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Solar stocks suffer tough month

A tough month on global financial markets, with the main U.S. indices posting losses of around six percent and Europe, fairing a little worse, was exacerbated for solar stocks, as key governmental decisions impacted upon prices.

Solar stocks took a hammering following the preliminary trade case ruling.

The U.S. Department of Commerce’s move to impose preliminary anti-dumping tariffs of between 31.14 and 249.96 percent on imports of crystalline silicon photovoltaic cells and modules produced in China had interesting effects on most solar stocks.

A slow start to the month and a steady decline led up to a sharp drop in prices just prior to the announcement, before most stocks leveled out. The impact of the decision on solar stock prices reveals both their fragile state, as well as how beholden they are to news like this.

The day after the decision, May 18, was also the heaviest day of trading for the month, with SolarWorld (SWV) - the architect behind the initial petition to have the tariffs changed - seeing 3.2 million stocks change hands on the day. Chinese company JA Solar Holdings (JASO) traded 6.3 million shares on the same day, but only recovered some of the ground it lost in the lead up to the announcement. 

Yingli Green Energy (YGE) also rose slightly after the announcement, despite the bad news and despite losing about 25 percent of its share price during May. Company chairman and CEO, Liangsheng Miao was quite critical of the decision and its negative impact on keeping the industry growing. "As we've stated before, tariffs are disruptive and destructive for the entire solar industry."

A further example of the negative impact of the decision on stock prices can be seen through Trina Solar Ltd (TSL). Down about 20 percent in the month, Trina also announced a loss of $29.8 million, or 42 cents an American depositary share, compared with a year-earlier profit of $47.7 million, or 63 cents per American depository share.

The hardest hit company was probably LDK Solar (LDK) though, which managed to have a relatively stable start to the month before shedding almost half its value after the anti-dumping tariff was announced. From $3.18 at the start of the month, the share hit lows of around $1.72 on the last day of trading.

In terms of other major companies, First Solar (FSLR) is again providing great fodder for consternation. The one-time darling of the industry ended the month trading at just over $12, down a staggering 1,200 percent from this time one year ago, when shares were valued at $142.

Suntech Power (STP) opened the month at $2.52 before falling sharply to below $1.70. German companies also stuttered, with Aleo Solar AG (AS1) and S.A.G. Solarstrom AG (SAG) falling about 10 and 15 percent in the month, respectively.

Although solar stocks followed the general downward trend in the market, losses were about three times that of the main indices and the question remains - when will the drop stop?  All of the stocks ended the month below their 50-day and 200-day moving averages, or the filter used to smooth out moving stock prices. Every stock is also currently in a negative trend.

Cheap

There is a saying in financial circles: buy in May and go away. It does seem that many solar stocks are enticingly undervalued, as poor sales figures and problematic governmental stances have made once expensive stocks seem like a good value play.

That is the one truth with solar stocks at the moment – they are cheap. Their future growth depends on a number of factors, but the overall state of the market may suggest some positive returns in the medium to long-term, with investors using the summer to hopefully see their stocks grow.

Last week, China's April manufacturing index came in at 53.3, above March's 53.1 and at about the region's long-term trend rate. This will allay fears of a fall as the April increase was the fifth consecutive monthly increase and the index is now at its best level in a year.

The weakness in the euro should also have the effect of benefiting Germany and other stronger EU members, in turn helping the economy trend upwards and growing solar’s number one and traditional marketplace in Europe, if other factors are favorable.

For the solar industry, success in the richer EU nations and China is critical for its ability to bounce back to former levels. But then, how long does one wait to get a return on that profit?

While short-term pricing of solar stocks may not be clear, it is hard to see them getting any lower without catastrophe. For the medium to long-term, solar stocks are still expected to produce strong results and many investors are still seeing value, if they have the inclination to wait.

Disclaimer: The author does not own any stocks and will not be purchasing any in the near future. Furthermore, the information contained in this report is not intended to be investment advice. Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection.