20 June 2011

Wall Street's Irrational, Dangerous Hatred of Solar Stocks

Garvin Jabusch, cofounder of Green Alpha Advisors, LLC and manager of The Sierra Club Green Alpha Portfolio, has an intriguing, if disturbing post on AltEnergyStocks.com over the weekend. Disturbing for those of us who are investors in solar stocks and solar companies.

For most of 2011, the stocks of solar power companies of all kinds, from providers of raw polysilicon to developers of finished utility scale plants, have been taking a beating on world and U.S. stock markets, partly because solar has been the industry most singled out for attack by bearish short sellers. I can’t describe this phenomenon any better than did Roberto Pedone in a recent column for thestreet.com:
"Besides the banking sector post-2008 financial crisis, I can't think of a group that's as hated and despised as solar stocks…For whatever reason, this entire complex has become a favorite target of short-sellers. There are so many names in the solar sector that are heavily shorted that it's hard to find a name the bears aren't leaning all over. One famous and successful short-seller, Jim Chanos, has even made it publicly clear that he thinks the wind and solar stocks are a bunch of 'hot air.'"
"For whatever reason" indeed. Solar is hated in spite of being the fastest growing energy sector in the U.S. (67% 2010 growth; 66% growth just in the first quarter of 2011) and in the world (70% 2010 growth), and also despite its shares trading at very low valuations already.  Take for example Green Alpha ® Advisors' holding and China-based solar company LDK Solar (LDK).
The company's shares have fallen from US$14.49 per share in February to $6.94 as of this writing. I can find no good fundamental reason for the decline: LDK's latest quarterly earnings came in at $.95 per share where consensus analyst expectations were $.86; the company has year-on-year sales growth of 202%, has a price-to-earnings ratio of only 2.22, plenty of cash on the balance sheet, and a price-to-book ratio of just .91.
That's right, even if the company were closed and its assets liquidated, the cash generated at the yard sale would be greater than the current market cap, though the earnings should have value. LDK is the very definition of a "value" stock. Or, inversely, shorting any company this cheap, that's this fundamentally solid, and that's growing this fast is the very definition of "irrational." LDK happens to be one of our favorites, but it's easy to find similar valuation stories throughout the industry today. This trend would be odd enough on its own, but, simultaneously, other events in the story of global energy are unfolding.

Read the full post here: Wall Street's Irrational, Dangerous Hatred of Solar Stocks

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