3SOF

Update:

A few sessions ago I was questioning my timing on being in solar (obviously long term no worries, but shorter to medium term is different). Now we are sitting OK with SOL having closed strongly above the 50ema and $17 resistance zone. The solar sector was strong overall, we have had some very good earnings reports which have catalysed the strength, and on Friday we had the following news;

Two solar power plants will be built in California that together will put out more than 12 times as much electricity as the largest such plant today, the latest indication that solar energy is starting to achieve significant scale.'

http://www.nytimes.com/2008/08/15/business/15solar.html?bl&ex=1219032000&en=1bd6be8f0fed5637&ei=5087%0A

Optipower (privately held) and Sunpower (SPWR) are the key panel suppliers for this project, which is being driven by the fact that in California, energy providers must have at least 20% of their supply from renewable sources. This is exactly the scale of project that is going to drive solar companies growth in the future. STP were up 17% on Friday based on the news.

So what of our SOL position? Well, my outlook is longer term, but we are up nicely in a few short sessions and just about to get an earnings report (which based on previous releases the reaction could go either way). A positive reaction puts SOL into the $20's, a negative reaction down to the $15 area.

A quick poll of solar charts shows many reacting nicely off bases and breaking upwards through resistance, a look at TAN (The ETF which tracks the solar sector) reflects that view.

So the trade plan will remain unchanged, we will continue holding SOL into earnings, we have some profit buffer which I am prepared to give back if for some reason the market is disapointed by the SOL release.

Trade Plan:
HOLD SOL

Update:

SOL Q2 results are out and they are way above expectations with strong guidance and excellent management control. Some headline numbers:

Revenue +289% V's year ago
Net Income + 295% V's year ago
Production Output 82.5MW V's 66.5MW in Q1
Margin: Stable V's Q1
EPS (diluted ADS) : $0.38 (consensus was $0.32)

The report is full of good information relating to contracts signed, new wafer facility progress, outlooks etc. Full details: http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/08-19-2008/0004869700&EDATE=

So, SOL are over-delivering on their potential and that will filter through to the stock price in the long term for sure. Now we had a 30% or so run from SOL leading into earnings, I expect therefor there will be profit taking today from those who want to lock in those gains. Our outlook on this type of solar play is longer term, so we will continue to hold as I see much bigger returns possible over the coming months from this sector. Technically I would like to see the $17 zone hold as the results get digested by the market, then setting up continuation through the $20s to challenge the all time highs near $30 set in May.

Trade Plan:

HOLD SOL

fyi (from forbes):
ReneSola released strong results Tuesday, but investors seemed only to see dark clouds.

The Chinese manufacturer of solar wafers reported a roughly fourfold increase in second-quarter profit on strong demand and a jump in customer numbers.

But ReneSola (nyse: SOL - news - people ) shares fell 2.5%, or 44 cents, to $17.49 on Tuesday at the close even though other solar stocks rose.

Piper Jaffray analyst Jesse W. Pichel said investors reacted to a change in accounting for a small polysilicon facility. He said the accounting change added 200 basis points to gross margins, making the reported gross margin 24.7% in the second quarter, even though Pichel said the core gross margin was 22.4%, up from 22.1% in the first quarter. "The Street thinks the margins are coming down, but they're not," he said. "The company said the margins will remain stable for the balance of the year."

On Tuesday the company reported second-quarter net income rose to $23.3 million, or 38 cents per American depositary share, from $5.9 million, or 12 cents per American depositary share, in the prior year, beating analysts' estimates of 32 cents per share.

Revenue more than tripled to $173 million from $44.5 million a year earlier, well above analysts' expectations of $141.3 million.

The company reported that expenses for research and development were higher than anticipated, which Pichel says limits the upside for the near term. Total operating expenses in the second quarter increased to $8.3 million, up from $4.0 million in the first quarter of 2008 because of a substantial increase to invest in developing alternative silicon feedstock materials.

Update:

Piper Jaffrey reiterated their buy rating on SOL, lifting the target price to $35.00. THey further upgraded forward looking revenues; fiscal year 2008 revenues estimates to $663.1 million, up from $622.1 million and earnings per share to $1.43 to $1.50. Fiscal year 2009 revenues estimates to $1.2 billion, up from $969.1 million and earnings per share to $2.82, up from $2.42.

