The Truth About Solar (TSL,FSLR)

For some, investing in solar stocks over the past six months has delivered once-in-a-life-time results:

Trina Solar (NYSE: TSL)

Others haven’t had it so good:

First Solar (NASDAQ: FSLR)

Indeed, playing cleantech’s franchise player has proven to be a tough gig.

On one hand, you have a small group of Chinese companies on the brink of doubling or tripling in just two quarters.

On the other. . . a wild roller-coaster ride has ended as it usually does, back at the starting gate.

But what’s stoking such discrepancies in a group of stocks that are so closely related?

A Lack of Solar Education

I’m convinced the reason for such volatility and variance is a lack of solar understanding and education that is worsened by constant misinformation from the media.

For the second group of solar stocks above, a downtrend since Junedoesn’t make much sense at all. Granted, the summer months weresluggish. . . but there was a significant uptick in sales during Augustand September, with demand exceeding supply for several major producers.

That increase in demand should have acted as a bullish signal for major module producers and cell manufacturers.

Instead, it was the so-called second tier suppliers, like Trina Solar (NYSE: TSL), that saw a major jump.

That surge in demand should continue, buoyed by an already-passed 1GW Chinese solar subsidy and new tax advantages included in the U.S.stimulus. An additional 1 GW subsidy could be passed by the centralChinese government in coming months.

What’s more, that same increase in demand is allowing installers anddistributors to mark up prices for panels, which could lead to higheraverage selling prices (ASPs) for suppliers down the road.

And finally, this increase in demand should bump up fourth quartershipments just enough to beat expectations, which always leads tohigher valuations.

This is probably all new information to you. And that’s part of the problem. . .

Because you don’t always get the full story by reading mainstreamnews and press releases. Consider these recent headlines from Wall Street Journal, Bloomberg, and the like:

  • "Glut Feeling: Solar Power’s Got Too Much of a Good Thing"

  • "Solar Panel Glut Will Scorch Small Players"

  • "Watch Out: Solar Stocks Might Sink"

  • "Supply Glut Will Put the Heat on Solar Stocks"

Withstories like these being pushed by stalwart financial news agencies inthe face of contrary data. . . is it any wonder that investing in solarstocks has been a crapshoot?

Finding the Solar Truth

Perhaps the most revealing example is this gem of headline, run in some form by Bloomberg and many others: "German Solar Subsidies Face ‘Enormous’ Cut."

An ‘enormous’ subsidy cut in the world’s largest solar market would be enough to make any investor shy away from the sector. . .

But it wasn’t true.

After the story had been picked up by countless news agencies — even the AP ran it — and spooked countless investors. . . Reuters ran a piece entitled, "New German Government Won’t Slash Solar Power Rates: Source." And, as they often do with controversial or misreported topics, they ran a factbox to clear everything up.

Now, if you were getting your solar information from me. . .

I would’ve told you from the beginning that the German solar subsidy would not be cut this year or next. And, even if it is cut in 2011, that would only lead to increased sales in 2009 and 2011 — ahead of any subsidy changes.

With respect to a solar glut. . . I’ve been saying that it’s apossibility, but that any oversupply could be absorbed by globalstimulus-funded projects. Increasing volume, even slightly, can beenough to maintain profitable margins.

A recent joint announcement by First Solar (NASDAQ: FSLR) and theChinese government that they’re building a 2 GW solar power plant isclear proof of that.

This is the problem with most financial news: There’s no nuance. It’s either black or white — bull or bear.

Hell might freeze over if they were bullish with caution or bearish with a silver lining.

Here at Green Chip, we take a different angle. We want tomake money as much as you do. And only telling one side of the storydoesn’t contribute to that end.

Instead of telling you a "Supply Glut Will Put the Heat on SolarStocks," I’ve been warning against a potential oversupply, while stillhighlighting the best investment opportunities and maintaining a bullish outlook.

I’m not saying to dismiss other news agencies and websites. I’msimply suggesting you make sure to get the entire story — every time.

Not doing so could mean missing a great investment opportunity. . .such as the six-month ~200% runs by Canadian Solar and Trina Solar.

But you wouldn’t have wanted to invest in them. . . there was a massive solar glut at the time, right?

Call it like you see it,

Nick Hodge




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