TFN eNews 08/17/2009: Solar stock are getting pummeled… a portent of things to come?
Published via e-mail broadcast on August 17, 2009
In today’s TFN eNews:
* Markets down, options up for smart gains
* German solar companies close to bankruptcy
* 3 Best China Stocks
Dear TFN Reader,
“The markets are having a bad day,” wrote TFN’s market oracle Andrew Snyder this morning. “But savvy options investors are celebrating over a stack of profits. If you don’t like it, you had better get used to it. Better yet, join them!
“After a week or so of threatening to pull the plug and sink the summer rally, the market finally went ahead and made its move. With earnings season all but over, the market is forced to make good on the Street’s raised expectations. So far, the data has been an utter disappointment, especially when it comes to anything consumer-related.
“The market reacted accordingly.
“The negative action started in Asia, where Shanghai was down the equivalent of about 500 points on the Dow after investors began to ponder if near-double-digit growth was a reality.
“Japan’s less-than-expected GDP figures did not help raise the mood. Without American consumers opening their wallet and buying imported goods, Asia’s growth expectations are getting a thorough re-examination.
“Here at home, Lowes (NYSE:LOW) is getting lots of attention, all of it negative, after releasing details of a downright scary second quarter. The building-supplies company watched its sales drop and profits reduced considerably from a year ago. The news sent shares of the company down by more than 10% in the session.
“Even worse for an economy looking to repress the memory of a real estate bubble and horrific economic downturn, Lowes announced it is slowing its previously disclosed growth. The company’s store-expansion plan has been reduced and so has the number of new properties Lowes plans to purchase in 2010. None of this is good news for the bulls, but it is great news for smart-moving options investors.
“For proof, all we have to do is turn to my favorite indicators, the CBOE Volatility Index (VIX). The key measure of the price spread between put and call contracts is soaring today (up by 16% at the moment) as Wall Street ungulates violently. The move signals many investors believe more bearish days are ahead.
“For TFN Strategic Trader subscribers, this is fantastic news. As you may have notice from my tone over the last couple of months, I didn’t buy into this earnings-fueled rally. The markets were merely getting flooded with capital from the sidelines and were surging because analysts set the profit bar entirely too low. It led to an over-fueled, over-hyped rally.
“During the last two months, I have advised subscribers to stock up on put options. Right now, our portfolio has more bets against the market than it ever has before. And boy are they paying off today! I’m not about to give away my exact picks, but I will give a few hints:
“We have a cruise operator that is down by over 5%. Our options are up by 23%. We have a gun manufacturer that has plummeted by 7%. In the last week, it is down by 11%. Our options are up by 50% so far today. There is also a bet against a major oil producer. Its shares are down by two percent, adding to our put option gains…”
Finish his article right here…
*** According to the German news magazine Der Spiegel and the German-language edition of the Financial Times, the German solar industry is threatened by an unprecedented wave of bankruptcies.
And not for lack of government subsidies: The German Feds are providing juicy incentives for Germans to put solar panels on their red-tile roofs. They can even get paid for feeding their solar-generated electricity into to grid.
That’s good for operators of solar energy facilities. But the manufacturers of solar modules have yet to benefit. Industry leader Q-Cells is unable to turn a profit, racking up a $160 million loss.
Asian competitors, especially the Chinese, South Koreans and Indians, are undercutting the Germans at every step.
Within two years, China has carved itself a 30% share from the global solar panel cake.
It’s not just the cheaper labor. According to UBS, Chinese companies like Suntech Power Holdings Co., Ltd. (NYSE:STP), Yingli Green Energy Hold. Co. Ltd. (NYSE:YGE), and Trina Solar Limited (NYSE:TSL) are now able to build manufacturing facilities that cost less than two thirds of what the same project would cost elsewhere. Plus, Beijing’s heavily subsidizing the industry… through loans, currency manipulation, special perks.
German manufacturers have two choices: Slide into irrelevance. Or move manufacturing capacities to Asia.
Looking at the margins and return on average assets, American-based solar companies aren’t quite feeling the love the green stock gurus lavished on them during the crude oil bubble.
Evergreen Solar, Inc. (NASDAQ:ESLR) just reported a net loss of $0.11 for the second quarter of 2009.
Spire Corporation (NASDAQ:SPIR) just reported a Q2 net loss of $0.55 per share.
Barron’s just tore into First Solar, Inc. (NASDAQ:FSLR) with doubts about the company’s cash flow outlook — despite Q2 EPS of $2.11 per share.
Energy Conversion Devices, Inc. (NASDAQ:ENER) has not yet reported Q2 earnings, but with net income for the first nine months of fiscal 2009 at $0.66 per fully diluted share seems to be doing alright.
Given the example of the German solar panel manufacturers, I’d be surprised to see any U.S. solar company become an uncontested market leader in the next 18 months.
*** New Free Report: The 3 Best Chinese Stocks Under $5!
Shanghai dropped another 5% today. Indeed, we saw several Chinese ADRs that had intraday losses of 30% and then some.
We’re looking at this volatility with an eye on opportunity:
Just in case you missed our announcement last Friday — who could blame you, even I didn’t check my email this past weekend! — we’ve just published our ultra-speculative China portfolio: 3 select companies… all currently trading below $5 a share.. that could soar as China forges ahead into its own economic recovery. You have not seen this report yet… even if you’re a Hot Stock Confidential member.
Or in other words: Here’s another three free stock picks for you, courtesy your friends at TFN.
Quote of the Day:
“In September or October there will be a hyped up outbreak of the swine flu which they’ll say is as bad as the bubonic plague to scare the bed-wetters [caucus -- a group of wavering lawmakers who spanned both parties to vote] for healthcare reform. That is the only way they can push something on to the American people that the American people don’t want.”
– Richard Armey, FT.com
*** 44 double-digit gainers for HSC members in 2009.
How are our competitors serving your need for profitable stock picks?
“I’m a small-time investor, but you guys are giving me big-time smile. Keep up the good work, and thanks.” — HSC Member Ramon V.
Recommended Reading:
Option Investing: Laugh while they cry
New Special Report: The 3 Best Chinese Stocks Under $5!
4 Top Energy Stocks You Need to Own
The TFN Complete Guide to Biotech Penny Stocks
Today’s Top 3 Financial News Stories:
Newsmax.com – Economist: Surtax on Wealthy Won’t Fund Obamacare “Generally, an employer with more than $250,000 in payroll would have to pay a tax up to 8 percent to the government, 8 percent of its payroll if it does not offer health insurance to its employees. That would be the employer tax. On the employee side, if someone doesn’t’t have health insurance and he makes a reasonable amount of money, then he has to pay 2.5 percent tax on his AGI (adjusted gross income) up to a certain amount into the national health insurance exchange because he doesn’t’t have health insurance.”
WSJ.com — U.S. Stocks Join Global Selloff “Markets in China, India, and other countries that rely heavily on the U.S. as an export market suffered big overnight losses, which continued after the opening bell in New York on Monday.”
MoscowTimes.ru — Ruble Jumpy on Devaluation Worries “As the ruble closes a volatile week, market watchers are split on what direction the currency will take in coming months, with some saying devaluation is inevitable while others contend that the biggest problem the currency faces is excessive appreciation.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: China sets the LNG industry on fire
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