Technically we got profit taking, but that was expected based on the pre earns run up. There were also some concerns relating to costs in the report, but from my point of view those costs are for the enhancement of their raw material supply and that for me is a positive move. The price remains above key support and so I remain comfortable with the layout. My belief is that later this year we will be looking at a mid $20's stock price as a normal trading area, that is what I am planning for.  No change to the trade plan for now.

Trade Plan:
HOLD SOL

Update:

Yesterday was a very interesting session for SOL and other solar stocks.
SOL breakout the previous relative high, trading on heavy and growing volume, the stock is gaining momentum from a technical point of view, and its overall mid-term layout is becoming more bullish.

Another positive research note was published, this time by Merrill Lynch:

Quote
Multiple growth drivers on the horizon

Key growth drivers ignored by investors; Reiterate Buy
Most investors are impressed by its strong earnings growth, but few would
recognize new growth drivers such as in-house polysilicon and metallurgical,
which made us incrementally more positive. We are also encouraged by news
that 60% of ReneSola's '09 production is already booked, reducing much of the
'09 demand risk feared by some investors. We reiterate our Buy rating and PO of
750p. Please note we have introduced coverage of the ADR with a US$30 target.

Strong 2Q08 results consistent with our positive preview
Strong performance of 2Q08 is consistent with our positive preview we published
a month ago, "Stock oversold despite strong 2Q momentum, on 11 July". 2Q08
revenue of $173mn exceeded our bullish estimate of $149mn and consensus of
$141mn. ADR EPS of $0.39 was better than our estimate of $0.33 and consensus
of $0.32 due to rising ASP and improving silicon utilization from 6.3g/w to
6.24g/W.

Polysilicon JV adds c.$0.04 to 3Q08 EPS
We expect the polysilicon JV to generate $5mn investment income for ReneSola
and an additional EPS of $0.04/share. We expect the Henan JV to produce about
75-85MT of polysilicon during 3Q08 and is earning a gross margin of 60%.

Metallurgical silicon provides margin upside
The company announced significant progress in using metallurgical silicon and
the conversion efficiency is satisfactory, according to the management. Little
information has been disclosed but we expect metallurgical wafers will be
significantly accretive to its margin due to its low cost. ReneSola's competitor LDK
had been successful in marketing such product recently as well within a short
period of time.

Consensus to move past our bullish estimate
We expect consensus of $612mn to move past our bullish estimates of $626mn
based on management's new guidance. With higher ASP and increased
production, ReneSola raised its FY08 guidance to $640-670mn from $570-
590mn, on shipment target of 340-350MW from 330-340MW. As such, we still see
upside risk to our Street-high FY08 EPS of $1.45 compared to consensus of
$1.29.

(see attached pdf, for complete note)

Trading Plan:
Hold SOL

Update:

SOLF released their results this morning and whilst very good, fall perhaps below expectations which led to their dramatic rise these past few sessions http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080827005483&newsLang=en
Pre market is reflecting that sentiment with profit taking in full swing on SOLF. Once the release details have been fully digested I am sure SOLF will find a range and then an upward bias again.

Now SOLF is not the market leader here, just another good player, but any profit taking it will encounter will reflect in the other solars such as our SOL.

SOL technically has been consolidating after the breakout through $17. I am expecting $17 to now as act as good support as it represents a key area of moving averages and historically relevant pricing.

Trade Plan:
HOLD SOL

let's see if the SOl support will hold 

cheers
O.

Update:

All solars got the smackdown as oil got hit along with commodities. Nothing fundamental has occured its purely a reaction as a result of the market direction.

In my prior post I talked about the $17 support area and that I expected it to hold.  Well SOL is sitting on that zone right now, technically it has a lot of support there, so we will watch that zone and see what happens.

The reasoning for holding solar stocks are still very much in play. No change to the trade plan today.

Trade Plan:

HOLD SOL

 Zacks.com
ReneSola LTD: Zacks Rank Buy
Thursday September 4, 1:00 am ET
By Bill Wilton

ReneSola, LTD (NYSE: SOL - News) has raised its earnings by almost four fold since last year. They continue to increase production and revenue guidance as they have recently entered into several long-term contracts. The company is attractively priced with a PEG ratio of .4, well under the industry average of 2.1.

