The tug-of-war over solar stocks continues, but in recent weeks the bears have been gaining strength.
Those I talk with who track the industry, and are in the industry, raise red flags over deteriorating fundamentals.
The big three reasons:
- Pricing is coming down.
- Inventory and capacity are going up.
- Solar subsidies, especially in Germany, are at risk of evaporating.
Says, Gordon Johnson of Axiom Capital, “Keep in mind that the euro moving lower is bad for solar stocks. Why? Because they sell in euros, yet their costs are in dollars. Thus, if the euro moves lower, it negatively impacts revs/margins.”
The upshot, says Johnson, who has been well out in front on this: Contrary to street consensus, market demand in 2011 will fall.
Among the stocks he thinks are vulnerable:
Trina Solar , Yingli Green Energy , Suntech Power Holdings , Power-One and First Solar .
And this tip: The JWT Trust, created by Wal-Mart founder Sam Walton’s son, on November 29 unloaded around 14 percent of its First Solar stake. JWT has been an active seller this year, but this is its first significant sale in since mid-2009. Even with these sales, it remains First Solar’s largest holder.
My take: This story, as recycled as it feels, now appears to be worth revisiting. The sun isn’t going away, and neither is solar. But the nasty combo of falling prices, rising inventories and a lack of subsidies won’t likely be doing investors any favors.
Questions? Comments? Write to HerbOnTheStreet@cnbc.com
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