It’s been a painful burn for longer-term investors within solar stocks the past couple of years, but there are signs the worst could be over. That goes for remaining players First Solar, Inc. (NASDAQ:FSLR), SunPower Corporation (NASDAQ:SPWR) and JinkoSolar Holding Co., Ltd. (NYSE:JKS).
Let’s take a look at FSLR, SPWR and JKS both off and on the price chart and use the options market to map out positions as a major bottom develops for these solar stocks.
Solar has been less-than-hot since Donald Trump took office. Shares of the Guggenheim Solar ETF (NYSEARCA:TAN) are off by about a percent compared to the S&P 500’s gain of around 5%. FSLR is off by a more menacing 18% and SPWR is down 2%, even after today’s 9% bounce from the bottom.
Shares of JKS are an outlier within the solar space as it’s up 8% since inauguration. With its downtrend of the past three years, however, Jinko Solar has not been immune to the general decline in the industry group — one whose misfortunes can’t be blamed on the Trump administration.
But just last week, the Washington Post reported a carbon tax is being considered as a means to growing federal revenues. But and as we’re all too aware by now, pledges and commitments made by the White House are subject to future compromise and revision.
As much, maybe it’s still time to look at FSLR, SPWR and JKS as a contrarian and see what other supports bulls might have in each in this out-of-favor market niche.
Solar Stocks to Buy: First Solar (FSLR)
First Solar is the undisputed king of solar, but it’s been a tough go for investors. And conditions could always get worse for FSLR stock.
The fact is the new administration hasn’t yet changed their mind in favoring fossil fuels and the toxic campaign promise of bringing back coal. But contrarian bulls also have a company whose fundamentals are still showing green in the bottom line, despite all the hemorrhaging in the solar industry, and one whose balance sheet is pristine and clean. If there’s one name that’s going to weather the storm, it’s First Solar.
It’s not all bad news though for bullish contrarians. There’s a weekly hammer that’s receiving price confirmation today, as well as an oversold stochastics indicator.
Short interest of 25% is also interesting. The large bearish positioning can help lift a stock like FSLR rapidly; though it’s important to recognize those investors aren’t shorting shares so they can lose money either.
Reviewing FSLR’s options board, the June $32.50 call for up to 80 cents is attractive. With shares near $28, the out-of-the-money call needs a fairly big price move to gain real value. But there is time for that to happen.
As well and with this sort of position, I’d use additional strength in FSLR stock, should it occur, as an opportunity to move into a vertical or reduce risk prior to expiration. Likewise and given what’s been discussed, I’d look to exit the position using a 50% money stop if the bears continue to press FSLR lower.
Solar Stocks to Buy: SunPower (SPWR)
Next up on our list of solar stocks is SunPower. Much like First Solar, SunPower is still a dominant force within the solar industry and even maintains an in-limbo, joint venture yieldco agreement, 8Point3 Energy Partners LP (NASDAQ:CAFD) with First Solar.
Not only is SPWR’s market cap down to around $900 million, but as the weekly price chart shows, shares of SunPower have cratered harder and are much closer to its own 100% retracement discussed earlier.
Shares of SPWR are also showing strength Monday. News of a larger-than-expected 8.79 megawatt solar installation for SunPower at Toyota’s Plano, TX headquarters could be driving shares higher. Similar to FSLR, even larger short interest of nearly 35% could be assisting today’s price lift. Given the deeper technical testing and lateral basing of the past few months, SPWR looks ready to ignite.
In reviewing the SPWR options board and shares at a devilish $6.66, I like the June $8 call for up to 30 cents and using the same type money management protocol in order to increase the opportunity for a positive return on investment.
Solar Stocks to Buy: JinkoSolar (JKS)
Last JKS. Unlike FSLR and SPWR, JinkoSolar is actually based in China. That of course could present both political and economic problems which include and go far beyond directives from the White House.
At the same time, JinkoSolar is a major player in solar manufacturing. If international markets stabilize this year and then begin to recover in 2018, JKS shareholders stand to benefit. Debt of $1.55 billion compared to a market cap of around $525 million is a concern, but not an immediate issue either with the bill due in 2019.
On the price chart, JKS stock has differentiated itself from our other two competitors by “mostly” holding the 62% retracement level. For the contrarian investor, the price action could be viewed as confirmation JKS is doing better than its peers. As mentioned, shares of JKS are actually up on the year and demonstrating relative strength within the solar group. As well and as the weekly chart shows, an uptrend could be developing “around” the 62% support level.
Over the last several weeks the channel has tightened into a symmetrical triangle pattern with daily price action trading more or less above the 200-day simple moving average the past week. That’s bullish. I’d gander if JKS can break through the $17.50’ish area, short interest of around 21%, would in our estimation, throw in the towel on the other guy’s bear flag.
Reviewing the JKS options board and shares at $16.85, the June $19 call for 55 cents is a reasonable blend of risk versus reward. As with the other call selections, a layer of money management takes on increased significance considering the contrarian nature of this wager and resident bear
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.