LDK Solar (NYSE: LDK - option chain) shares are falling today despite the company's announcement of an eight-year contract with Japan's Sumitomo Corp. to supply solar cell parts. Under the deal, LDK will supply about 750 megawatts of multicrystalline silicon wafers to Sumitomo. However, most solar stocks are dropping today as crude oil futures are lower again at $106, and almost dipped below $105 earlier this morning. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LDK.
This morning, LDK opened at $45.57. So far today the stock has hit a low of $41.70 and a high of $45.57. As of 12:20, LDK is trading at $43.20, down $2.78 (-6.0%). The chart for LDK looks neutral and S&P gives LDK a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $60 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 4.2% return in 6 weeks as long as LDK is below $60 at October expiration. LDK would have to rise by more than 38% before we would start to lose money. Learn more about this type of trade here.
BIG hasn't been above $35 at all inthe past year and has shown resistance around $34.90 recently.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LDK.
LDK Solar Co. (NYSE: LDK) American Depository Shares added 9.3% in today's trading. Only two weeks ago, on August 11, LDK reported second quarter results that beat any and all expectations. The shares then jumped from around $33.50 to about $40. Today, LDK shares closed at $50.06, the highest since December.
Two weeks ago, LDK raised its quarterly and 2008 forecast. Today, the Chinese maker of silicon wafers said 2009 deliveries may double. Sales next year will climb to $2.8 billion to $3 billion, the company said. Analysts estimated 2009 revenue of $2.42 billion, according to Bloomberg. LDK also announced that the company's wafer plant reached the milestone of 1.0 GW annualized capacity. For 2009, LDK predicts safer shipments between 1.45 GW to 1.55 GW.
Investors generally are pleased LDK is trying to control its raw material costs by building polysilicon plants. Yet, analyst consensus has been Hold with the average target price currently below the share price. With the recent announcements and current momentum, could we be in for a wave of upgrades, or at least estimate raising?
Many factors in the market now, including soaring oil prices and global warming concerns, have boosted the solar stocks. LDK Solar has regained its favored status recently in this hot sector. Sometimes, that's all that's needed.
LDK Solar (NYSE: LDK) is recently trading at $40.25 in pre-open trading, above its close of $33.58. LDK reported Q2 revenue of $441.7 million, up 89.2% quarter-over-quarter. ThinkEquity says: "The shares of LDK offer significant upside, with its impending polysilicon production, which should lower the company's cost structure significantly." LDK August 35 straddle is priced at $3.95. LDK September call option implied volatility is at 74, puts are at 85; near its 26-week average according to Track Data. LDK puts are priced higher than calls because LDK is difficult to borrow.
Applied Materials (NASDAQ: AMAT) closed at $18.46 Monday. AMAT is scheduled to report Q3 EPS after the market close today. Kaufman Bros says: "We reiterate our Hold and $19 price target." AMAT August straddle 18 is priced at $1.10, September is at $1.90. AMAT September option implied volatility of 36 is near its 26-week average according to Track Data, suggesting non-directional movement after EPS.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
LDK Solar Co. (NYSE: LDK) American Depository Shares are jumping nearly 20% to $40.01, up from a close of $33.58, after the solar wafer manufacturer reported second-quarter results after the close.
LDK experienced some 200% sequential growth in net earnings to $149.5 million, or $1.29 per ADS. Even excluding the change in fair value of prepaid forward contracts, the company earned 82 cents a share, according to Reuters Estimates. That beat -- more like trounced -- analyst estimates of 40-42 cents a share. Revenues for the quarter were $441.7 million, up 345.9% year-over-year from $99.1 million, beating consensus of around $282 million.
The China-based multicrystalline solar wafer, solar cells and solar modules manufacturer said additional manufacturing capacity, which exceeded its own expectations, allowed the company to sell more solar wafers.
LDK didn't just beat estimates, it also raised guidance. It sees third-quarter revenue of $486-496 million vs. consensus of $307.05 million. It raised its 2008 revenue estimate from $1.08-1.18 billion to $1.65-1.75 billion. This is again far higher than analysts estimates of $1.15 billion.
LDK has been a hot stock in a hot sector. Its shares have enjoyed a wild ride in 2007 as concerns over soaring oil prices and global warming have boosted the sector, culminating in LDK recording a 52-week high of $76.75 in late September of '07. Since then, new concerns over Spanish government cutting subsidies sent solar stocks lower.
