The solar sector just can’t catch a break. Investors have been mercilessly selling stocks in this group for what seems like an eternity. I can’t believe how low the valuations have become and I think patient investors will be handsomely rewarded if the right stocks are picked.
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The latest catalyst for the selling was earnings from LDK Solar (LDK), which underwhelmed the market with a lowered outlook. We have heard this story before as many of the stocks reported strong results but said the future was murkier due to oversupply and a less generous government subsidy program from solar giants Germany and Italy.
My question is how many times is the market going crush these stocks on news that we already know? For months if not longer, analysts have been sending warning flares about a supply glut and weaker demand due to subsidy cuts, and investors have responded by killing the stocks down to bankruptcy level P/E ratios. At some point, these worries will be fully priced in and the upside will be enormous.
All that being said, I think you have to be selective with your picks. I like JA Solar (JASO) in the small cap space as it has a competitive advantage being a low cost supplier of photovoltaic cells and is trading below book value. Its P/E is getting into bankruptcy valuation stage even though that will not happen. The stock keeps getting hit along with the rest of the group, so patience is required.
I also like First Solar (FSLR) as it is the blue chip name in the group and is the king of thin film. I would dollar cost average in 5% intervals on the way down, but make sure not to be a hero and try to call the exact bottom by going all in. I think the long term investor will make nice money here but prudent money management rules apply as always. These prices should prove to be a gift in a few years.
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