Analyst Michael Molnar of Goldman Sachs took a harsh tone on the solar sector today, slashing his opinion to Sell on both First Solar, Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA). Specifically, First Solar was slashed to Conviction Sell from Buy, while SunPower was dropped from Buy to Sell. In a note to clients, Molnar explained, "We strongly believe that SunPower and First Solar are two of the best solar companies in the world and that both will be part of the growing solar industry for years to come. However, in our view, even these companies will face headwinds in a market that is oversupplied with modules."
Specifically, "the risk of oversupply in the solar market will soon become a reality as considerably less generous demand subsidies take hold just as a wave of supply and tight financing hit the market," said Molnar. He added, "We believe that liberal subsidies of the past in markets like Germany and Spain are unlikely to be replicated in the future, given fears of their ultimate cost in a bad world economy."
As a whole, Goldman maintains a "cautious" view of the solar sector -- and the brokerage firm isn't alone. Piper Jaffray also weighed in on solar firms today, with a warning that higher credit costs could reduce average selling prices by an additional 6%. "The renewables industry depends on access to credit, and for the moment, the credit market remains closed," Piper stated. "We believe the cost of capital on renewable projects will increase due to higher bank financed interest rates, larger spreads, and more upfront fees." For 2009, Piper Jaffray predicts that companies' average selling prices will fall by 15% to 21%.
This post is part of a series in which TheStockAdvisors.com asked financial experts to name their top stock pick if McCain or if Obama wins the election.
Which stocks would benefit from a victory by either Senator John McCain or Senator Barack Obama? To help investors sort through the sectors and stocks best positioned to benefit in a post-election environment, we posed this question to some of the nation's leading financial newsletter advisors.
Importantly, this is not a partisan report; each participating advisor has provided a favorite stock for both candidates, focused not on political preferences but unbiased stock analysis. Below we feature those stocks and ETFs that the advisors believe will be the winners depending on which candidate prevails.
FSLR opened this morning at $220.80. So far today the stock has hit a low of $218.02 and a high of $229.39. As of 12:45, FSLR is trading at $225.32, up $14.43 (6.8%). The chart for FSLR looks bullish and S&P gives FSLR a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $170 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in just three weeks as long as FSLR is above $170 at October expiration. First Solar would have to fall by more than 24% before we would start to lose money. Learn more about this type of trade here.
You could have tossed a coin today and come up with the same predictions for if the market was going to close up or down. The 1.9% GDP report was lighter than the 2.2% estimates, but despite feeling like a recession, it isn't formally a recession. Equities headed south as did oil prices by more than $2.00 per barrel. Investors chose to focus on the bad data today and take profits. The bears came roaring back by the close.
Here are today's unofficial closing bell levels:
DJIA 11373.38 (-212.91) S&P500 1266.96 (-17.30) NASDAQ 2325.55 (-4.17) 10YR T-NOTE 3.979% (-0.069%) KEY ANALYST DOWNGRADES Akamai Technologies Inc. (NASDAQ: AKAM) was today's big loser in tech, media, telecom. The company beat estimates last night but guidance was a few percentage points light and the investment community still demands growth here. Shares were down by 26% to a new 52-week low at $23.10 in the final minutes.
With the high fuel prices over the past year, solar stocks have been making some nice gains. But there are some signs that they may not be as safe as they appear. Investors' interest in solar companies increased due to soaring crude futures, but there are some factors to take into account before investing money into solar.
The current BusinessWeeklooks at stocks such as First Solar (NASDAQ: FSLR), SolarWorld and Evergreen Solar (NASDAQ: ESLR), which have been facing increased volatility based on contract deal news or the lack thereof.
A major impact came in May, with speculation that Germany would lower subsidies given to companies and individuals who install alternative energy equipment. But the cut was not as deep as expected and stocks rebounded nicely.
First Solar (NASDAQ-FSLR) is recently up $2.06 to $247.02 in pre-open trading.
Calyon has a Buy rating and $345 price target on FSLR. Calyon says: "The company is not exposed to the German utility scale market (the destiny of which has now been determined for at least the next 2 to 3 years)."
FSLR July option implied volatility of 70 is near its 26-week average according to Track Data, suggesting non-directional price risks.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Calyon says: "The German solar feed-in tariff (FIT) is under fire, as lawmakers are considering an accelerated digression that would reduce rates 25% by 2010 versus 15% under current law."
FSLR July option implied volatility of 58 is below its 26-week average of 73 according to Track Data, suggesting decreasing price risks.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: First Solar, Pride International and EnerSys were today's noteworthy downgrades:
Friedman Billings downgraded First Solar (NASDAQ: FSLR) to Underperform from Market Perform citing margin risk concerns, as the company aggressively pursues utility-scale projects in the US. The firm said risks are not reflected in share valuation near $300 and could be a source of disappointment but could also lead to downside EPS risk.
Wachovia said Pride International (NYSE: PDE) has the least potential EPS upside vs. peers given the company has contracted the highest percentage of its floater days into 2012E. Additionally, the firm views a takeout by Seadrill as unlikely. Shares were cut to Underperform from Market Perform.
Merriman downgraded shares of EnerSys (NYSE: ENS) to Neutral from Buy as they believe the strong Q4 results were driven by a one-time benefit from lead procurement mechanics and that data does not support the company's sustained margin expansion story.
OTHER DOWNGRADES:
Citigroup lowered Intuit (NASDAQ: INTU) to Hold from Buy.
UBS downgraded Nucor (NYSE: NUE) to Neutral from Buy.
Smart Modular (NASDAQ: SMOD) was downgraded at Oppenheimer to Perform from Outperform.
The Airlines Sector was cut by Soleil to Neutral from Outperform.
