As the old saying goes, “A rising tide raises ALL boats.” Unfortunately, the reverse is also true. Over the last month or so, the increasing tide of market volatility as been heading out with dramatic speed and the vast majority of stocks, as well as solar stocks are being swept down with the flow.
As I warned in my June 20, 2007 article, Solar Stocks: Factoring in the Boom & Bust Cycle When Investing: “if we look at the current situation, just a little below the surface, it is a combination of a higher risk overall stock market and a solar stock sector that is overbought and getting weaker. Given these odds this would certainly seem to not be a time to be buying solar stocks.”
Unfortunately solar stocks happened to be overextended (over bought) at the time the market woke up to the potential problems in the sub-prime and other credit markets. The combination of a rapidly falling market and an over extended solar market sector was not a pretty sight.
To illustrate the damage that has been done, the following is a list of the PV related solar stocks and the amount they have dropped from their 2007 highs:
|Company Name||2007 High Price||8-18-07 Price||50 Day MA|
|Ascent Solar Technologies, Inc.||11||7.41||8.284|
|Canadian Solar Inc.||14||7.27||9.523|
|China Sunergy Company Ltd.||17||7.17||11.322|
|Distributed Energy Systems Corp.||11||0.71||1.031|
|DayStar Technologies Inc.||7.5||3.96||5.325|
|Energy Conversion Devices Inc||40||30.24||30.585|
|Evergreen Solar, Inc.||13||8.83||9.101|
|First Solar, Inc.||122||85.21||96.79|
|JA Solar Holdings Co., Ltd||43||30.48||33.728|
|LDK Solar Company Ltd.||49||41.25||35.845|
|Solarfun Power Holdings Co.||17||10.21||10.886|
|Suntech Power Holdings ADR||44||34.65||38|
|Trina Solar Limited||73||45.76||54.159|
|MEMC Electronic Materials, Inc.||68||54.27||59.004|
|Yingli Green Energy Holding Co.||20||14.53||15.155|
As you can see from the table, the average volatility (both daily percent swings and the 2007 annual range) of the solar sector is extremely high by any measure. This is a sign of instability, uncertainty and most likely industry immaturity. I really don’t think Wall Street has “figured out” solar—or renewables yet—and until they do you will see greater than average volatility and stocks making enormous moves, for no apparent reason.
As I mentioned in previous articles one of the measures (tools) that I utilize when looking at individual stocks is their 50 day moving average and whether the current price is above (bullish) the 50 day average or below (bearish) the average.
As you can see from the above table, 16 of the 18 stocks are below their 50 day moving average and would “technically” be deemed in a negative down trend. This negative factor, plus the dramatically increased volatility in the general market tell me that this current correction is NOT over.
Although we may have some positive bounces in solar stock prices and the general media may start to say the “worst is over,” I would be extremely cautious at this junction because the weight of the evidence, in my opinion, tells me we could have further deterioration before the market turns around.
I know it is hard to have patience and discipline in the face of constant media hype, from broadcasters with little if any actual experience in the market. It is important to understand that one of the BEST ways to make money in the stock market (and this will sound silly) is to NOT lose money.
What do I mean by that? Well, it’s actually a well kept secret on Wall Street—and will be obvious to you once you understand a little more of the “facts” and are able to separate them from the typical market media hype.
Wall Street’s traditional advice, at least for public investors, is that no one can time the stock market, and that investors should simply buy (whatever Wall Street tells them) and hold (for the long term) through whatever declines come along. However, if we look a little closer and review the actual historical “facts,” the picture looks very different.
To illustrate, in the mid 1990s, there was a study that showed that if an investor had invested $1,000 in the market in 1963 and just left it there, it would have been worth $23,000 by 1993. But if, in an attempt to time the market, the same investor had missed just the 90 best up days during the 30 years, the $1,000 would have grown to only $1,100. Wall Street claimed the study proved it’s too risky to try to time the periods you should be in the market since you might miss out on too many of the best up days.
Sounds like a good idea to me. The results are fairly clear cut and straight forward, right? However, if we look a little closer we will find that a portion of the study’s findings were not publicized—or conveniently overlooked. Those revealed that if, through the same period of 30 years, an investor successfully missed just the ninety worst days of the period, the $1,000 would have become $320,000.
Clearly, avoiding at least a portion of market declines is obviously far more beneficial than staying in harm’s way in order to get that last little extra profit. The risk for such a small return is certainly not worth it.
So, what does all this mean for solar stocks and the future of the industry? What it means is that this is still a very HIGH RISK market and one what is only fit for investors with a very high risk tolerance with nimble trading skills.
The future of the solar industry is as bright as ever and I would not be surprised as we move into Fall 2007 to be greeted by a bottoming stock market and some very favorable solar legislation passing. This confluence of events would be the best of all worlds in the short term, but in the long term the future of solar is bright and the growth prospects and investment opportunities will be enormous for the patient and disciplined investor.
J. Peter Lynch has worked, for 30 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.