Suntech: A worthy solar play

Posted Jul 28th 2009 1:50PM by Joseph Lazzaro
Filed under: Suntech Power Hldgs ADS (STP), Stocks to Buy

In general, I've argued against solar plays, due to the sector's adolescent and volatile status, and against China-based plays, but there have been a few exceptions, and Suntech Power (NYSE: STP) qualifies as one.

It now appears that Suntech will benefit from China's solar subsidy program, as well as U.S. government initiatives to invest in renewable energy. Further, reduced selling prices moving forward should increase demand for Suntech's products.

Overall, look for STP to maintain current photovoltaic (pv) cell capacity until sector conditions improve. Current backorders totaled about 700 megawatts of pv product as of June. The First Call FY2009/FY2010 EPS estimates for STP are 35 cents to 74 cents.

Finally, short-term, STP is overbought, hence more-cautious investors should wait for a pull-back to about $18, but keep in mind STP may not pull back to that level.

Stock Analysis: Suntech Power is a high-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in STP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your STP position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $8.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: inthenews, stocks to buy, StocksToBuy, STP