It Is Time to Sell First Solar Alongside The Insiders
First Solar (FSLR) insiders are selling again. Insidersmade a killing selling FSLR stock from $200-300 last year, but thisactivity came to a screeching halt after August, 2008. With FSLRonce again pushing $200 within a much more forgiving stock market,selling season has begun anew with John Walton’s estate starting thefestivities with a $36M sale on April 30, 2009. In just one week ofselling, insiders have cashed in an incredible $2.8 BILLION dollarsworth of stock! John Walton’s estate has sold 60% of that total. Alltold, this is an impressive sum for a company with a market cap of$16B.
As always, I sympathize with the sellers. It makes sense to sell intostrength, when the demand is robust enough to absorb the large supply,when caution gives way to enthusiasm. The Wall Street Journal recentlyreported that "Follow-On Stock Deals Hit Two-Year High," so we knowthat the market is much more willing these days to provide for thevarious funding needs of publicly traded companies and their insiders.I am guessing that the traders and investors who have boosted FSLRsince the 25% post-earnings pop on April 30, 2009 care very littleabout why these insiders are dumping so much stock, so rapidly. Forexample, I recall all the debate last year when top FSLR executives eagerly sold large quantities of stock. It was a typical bull vs. bear debate: the bulls focused on the long-term potential of solar, dismissing the indicators warning of short-term troubles for solar;the bears considered the looming problems sufficient to write-off theentire sector. I attempted to finesse both sides with short-termtrading in the sector while clinging to some long-term positions.Meanwhile, insiders consistently dumped stock for months before thebottom fell out of the sector.
So is this latest round of massive insider-selling as good awarning signal as last year’s? I am biased to say "yes." FSLR has nowdoubled since its November lows, it is trading around last September’slevels, and its valuation once again appears extreme given the inherentrisks of a recessionary/slow-growth environment. This combinationshould eventually create more motivated sellers than just a smallnumber of FSLR insiders. Based on FSLR’s historical volatility, April’slarge up-gap is highly likely to be filled sooner than later. This iswhat motivated me to get short FSLR at this point. I am fully awarethat a large population of shorts already exists. As of April 9, 11% of FSLR’s float was sold short.While the total number of shares short reached a peak right after theMarch lows, a high number still got caught in the recent post-earningsspike. This spike took FSLR above its multi-month trading range ofabout $100-175. The chart below shows the implication of this move. Thenumber of shorts accelerated sharply starting in mid-October. All ofthese positions are now "underwater" – meaning that the smallestpositive catalysts may be enough to drive more shorts to cover into asqueeze (for example, President Obama has been pushing his energy bill through Congress).I am managing my very small position to survive long enough to find outwhat event is motivating insiders to start selling again.
Ironically enough, I last wrote about solar stocks on Nov 23, 2008 ("The Week Solar Was Left for Dead")when negativity in the sector had reached a fever pitch. The volumesupon volumes of negative analyst commentary during that time wereclassic signs of a (short-term?) bottom in the making. FSLR made a9-point landing on my earlier downside target of $85, yet, I sadly passed on the opportunity to buy.
Since it has been so long since I last wrote anything solar, Ithought it would be appropriate to restate my current positions.Overall, I am a believer in solar energy for the long-term. However, Ithink there are few good long-term investments amongst thepublicly-traded solar companies, and I mainly think of this wild andvolatile sector in terms of short-term trading positions. I think ofthe heavy dependence on major government subsidies to be the majorweakness of this entire sector in terms of investing in its stocks.Throughout the latest swoon, I have stuck by all my long-term positions(in the past, I have erroneously reported that Intel (INTC) and gold(GLD) are my only long-term positions). My biggest disappointment hasbeen TAN, one of the solar ETFs – silly of me to think that it couldoffer a diversified way of reducing the risks involved in investing insolar. My biggest "relief" has been Solarworld which has offered me themore "sane" investing opportunity I prefer (my overall position is nowslightly positive). I think of First Solar as a top company buttypically far too expensive for my tastes. My favorite company besidesSolarworld remains Sunpower (SPWRa). I currently do not hold a positionin it, but I will likely start nibbling again by this Fall. My favoritesolar stock for short-term trading (besides FSLR) is Suntech Power(STP). I hope soon I can jot down a summary of my impressions of solarearnings these past two quarters. I started one for last quarter, but Icould never seem to finish it given how fast the landscape was changingin the first four months of this year.
Be careful out there!
Full disclosure: short FSLR; long TAN, Solarworld, 5N Plus, Arise Technologies. For other disclaimers click here.
Dr. Duru Dr. Duru attended Stanford University, receiving a B.S. inMechanical Engineering, an honors degree in Values, Technology, Scienceand Society, and a Ph.D. in Engineering-Economic Systems (nowManagement, Science, and Society). He has done some independentconsulting in mathematical modeling, slogged through management consultingin product development and technology strategy, and is now pounding thepavement helping companies to improve the monetization of onlineadvertising through analytic software and rigorous analysis.
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