The effect of these lower subsidies on the sector and LDK remains to be seen as perhaps they could be offset by orders from other European countries. LDK, though, is also trying to control its raw material costs by building polysilicon plants, the progress of which has been "tremendous" according to the company.
Suntech Power Holdings Co. (NYSE: STP), which saw its stock surge some 150% in 2007, didn't have such a good 2008 so far with its stock plunging about 44% year-to-date. But since setting a 52-week low of $28.19 on March 22, the stock has rebounded nicely, up over 55%. Roller coaster or what?!
Well, today, the maker of photovoltaic cells and modules said first-quarter earnings more than doubled on 76% higher revenue. Earnings reached $55.8 million, or 33 cents an American depositary share, beating analysts estimates of 28 cents. Revenue reached $434.5 million. Gross margins also expanded nicely and Suntech reiterated revenue estimates for 2008.
Early in the morning, STP shares jumped over 7% in premarket trading in response to the report but have not kept this up. Shares are now trading at $45.73, down over 1%, probably declining with the rest of the sector following Goldman Sachs's downgrade of Solarfun (NASDAQ: SOLF) to Sell from Neutral. SOLF shares are down over 18% taking LDK Solar (NYSE: LDK), Trina Solar (NYSE: TSL) and Canadian Solar (NASDAQ: CSIQ) down with it -- 5%, 8% and 13% respectively, to name but a few.
Prior to LDK Solar (NASDAQ: LDK)'s earnings report, I told investors to stay away from the stock because I thought it was highly susceptible to a momentum stock breakdown. Although I made one factual error in the post (I said there was a 12:1 long/short ratio while the real number is around 5:1 because of the CEO's restricted shares), this call turned out to be spot-on and the stock got hammered after several company statements and warnings during the conference call.
But I think now could be an interesting time to become involved in LDK for a short-term trade.
First off, the stock is again-lagging other solar stocks on the market. For example, Solarfun Power (NASDAQ: SOLF) is up 35% in the last five days and First Solar (NASDAQ: FSLR) is up 12%. Comparably, LDK is down about 30% since the day the company reported earnings. Considering this, I think the stock is ripe for a bounce-back trade.
I often find myself in agreement with my friend Tim Sykes. When I'm looking to make a trade, I often look at the chart and attempt to gauge the sentiment, just as he does. However, when I saw Sykes proclaim that LDK Solar (NYSE: LDK) had "further upside," I had to give the opposite view.
I'm not going to try and concoct an argument against solar stocks. In fact, I'm sure solar technology will do huge things for the American energy crisis in years to come, but I know one thing after watching the market for several years -- any sector or stock that gains a stubborn, cult-like following is probably going to end up suffering at some point in the future. The most cult-like stocks, in my opinion, are momentum stocks.
Don't get me wrong, I play momentum stocks. However, I admit I'm just playing the greater fool game when I'm trading these stocks. In other words, I admit I'm just trying to be another person trying to pull money out of the market by buying an irrationally-priced asset and hoping to sell it at an even more irrational price. The problem comes when investors and traders come along and try to justify the valuation the stock is currently receiving. I've learned a lesson I'd like to share with momentum traders: don't try to rationalize your buys by claiming the stock is 'undervalued' and looks long term, especially if that is way different from your normal decision making process that takes advantage of certain strengths you have cultivated over time.
Maybe they're right, but it's funny that these analysts have held onto their bearish positions even as the stock has surged from $30 to $68 in less than a month (shows you what analysts know)! Analysts like their cushy jobs, so they can't go out on a limb and say something like, "Wait a minute, this latest surge really just makes up for the crash that was caused by investigation concerns. Now that that's cleared up, maybe this one's got more in the tank -- especially considering that while LDK was tied down all throughout October, November and the first half of December, other solar plays like First Solar (NASDAQ: FSLR), Evergreen Solar (NASDAQ: ESLR), Suntech Power (NYSE: STP), Sunpower (NASDAQ: SPWR) and Solarfun (NASDAQ: SOLF) have all doubled and more."
LDK Solar (NYSE: LDK) was trading at $72.80 in early trading, above its close of $56.84 Friday.
