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.
On Tuesday, microchip equipment maker Applied Materials Inc. (NASDAQ: AMAT) reported a drop in its fiscal second quarter earnings due in part to a glut of flash memory chips, and organic and natural food retailer Whole Foods Market Inc. (NASDAQ: WFMI) also said second quarter profits fell, due to integrating its Wild Oats acquisition.
Applied Materials posted earnings of $302.5 million, or 22 cents per share, for the quarter ended April 27, compared with a profit of $411.4 million or 29 cents per share in the same period a year ago. Its adjusted net income came to 24 cents per share, beating the average analyst forecast of 22 cents, according to Reuters estimates.
Second-quarter revenue fell to $2.15 billion from $2.53 billion in the previous year. Analysts on average had expected revenue of $2.13 billion.
Shares fell 1.3% after the news but rose 2.7% in after-hours trading to $20.40.
Whole Foods reported that sales surged 28% in the second quarter to $1.87 billion, from $1.4 billion in the previous year. But net income fell 13% to $40 million, or 29 cents per share, in the quarter ended April 13; the acquisition of rival Wild Oats cost it 6 cents per share.
Analysts polled by Thomson Financial had predicted a profit of 30 cents per share on revenue of $1.89 billion.
Shares of Whole Foods fell $2.94, or 8.7%, to $30.70 in after-hours trading.
The Wall Street Journal takes an amusing look at the results of SEC efforts to require more detailed and meaningful disclosure about executive pay. Referring to Applied Materials (NASDAQ: AMAT), the Journal reports that "this year, it expanded by 76% the word count of its proxy's compensation section. In all, the compensation section contains 16,245 words -- twice the length of the U.S. Constitution and its 27 Amendments -- along with 10 formulas, 10 tables and 155 percent signs."
The result is a document that's incredibly confusing, full of formulas like this one:
Weighted Score = (Performance Measure 1 x Weight as Percentage) + (Performance Measure 2 x Weight as Percentage).
But in a way, we shouldn't be surprised. Applied Materials has paid its executives millions in compensation, but its stock price is lower than it was in 2001!
The reason that such long pay disclosures are required is that there is no particularly reasonable way to explain why top executives were paid millions while shareholders lost money. To use the random walk analogy, it's like trying to ask a drunk staggering around in a field why he's walking in the path he's walking. He's drunk! It can't possibly make sense.
If a company needs 16,245 words to explain why it paid its executives the amount it paid them, they're most likely full of crap.
MOST NOTEWORTHY: UBS AG, KLA-Tencor and Level 3 Comm were today's noteworthy downgrades:
Keefe Bruyette downgraded shares of UBS (NYSE: UBS) to Underperform from Market Perform as they expect as they expect further write-downs to erase profits in 2008.
Oppenheimer downgraded shares of KLA-Tencor (NASDAQ: KLAC) to Underperform from Perform after checks indicated Intel (NASDAQ: INTC) has chosen Applied Materials' (NASDAQ: AMAT) reticle inspection tool for its entire 32nm node after a long period of evaluation against KLA-Tencor. Oppenheimer believes this represents a $300M shift from KLA-Tencor's dominant market share in reticle inspection.
Jefferies cut Level 3 Communications (NASDAQ: LVLT) to Hold from Buy as they see limited opportunity for near-term share appreciation given the company's integration challenges and the added uncertainty from recent management changes.
OTHER DOWNGRADES:
Keefe Bruyette downgraded Credit Suisse (NYSE: CS) to Market Perform from Outperform.
Kroger (NYSE: KR) was downgraded to Underweight from Neutral at JP Morgan.
Applied Materials Inc. (NASDAQ: AMAT) shares are rising after the market has gotten some positive news for companies connected to LCD TVs. Circuit City (NYSE: CC) CEO Philip Schoonover predicted in an interview with the AP that 2008 will see high growth in TV sales as a result of the FCC's mandate that broadcasters switch to digital format in February 2009. This could be good news for AMAT, which makes equipment to fabricate thin film transistor LCDs for televisions. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AMAT.
After hitting a one-year high of $23.00 in August, the stock hit a one-year low of $16.13 in January. AMAT opened this morning at $20.28. So far today the stock has hit a low of $20.23 and a high of $20.45. As of 12:15, AMAT is trading at $20.35, up 26 cents (1.3%). The chart for AMAT looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $16 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. This particular trade will make an 11.1% return in just four and a half months as long as AMAT is above $16 at July expiration. Applied Materials would have to fall by more than 21% before we would start to lose money.
AMAT hasn't been below $16 at all in the past year and has shown support around $19 recently. This trade could be risky if the economic situation continues to worsen, but even if that happens, this position could be protected by the support the stock might find at its 50-day moving average, which is around $18 and rising.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in AMAT or CC.
Semiconductor equipment maker Applied Materials said that its fiscal first-quarter profit declined as revenue fell due to the challenging global market for its products. Sales fell 8% to $2.09 billion from $2.28 billion in the same period of 2006. The company earned $262.4 million, or 19 cents per share, down 35% from $403.5 million, or 29 cents per share.
Excluding restructuring costs and other items, adjusted earnings were $345 million, or 25 cents per share. Analysts polled by Thomson Financial had expected a profit of 20 cents per share on sales of $2.01 billion.
Shares of Applied Materials rose Tuesday and Wednesday $3.10, or about 17%, to close at $19.91. Shares have been climbing from the 52-week low of $16.13 in mid January.
AMAT is scheduled to report Q1 EPS after the market close on February 12.
Deutsche Banc says: "Expecting stronger F1Q08 results, weaker outlook." DBAB has a Hold rating and a $19 price target on AMAT.
AMAT February straddle 18 is priced at $1.10. AMAT March option implied volatility of 42 is above its 26-week average of 36 according to Track Data, suggesting larger movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Tech stocks seem to be the ones to watch. Among companies reporting earnings next week are Applied Materials Inc. (NASDAQ: AMAT) and Agilent Technologies Inc. (NYSE: A), and here are quickie earnings previews for them.
Applied Materials' five-year earnings per share growth of 45.7 percent is better than the semiconductors industry average and the S&P 500. Applied Materials beat earnings expectations in the first three quarters of 2007. When it reported third quarter results back in August, earnings were 35 cents per share, three cents better than the consensus estimate of analysts surveyed by Thomson Financial, as well as the actual EPS in the same period of the previous year. For the fourth quarter, analysts expect only 29 cents per share, or $1.25 for the full year.
The analysts' consensus recommendation has been to buy Applied Materials for the past six months, but a closer look shows that most analysts are split between buy and hold. The share price has been slipping since reaching a 52-week high of $23.00 in August, almost falling during the week's Nasdaq volatility back to its 52-week low of $17.33 from a year ago.
For news about tech stocks that could influence Applied Materials' results, check out BloggingStocks' Applied Materials coverage.
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.
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Semiconductor equipment maker Applied Materials said that its 
Applied Materials
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