time to buy a stock or sell a stock.
Technical Analysis – this form of analysis will tell you "when" to buy a stock and when to sell the stock. It will do this by showing you (in chart format) the basic interaction of supply and demand and when the two change and shift which will indicate a time to buy or a time to sell.
Mr. Lynch has worked, for 34 years as a Wall Street security analyst, an independent security analyst an investment banker 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 advisor to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy - www.sunseries.net
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