LDK's audit found no material errors in its silicon inventory. LDK said the company has correctly reported its inventories. LDK will report Q3 EPS on December 19th. LDK January option implied volatility of 144 and March of 123 is above its 22-week average of 101 according to Track Data, suggesting larger risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
LDK Solar (NYSE: LDK) is a manufacturer of multicrystalline solar wafers. LDK auditing report on the investigation of allegations of inaccurate inventory is expected in early December. LDK has said the company has correctly reported its inventories. LDK is expected to report Q3 EPS in mid-December. LDK December option implied volatility of 137 is above its 20-week average of 97 according to Track Data, suggesting larger risk.
Volatility Index S&P 500 Options-VIX is recently down 1.51 to 22.46; 10-day moving average is 25.46 according to Track Data.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Adobe (NYSE: ADBE) announced on November 12 it is targeting annual revenue growth of approximately 13%. ADBE is scheduled to report on EPS on December 17. ADBE December option implied volatility of 40 is 32 according to Track Data, suggesting larger price fluctuations.
LDK Solar (NYSE: LDK) is a manufacturer of multicrystalline solar wafers. LDK has been investigating inventory allegations made by a former LDK employee, and the company is also subject to a SEC inquiry. LDK has said the company has correctly reported its inventories. LDK December option implied volatility of 123 is above its 18-week average of 92 according to Track Data, suggesting larger risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: GPC Biotech, Akamai, Qwest, Shutterfly and LDK Solar were today's noteworthy downgrades:
GPC Biotech (NASDAQ: GPCB) was downgraded to Sell from Neutral at Goldman, to Sell from Hold at Deutsche Bank and to Underweight from Overweight at Lehman after the company's phase III trial of satraplatin to treat prostate cancer did not meet its primary endpoint.
Deutsche Bank downgraded shares of Akamai Technologies (NASDAQ: AKAM) to Hold from Buy on valuation following the recent rally as they believe concerns around slowing growth, margins and capital efficiency will limit upside.
Qwest Communications (NYSE: Q) was downgraded to Sector Performer from Outperformer at CIBC and to Neutral from Overweight at JP Morgan following the company's disappointing Q3 results.
Jefferies downgraded shares of Shutterfly (NASDAQ: SFLY) following the better-than-expected Q3 results due to valuation.
Piper downgraded shares of LDK Solar (NYSE: LDK) to Market Perform from Outperform, as they expect higher blended poly cost for the company due to tightening scrap poly supply and increased competition.
OTHER DOWNGRADES:
Maxwell Technologies (NASDAQ: MXWL) was downgraded to Underperform from Market Perform at JMP Securities.
UBS downgraded Estee Lauder (NYSE: EL) to Sell from Neutral.
Merrill downgraded CommScope (NYSE: CTV) to Neutral from Buy.
Under Armour (NYSE: UA) was downgraded to Underperform from Market Perform at Raymond James.
RBC Capital downgraded Beckman Coulter (NYSE: BEC) to Sector Perform from Outperform.
Procter & Gamble (NYSE: PG) traded at $69.20 in pre-open trading, below its close of $71.83.
PG reported first quarter EPS of 92 cents, up 16% on 8% sales growth.
Smith Barney says: "A lackluster start to the fiscal year, 1Q08 helped by tax benefit."
PG November option implied volatility of 26 is above its 26-week average of 19 according to Track Data, suggesting larger risk.
LDK Solar (NYSE: LDK) is a manufacturer of multicrystalline solar wafers.
LDK traded at $38.50 in pre-open trading, below its close of $41.15.
LDK announced an independent investigation into recent allegations made by LDK's former employee. LDK has said the company has correctly reported its inventories. LDK also announced the company would fully cooperate fully with an SEC inquiry.
LDK November option implied volatility of 105 is above its 16-week average of 89 according to Track Data, suggesting larger risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
LDK Solar (NYSE: LDK - option chain) shares are falling today despite the company's announcement of an eight-year contract with Japan's Sumitomo Corp. to supply solar cell parts. Under the deal, LDK will supply about 750 megawatts of multicrystalline silicon wafers to Sumitomo. However, most solar stocks are dropping today as crude oil futures are lower again at $106, and almost dipped below $105 earlier this morning. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LDK.
LDK Solar
LDK Solar
On Monday, 
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Procter & Gamble
Should you sell into today's rally? Yes, if you think there are more surprises to come (I do)
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