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Solar Short Calls: FSLR, CSIQ, SPWRA

Stocks in this article: FSLRCSIQSPWRATSL

NEW YORK ( TheStreet) -- The latest Wall Street take on solar stocks comes from Auriga Securities analyst Mark Bachman, who initiated coverage on the sector Wednesday for his new firm.

Despite the bearish sentiment that dominated earlier this year, Bachman agrees with many of his peers in predicting a brighter future for the solar industry.

He joins the Wall Street chorus that remains bullish on Trina Solar (TSL), for example. Trina received a big shot in the arm from China on Wednesday when the China Development Bank agreed to lend the company a whopping $4.3 billion -- in effect, a subsidy.

But Bachman parts ways with many of his peers when it comes to several other solar stocks.

The Auriga analyst says the rest of Wall Street has it all wrong on a number of companies, including First Solar (FSLR) and Canadian Solar (CSIQ). These mistakes will result in some big earnings misses in the near term, Bachman says, and investors ought to prepare for some significant stock-price declines.

Bachman joined Auriga Securities just this month. He had served as senior clean-tech analyst at Pacific Crest Securities from 2003 to 2009, twice making Institutional Investor's All-American Research Team. Previous to Pacific Crest, Bachman was an analyst at Thomas Weisel Partners.

TheStreet asked the Auriga analyst to explain why investors should be long solar, but short on SunPower, First Solar and Canadian Solar.

TheStreet: Overall, you're positively biased on solar in 2010. Do you have any worries about the price declines coming harder and faster than the solar industry's ability to cut costs, related to the feed-in tariff reductions in German, the world's largest solar market?

Bachman: We had the number reported last week by the German government for solar installations in December of 1.46 gigawatts. It was absolutely huge. Some countries can't do that amount of installations in a year.

We know the subsidies are coming down, and we have to accept that. We know that prices are coming down and there will be margin compression. Even with all that in mind, I still think solar systems can generate acceptable returns, and that's the key.

I estimate that the German FIT cuts in the second half of 2010 will result in return levels of 6% to 8% on solar systems.

I also think people underestimate the growth of markets outside Germany. For example, 400 megawatts went into the Czech Republic last year, but how many people were talking about that before it happened? In the neighboring countries, if better returns are possible, the market will migrate. Other countries have been starved for solar modules, since Germany has served as a solar-demand sink.

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