Is It Time To Invest in Solar Stocks?

Mr. Lynch what do you think of the general stock market at this time and more specifically about solar stocks in particular? Thanks. — Larry D., Ridgefield CT

Larry thanks for your note.  Your question is basically identical to 80% of the questions I have been getting recently. I guess these two topics are on everyone’s mind.

In my last article in REW.com, Solar Stocks: Factoring in the Boom and Bust Cycle of the Market, I mentioned that I thought that the “gloom and doom” was so pervasive that a turn in the market was warranted since stocks were very oversold. Here is what I said:

Earlier in this month (March 2009) the Dow Jones Industrial Index recorded a twelve-year low and the media was full of doom and gloom. This terrible news was all over the financial press, accompanied by scenarios of more of the same to come. In fact, the recent survey from the American Association of Individual Investors (AAII) had fallen to the most bearish level in history – 70% of those surveyed felt that the direction of the market would be down over the next 6 months.

If one looked closer they would see that the “real” picture was not quite as terrible. There are two interesting items below to take note of from an historical perspective. Remember the bottom of a market is always, by definition, the period of greatest fear. I have been a student of the market since 1975 and I can assure you that there is plenty of fear out there now.

1.     The last two times the stock market hit a 12-year low was in 1974 and 1932. Both of these times proved to be once in a life time buying opportunities.

2.     The previous record of fear by the AAII survey (67% bearish) was October of 1990, the very beginning of the great bull market of the 1990’s.

Nothing is 100% for sure, as we all know. But I think we are either at a significant bottom or very close to it. Everything is so “oversold” at this time, that I think the worst case is that we get a significant rally in what could still be a bear market.

Since that prescient article the general markets have basically turned around and are up an average of 10%.  On the other hand, solar stocks have literally exploded and are up an average of close to 40%.

Solar Stock Performance since 17 March 2009

Symbol

Curr Value

$Change

%Change

 

 

 

 

AKNS

1.14

0.45

65

ASTI

4.35

0.86

24

CSIQ

5.71

1.71

42.75

CSUN

2.7

1.05

63.64

DSTI

1.26

0.19

17.75

EMKR

1.11

0.34

44.15

ENER

14.65

0.5

3.53

ESLR

2.14

0.8

59.70

FSLR

140.14

24.18

20.85

JASO

3.04

0.77

33.92

LDK

7.43

2.99

67.34

RSOL

1.66

-0.29

-14.87

SOL

3.08

0.87

39.36

SOLF

4.09

1.16

39.59

SOLR

6.46

2.3

55.29

SPIR

5.54

0.98

21.49

SPWRA

25.3

4.39

20.99

STP

13.26

6.5

96.15

TSL

12.61

4.89

63.34

WFR

14.03

-0.39

-2.704

YGE

6.21

2.3

58.82

 

 

 

 

Average Gain = 39%

As you all know from previous articles the solar industry sector has always has a BETA much higher than the market in general. In other words, it moves with significantly more volatility in both directions than the average stock or the market indexes.  In this most recent case the solar sector moved close to 4-fold higher than the general market. A move such as this is more than likely NOT sustainable.

In regard to the general market, I think it is probably due for a correction, but I do think it is working to form a solid base for further advances and continues to have selected buying opportunities.

I also said in the article of 17 March 2009:

At the current time, 3 of the 35 solar stocks I follow are above their 50-day moving average. On the other hand 92% of the stocks (32 of 35) are below their 50-day moving average. This clearly tells me to exercise extreme caution in the solar sector.

To put it a different way, I do not think all the bad news regarding the solar sector is out yet and that there will be future negative surprises, such as earnings disappointments, inventory write-offs and possibly even bankruptcies. The solar sector will probably get carried up if the general market rallies, but since it will have to work out some additional problems; I do not think the rally will be sustainable.

What I think occurred is that the solar sector was extremely oversold in early March (down over 70% on average) and when the general market turned around the solar sector was indeed swept up with the general tide.

Unfortunately, I still believe that the solar sector is facing some serious internal problems that are bound to pop up later in 2009 and possibly into early 2010. The industry is still in the midst of a shakeout. There is tremendous overcapacity, dropping prices and weaker demand due to the worldwide financing bottleneck. This will all result in tighter margins and lower profits.

I really wish that I could go out and buy the best solar stocks and put them in a drawer for a few years and then open the drawer to spectacular profits. Unfortunately, I fear that the good old days of – “buy good stocks and hold them” are gone for the general market and certainly is not an appropriate investment strategy for a highly volatile and fledgling industry such as the solar industry.

While the future of the industry is without question extremely bright, making money in solar stocks is a speculative endeavor that carries higher risk but also holds the potential for much higher profits. However, given this high risk/return situation I feel that the solar sector will remain — for the foreseeable future — the exclusive bailiwick of nimble stock pickers and traders.

NEW!  Want to hear more?  Come to a unique online live chat with Peter Lynch on Friday, May 1 at 11 AM Eastern Daylight Time (8:00 AM Pacific Daylight Time / 15:00 GMT / 17:00 European Summer Time). You’ll have the opportunity to ask Mr. Lynch questions about solar stocks and more and see his answers in real time.  Don’t miss it! 

Mr. Lynch has worked, for 32 years as an independent analyst and investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for the past 17 years to the Photovoltaic Insider Report, the leading publication in Photovoltaics industry that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a consultant to a number of technology and solar related companies. He can be reached via e-mail at: solarjpl@aol.com. Please visit his website: www.sunseries.net  for the promotion of solar energy.

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I have worked, for 33 years as an independent analyst and investor in small emerging technology companies. I have been actively involved in following developments in the renewable energy sector since 1977 and am regarded as an expert in this field. I was the contributing editor for the past 17 years to the Photovoltaic Insider Report, the leading publication in Photovoltaics industry that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. I currently am a consultant to a number of technology and solar related companies. I can be reached via e-mail at: solarjpl@aol.com. Visit my website for the promotion of solar energy - www.sunseries.net

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