First Solar (NASDAQ:FSLR) is recently up $24.10 to $275.70. FSLR is a manufacturer of solar modules with an advanced thin semiconductor process. FSLR call option volume of 27,209 contracts compares to put volume of 32,567 contracts. FSLR April option implied volatility is at 75, May is at 89; above its 26-week average of 74 according to Track Data, suggesting larger price risks.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: Analog Semiconductors, OrthoVita and First Solar were today's noteworthy initiations:
Morgan Stanley initiated Analog Semiconductors with an In Line rating. The firm assumed National Semiconductor Corp (NYSE: NSM) with an Overweight rating and $26 target and is the firm's top pick; Analog Devices (NYSE: ADI) and Linear Tech (NASDAQ: LLTC) were initiated with Equal Weight ratings and a $32 target and $34 target, respectively.
Barrington believes OrthoVita (NASDAQ: VITA) is the market share and technological leader of the biomaterials market. The firm assumed shares with an Outperform rating and $4 target.
Canaccord Adams believes First Solar's (NASDAQ: FSLR) management and business model are among the best of any PV company and that execution has led to strong profitability plus a successful aggressive capacity ramp. Shares were started with a Buy rating and $325 target.
OTHER INITIATIONS:
Morgan Stanley initiated Yum! Brands (NYSE: YUM) and Domino's Pizza (NYSE: DPZ) with Equal Weight ratings and targets of $40 and $15, and also initiated McDonald's (NYSE: MCD) and Burger King (NYSE: BKC) with Overweight ratings and targets of $65 and $34.
Lehman initiated Alcoa (NYSE: AA) with an Overweight rating and $44 target.
First Solar (NASDAQ: FSLR) is expected to report EPS before the open on February 13. FSLR is recently down $5.86 to $183.80. FSLR is a manufacturer of solar modules with an advanced thin semiconductor process that significantly lowers solar electricity costs.
FSLR February 185 straddle is priced at $28.40. FSLR call option volume of 11,755 contracts compares to put volume of 7,651 contracts. FSLR March option implied volatility of 104 is above its 26-week average of 74 according to Track Data, suggesting larger price risks.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
Thursday marked the end of the first month of the new year ... and what a market. Investors have been through the proverbial ringer from January 2 right through January 31. The market ended up 200 points Thursday to wrap up the craziest January I have seen in my 30 years! So what happened and where do we go from here?
Superb growth stocks of 2006/ 2007 have seen the foam come off the top of their superb performance. Names like Intuitive Surgical (NASDAQ: ISRG), Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), First Solar (NASDAQ: FSLR) and others have seen valuation reductions of up to 30-35%. Bad businesses? No. Changing business models? No. Tough environment? Yes. Think of the example of a Major League baseball team winning its division one year by garnering 96 victories, but the next year winning 93 games to capture the same division title. Bad team? No, just a different environment, and still winning its division.
The economy has taken a step back and said to these companies, "if you thought you could have 30% growth ... think again, it's going to be 25% instead this year." The growth bar gets re-set and so do the valuations. The important point is that many terrific companies weather through these periods and when economic times improve, they go back and capture even higher valuations than before the slow down.
With stock markets continuing to free fall, investors should explore the option of tax-loss selling now. While harvesting losses on stocks to offset capital gains is customarily done in October and November, smart investors will realize that there is no reason not to do the same now. Over the last week, I have been working with my clients to sell their losers and realize the loss. Either they will be able to use the losses to offset gains which hopefully will come later on this year, or the losses can be rolled over for next year as well.
Those of you in former high fliers such as Baidu.com (NASDAQ: BIDU), First Solar (NASDAQ: FSLR) and Apple (NASDAQ: AAPL) who are lamenting your steep losses of the last month have no fear. By taking losses on those stocks now, you may actually profit from your losers.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no positions in any stock mentioned as of 1/23/08
Experience has taught me that catching falling knives in the stock market is incredibly dangerous, but some of these speculative names are really beginning to test my resolve. So I thought I'd share them with you.
Investors have been punishing these plays not because business has fallen off a cliff, but because they are some of the most speculative stocks around -- other than penny stocks -- and in this kind of market environment, investors prefer safety. That creates opportunity, if you're willing to take on some risk. After all, these companies still have solid business fundamentals, so there will be a bottom somewhere, and I think we're getting very close to it here. For now, put these on your watchlist, for when they do bounce, they're going to bounce hard, think 15-20% within days.
Garmin (NASDAQ: GRMN) -- At $64, this navigation system maker is down 35% on the year, but revenue growth is far greater than its current P/E of 15. Sure, there's some margin concerns, but the chart has solid support at $60.
With the continued weakness in financial markets, I am reminded of a saying by old Jewish sages about 1800 years ago. In the book Ethics of the Fathers the question is asked, "who is happy?" The answer given is,"he who is happy with his portion."
With that in mind, I am suggesting to readers to close their short position on First Solar (NASDAQ: FSLR) and book a gain of more than 32%. As a reminder, First Solar was my top short of '08, and while I would have expected to keep the short on for more than just a couple of weeks, sometimes you just need to book a profit. Not bad for 16 days. Though I still believe that all these alternative energy stocks are trading too high, 32% in 2.5 weeks is a nice return and I suggest booking it.
Remember: Some times the bulls win and sometimes the bears win, but the pigs never win.
Happy trading!
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/16/08.
With the high fuel prices over the past year, 
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Thursday marked the end of the first month of the new year ... and what a market. Investors have been through the proverbial ringer from January 2 right through January 31. The market ended up 200 points Thursday to wrap up the craziest January I have seen in my 30 years! So what happened and where do we go from here?
NYU's Roubini: 'All fronts' approach necessary to end global financial crisis 
Global Q&A: A rainy day in London
GE matches reduced expectation and people cheer
