Solar wafer companies at 3 to 4 x earnings?

[tristanrw]

I have taken a beating on a couple of chinese PV wafer makers, LDK and SOL. I bought in a couple months ago at 5x p/e based on already strong growth, and thinking that rising energy prices would spur further demand for solar panels. And I held after the tsunami because I figured there would be a lot of demand there to rebuild, and/or lost capacity that would have to be picked up by Chinese producers. But they just keep falling! I did not anticipate the loss of European government subsidies which seems to be a big factor.

What do you think, are these a hold? LDK is now close to book value - surely that's the floor? http://www.takeoverchatter.com/2011/05/positioned-for-takeover-nyse-ldk.html

Looking forward I am mostly worried about all the fraud in chinese small caps discrediting the whole market. How concerned should I be about the wafer companies?

 

[resjudicata]

@tristanrw From an investment perspective, the problem with wafer and solar modules is that the market is completely saturated and subsidies are drying up faster then expected. They are dumping product to anyone and their dogs, prices are plummeting so they have very little margins even if they have the volume. These companies will be struggling for a while. Wait to see how full the channels are at the end of summer, right now they are selling modules to anyone and their dog. Not good for margins.

Best investment in solar right now are with inverters. All these modules will need inverters for them to work. So equipment mfr are keeping their margins up.

From a consumer's perspective, this is the best time to buy a system four your house. Solar has never been cheaper.

 

[eniya]

@tristanrw I still own some LDK because I refuse to take the loss.

 

[tinamarie27]

@eniya Same story for me and SOL. Both of them will bounce back sometime in the next year. Maybe a good time to buy more..

 

[rebecca17]

@tristanrw Oh, thanks for the tip. When desperation sets in like this it's usually time to invest. I might put a couple of grand into one of these just to collect a few hundred bucks on a near certain bounce back. They do not appear to be reverse merger frauds and when this blows over there will be gains.

 

[tristanrw]

@rebecca17 Good luck. I bought them when they had already pulled well back from their highs - they already looked cheap then.

 

[rebecca17]

@tristanrw No luck was needed. Went in for LDK at 6.38 and exited it this afternoon for 7.12 Might have even left some profits on the table because when the China shitstorm blows over these stocks will pick up steam. But solar is not my thing so I don't care.

 

[tristanrw]

@rebecca17 Well done. I am trying to get better at making a quick exit when I have those kind of gains. I could have grabbed similar profits on both of these companies shortly after I bought them, but I thought it was a good sector to stay long in.

 

[rebecca17]

@tristanrw Playing small caps is a bit tricky. You can get burned easily. More so than with the big stocks. But the returns are obviously bigger as well. Why did you exit those positions? Did you buy them on margin?

The key to playing small cap in my opinion is to grab something that was heavily shorted for bad reasons. My favorite play right now is OCZ where I bought it after the Copperfield fiasco (for 6.89). It's performing wonderfully right now. I'm about 17% up on it. And I think there will be a bit more upside to it as I believe not all Copperfield shorts have covered yet. Frankly I think it's still in the midst of a short squeeze. I'll probably exit around mid June and hope for about $10 pps.

 

[resjudicata]

@tristanrw Welcome to your first Value Trap. Been there, done that.

 

[tristanrw]

To hell with it, I dumped them both this morning for a big loss. This whole business of Chinese manufacturers getting listed in the US has to be a scam. http://finance.yahoo.com/blogs/dail...ergers-under-attack-josh-brown-121928402.html

 

[resjudicata]

@tristanrw Trina and Suntech are real companies, I have visited them both... (I think TSL is the better of the two, but I won't invest in them until 2012)

Look into inverter companies (AEIS and PWER), this is how you will make money in the Solar industry this summer. The cheap modules will need inverters to be installed with.

(I have purposely left one major inverter out, stay away from the inverter company that dropped 20% and gained 20% this week, its under $3/share anyway)

 

[tristanrw]

@resjudicata Thanks, I will keep an eye on the inverter makers. Problem with those is they are also low barrier to entry so the margins are going to squeezed out of them too.

 

[tristanrw]

@resjudicata haha, I know

 

[deerock81]

@tristanrw http://finviz.com/quote.ashx?t=LDK&ty=c&ta=1&p=d&b=1 http://finviz.com/quote.ashx?t=sol&ty=c&ta=1&p=d Both are about 52% off their 52wk highs. LDK is at 50% of its target price. SOL is about 59% of its target price. Probably a good time to buy LDK.