Company Description

ReneSola, Ltd. manufactures solar wafers from raw silicon for photovoltaic cell makers like Suntech Power and JA Solar. The company is headquartered in Jiashan, China where it was founded in 2003. ReneSola carries a market cap of $1.9 billion and has approximately 3,100 full-time employees.

Net Income and Revenue Almost Quadruple

On August 19th, ReneSola announced spectacular second-quarter results. Net income rose 295% to $23.3 million, from $5.9 million in the same quarter last year. The company earned 38 cents per share, easily surpassing the consensus estimate of 31 cents. This was the second consecutive surprise with an average surprise of 19.6%.

Second-quarter revenue was $173 million, a 289% year-over-year increase. RenaSola also saw a jump in gross margin, now 24.7% up from 22.1% last quarter. The increase is mainly attributed to change in accounting, but reduced silicon usage per watt and lower costs also helped. Without the accounting change the margin would be 22.4%.

Plenty Of New Business

ReneSola signed five new long-term contracts in the past couple months. Suntech Power Co. increased the initial four-year 510MW order of silicon wafers for an additional four and a half years and another 1 GW of wafers.

The remaining four contracts range from three to six years and call for a total of approximately 750 MW of wafers to be delivered.

Raising Production and Revenue Outlook

The company has increased its full-year 2008 output to between 340 MW and 350 MW, up from between 330 MW and 340 MW. The increase should produce revenues of between $640 million and $670 million, up approximately $70 million from the previous target.

The Chart

Shares of SOL broke out of a bearish trend toward the end of July and are developing a nice level of support near $13 per share. Take a look at the chart below.

Update:

Nice info from Zacks thanks La-onda.

Difficult update, on the one hand we have seen a nice profit evaporate, but because I had longer term outcomes in mind with this trade we have to be tolerant to that type of fluctuation to be able to hold stocks for more than a few days / weeks.

I am looking for SOL to find its support here, but the terrible market conditions are making that a hard call. Chart shows we should see SOL  get that support in the current trading zone. I am prepared to see if it can do that today.

Trade Plan:

HOLD SOL

Hi Aussie,

  It seems there has been some correlation to the stock price of the solars with the oil prices. I guess, the logic traders use is "oil gets cheaper, there is less incentive to develop or buy solar based energy products". In this case, we should address the longer term picture in which case it becomes apparent that given oil prices should not drop dramatically, solar should also hold up and eventually grow independently. At some point, when solar market achieves a certain size, the profits of the solar companies should continue growing regardless of the oil prices.

  What's your view on this?

Thanks,
Berloga

Hey Berloga, yes there has been correlation like you say, which is crazy when you think about it because solar energy, development and growth are the future whilst oil is the past and the present with a limited future. Solars therefore have been 'traded' in relationship to oil. So I am agreesing with you.

Update:

Now, I have a longer trem view in mind with SOL (also ASTI) and that is why I haven't traded it (that is sold it when it hit resistance) because I am trying to let it run over a longer timeframe. That all said, and as I mentioned previously the overall 'bearish' market sentiment is making that difficult. SOL found some support as I was looking for and the Gov 'intervention' in FRE and FNM have given a huge boost to the market over the weekend (probably short lived) and SOL will likely benefit from that.

My normal PC has some problems and I have lost (temporarily) some applications, so i can't post a chart, suffice to say I will maintain the same strategy and hold SOL. I believe it will maintain an upwards bias (over the longer term) despite the overall downwards market. Reclaiming and holding the $17 zone is the first action I would want it to do.

Trading Plan:
HOLD SOL

 
Market down big, solars also big down today

Update:

The markets are talking very loudly to me, 'it is not the right time for holding stocks on the long side unless you have very short trading timeframes in mind'

Well, more a conversation than a shout. It pains me somewhat, but I will be selling SOL today. Technically the chart is somewhat broken, i do not want to hold and see if the $12 zone will save further bloodshed.

I will look to sell into any strength that may appear. I do expect the market to bounce, but only a short lived recovery.

Time to re-assess our approach and the markets sentiment.

Trade Plan:
SELL SOL