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Some of the biggest gainers in the beginning of 2010 were solar stocks.
While the rest of the stock market rallied starting in March 2009,
these stocks were left behind. Some solar stocks are still not that far
off their lows, so they are long overdue for a bounce. Solar power
ETFs, TAN and KWT, were up 10.0% and 9.9% respectively in the first
week of trading. Many individual stocks were up much more, with the
biggest gainer being SolarFun Power (SOLF) - up 32%. This
powerful first week rally is justified if you think energy prices are
going up in the long run or that inflation is in our future because of
all the government money printing taking place globally.
The news has also been good for the solar sector recently. On January
8th, private company eSolar signed an agreement with China to build a
series of solar thermal power plants with a 2000-megawatt capacity.
Last September, First Solar (FSLR) also inked a contract with China to
build an equally large photovoltaic plant. JA Solar Holdings (JASO)
helped wake the sector up in December when it announced that it
expected its 2010 product shipments to increase 50% in 2010.
As a young industry, solar will be prone to consolidation. This energy
source is still not economically viable without government subsidies
and support. These are likely to continue however until rising oil
prices turn solar into a self-sustaining industry. While the risk of
bankruptcy was at its height in the fall of 2008, it is still a good
idea for intermediate to longer-term investors to weed out stocks that
might face a liquidity crunch. Running out of cash is the biggest risk
for insolvency. To avoid this, look for stocks with a Current Ratio
(short-term assets divided by short-term liabilities) greater than 2.0
and keep an eye on this number. Solar industry stocks that met
this standard at the end of 2009 are: Ascent Solar Technologies
(ASTI), Energy Conversion Devices (ENER), Evergreen Solar (ESLR), First
Solar (FSLR), JA Solar Holdings (JASO), MEMC Electronics (WFR), and
SunPower (SPWRA). Solarfun Power (SOLF) is on the cusp.
The solar stocks that performed above average for the sector in the first trading week of 2010 were:
Solarfun Power (SOLF) Up 32%
ReneSola (SOL) Up 21%
Energy Conversion Devices (ENER) Up 19%
China Sunergy (CSUN) Up 19%
Evergreen Solar (ESLR) Up 19%
JA Solar Holdings (JASO) Up 16%
Yingli Green Energy (YGE) Up 14%
Ascent Solar Technologies (ASTI) Up 14%
LDK Solar ( LDK) Up 14%
Canadian Solar (CSIQ) Up 13%
Trina Solar (TSL) Up 13%
Except for momentum traders with very short-term trading horizons, it
is generally not a good idea to chase performance. Pullbacks almost
always take place after a good rally. Investors interested in the
sector should wait for these and take advantage of them.
Disclosure: Long ASTI, ENER, ESLR, and WFR.
NEXT: The U.S. Dollar in Early 2010 Trading
Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21
