I've been doing more research on the solar stocks to see what makes them move. From what I have found on the internet, the key is the polysilicon shortage. Demand and revenues are not the problem, but the margins are... If the polysilicon shortage continues to last beyond next year and continues for a few year then it benefits: MEMC Electronics (NYSE: WFR) - Polysilicon supplier First Solar Inc. (Nasdaq: FSLR) - Thin film solar cell manufacturer Evergreen Solar (Nasdaq: ESLR) - Uses string ribbon technology that uses less polysilicon. Daystar Technologies (Nasdaq: DSTI) - Thin film solar cell manufacturer If we see more supply and prices stabilizing or declining starting next year then it benefits: Suntech Power (NYSE: STP) Sunpower Corp. (Nasdaq: SPWR) Trina Solar (NYSE: TSL) Canadian Solar (Nasdaq: CSIQ) Solarfun (Nasdaq: SOLF) Next week will be pivotal as TSL, CSIQ, SOLF and JASO will be reporting. I expect for revenues and demand to have jumped. I expect the management of each company to have rosey pictures and their figures will most likely beat estimates. However, my belief is that the analysts will be focused on the polysilicon shortage issue. From reading the analyst reports of WFR and of some industry experts on the internet, I have found that the opinions are split with some believing the shortage will not last past 2008 while others contend that the shortage will last until 2010-2011. I looked at the charts of TSL, CSIQ, SOLF and JASO. TSL, CSIQ, and SOLF have now funneled themselves into a symetrical triangle. This tells me that the price of these equities could swing either way and quite violently during next week, either to the up or downside. JASO is the only one that broke to the upside on Friday and now I can see it going to 32 easily. However, all our other solar buddies are still in the triangles. Stockcharts.com states that 75% of the time these triangles are continuation patterns, while 25% of the time they are reversals with the target price being the height of the triangle. Next week, we will see which of the two groups of solar stocks will go higher. FSLR, WFR, ESLR, and DSTI are likely to go lower if the reporting companies state there isnt much of a supply issue and that margins are not effected. WFR, ESLR and DSTI do appear to be breaking down from a quick glimpse of their charts. FSLR seems bullish, but the price does seem to be parked up there and not going up. Next week, our two teams will diverge apart in the solar race. I cannot wait.
It will be fun if you know what is going on and how to trade it. Tommorrow will be CSIQ, then Tuesday will be JASO, May 21st will be TSL and I believe SOLF will be this week. First will come the earnings presented before the call. I dont suspect those will pop or drop the price unless they are way off the estimates. Then will come the conference call and the CEOs will tell us what great demand there is in the solar industry. The pivotal moment, however, will come after the CEO speaks and the analysts question the management on the poly supply and margins. Jeff Osborne will be the first man to question the management in all cases. He is one who believes the supply isnt going to come around until 2010. His questions will decide which way the stock runs.
CSIQ just reported earnings. Here are the key points: - demand is picking up - Q1 started slowly, but picked up in March - European market rebounding - South America market picking up, Italy and Korea expected to be new markets - lower material costs - guidance upped Dr. Shawn Qu, Chairman and CEO of CSI, commented: "Q1 developed as expected, with year-over-year revenue growth, an improvement in blended gross margin and stable pricing compared to Q4 2006. During the quarter, we took the opportunity to reorganize our supply chain to position the Company for success in 2007. In addition, we increased our sales contracts worldwide. The additional sales and marketing resources we added continue to pay off. We saw a clear trend of market demand moving towards high market reputation and financially strong module manufacturers, like CSI. This led to a much higher level of customer activity starting in March 2007, which we expect will further build throughout the year. CSI continues to ramp up its in-house solar cell manufacturing, while also maintaining long-term strategic purchasing from a few selected supply partners. We believe this balanced supply approach creates a win-win situation and provides us with the ability to respond quickly to increased demand from our customers. We continue to build CSI's brand as a trusted supplier of solar products based on product design, performance and customization, as well as after-sale services." Bing Zhu, our Chief Financial Officer, said: "We made good progress in Q1. In line with normal seasonal patterns and the Chinese New Year factory shut down, Q1 started slowly but picked-up in March. The European market, which was weak in Q406, rebounded strongly and represented over 69% of our sales in Q107, compared to about 45% in Q406. We continue to diversify our geographic reach. Sales to South America represented almost 11% of our revenues in Q1 from nil in previous quarters. In Q207, we expect to also begin selling into Italy and Korea. We are pleased that blended gross margin improved in Q1 compared to Q406 and we expect this trend to continue in Q2 and through the year as we start to benefit from higher solar module shipments, lower materials costs and the continued ramp-up of our in-house cell production lines." Based on current market conditions and our order backlog and production capacity, the Company expects net revenues for the second quarter of 2007 to be in the range of $55 million to $58 million, with cash operating income, determined on a non-GAAP basis by excluding share based compensation and other non-cash items, in the range of $1.5 million to $1.6 million. Blended average solar cell cost is expected to decrease in Q2 compared with Q1, with additional cost reductions through 2007. The financial information presented in this press release is preliminary and remains subject to additional review and final year-end closing procedures to be performed by us and the completion of the 2006 audit by our external auditors, in particular the completion of the new US GAAP regulation FIN 48 analysis for all open tax years. We expect our audited financial results for 2006 will be finalized in late May 2007 and we expect to file our annual report on 20-F, including audited 2006 financial statements, with the Securities and Exchange Commission ("SEC") shortly thereafter.
CSIQ beat the street's estimates for earnings per share, but revenue was in-line. This is due to lower material costs. If JASO has a similiar read on the solar industry during tommorrows call, then I predict First Solar will start to bleed and the dogs of the solar industry will finally rise. Those dogs being CSIQ, JASO and SOLF. Whoof whoof whoof.
Just as I thought, FSLR starting to bleed. Im wondering if shorting FSLR and longing the solar dogs (JASO, SOLF and CSIQ) would be a good strategy.