One of the standout areas during the market’s historic 2013 rise has been solar stocks, which suffered a dramatic collapse in 2011 and 2012 amid gross overcapacity, pinched margins and trouble in China — a key growth market as the Middle Kingdom shoves billions into clearing its smog choked air.
Between early 2011 and the low last November, the Guggenheim Solar ETF (TAN) lost a whopping 85%. The green energy revolution looked dead; replaced by the shale gas revolution that had more than halved natural gas prices over that time.
Then things changed. China eased away from its fight against inflation, allowing its infrastructure- and export-led economy to breathe. Natural gas prices climbed back to early 2011 levels, rising more than 130%. And solar stocks took flight, pushing the TAN up nearly 400% into a high earlier this month.
But now, as the overall stock market drifts higher on a narrowing base of support, solar stocks are the latest sector to succumb to selling pressure and roll over. On Tuesday, the TAN tested its 50-day moving average as significant negative volume hit it for the first time since February.
Here are five solar stocks in trouble, and possibly worth a look on the short side as excess optimism gets squeezed out amid frantic profit taking.
Trina Solar (TSL)
Although TSL reported better-than-expected Q3 results on Nov. 19 — with earnings of 14 cents per share vs. the 18 cent-per-share loss that was anticipated — the stock is falling out of a multimonth consolidation pattern.
A return to the July-August support range would be worth a 46%-plus drop from here. I’ve recommended shorting TSL to my clients, and have added the position to my Edge Letter Sample Portfolio.
JA Solar (JASO)
JASO wasn’t able to push to profitability in the third quarter, posting a pre-exception loss of 7 cents per share vs. a 50 cents a share loss in the year-ago period. Analysts are looking for a profitable quarter in Q3 2014, but a full-year 2014 loss of 43 cents per share, less than the $1.05 a share loss expected for full-year 2013.
JASO stock dropped out of its multimonth uptrend Tuesday as this march to profits looks more vulnerable amid a warning from the company that shipments to China would be lower.
First Solar (FSLR)
Click to Enlarge First Solar (FSLR), which manufactures solar modules as well as constructs turnkey solar power plants for utilities, has posted healthy revenue growth lately. Full-year revenues are expected to grow 6% on average between 2012 and 2014.
But earnings are a problem, as intense competition is expected to push down EPS from $4.90 last year to $3.40 in 2014.
FSLR shares are slicing below their 20-day moving average for the first time since August.
Revenues are expected to grow 50% between 2012 and 2014, but the sustainability of those estimates depends on emerging market growth, the health of the Chinese economy and the continuation of social subsidies and green energy requirements that are funding the construction of projects, such as the 54 MW “Alamo II” power plant that SOL will help build in Texas.
Shares of SOL are threatening to fall down and out of a five-month pennant formation in a big way.
Solar Power (SOPW)
Click to Enlarge A pink sheet stock, Solar Power (SOPW), is the perfect example of what happens when a frothy, speculative frenzy starts to unwind. After blasting higher since August, shares dropped 22% on Tuesday as the bulls bailed out. SOPW is now down 38% from its October high.
SOPW is a subsidiary of LDK Solar (LDK) out of China, which is under pressure itself as it struggles to meet debt payments
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As of this writing, Anthony Mirhaydari has recommended TSL short to his clients.