Cree Isn't 'the First Solar of LEDs'

NEW YORK (TheStreet) -- Maxim Group analyst Aaron Chew seems like a reasonable fellow, a numbers-crunching alternative energy geek who doesn't make his dough doing the bidding of fat-cat, bulge bracket bankers, but Chew just did something "unthinkable": He slapped a buy on a stock that faces massive oversupply from Chinese competitors.

The stock we're talking about here is U.S. LED company Cree(CREE), and the reason why the Maxim Group analyst's move seems like a head-shaker on the surface is that he's just watched the demolition of U.S. solar company First Solar(FSLR), which due to an onslaught of low-cost solar competition out of China, has fallen to its lowest share price since the days of its 2006 IPO.

Cree is often compared to First Solar. Both stocks have indeed washed out, but only one looks like it's poised to bounce: Cree.

Here's the thing, though, Cree isn't First Solar, and Chew isn't alone in thinking that a bounce trade in Cree is more or less a no-brainer, even if longer term, the Chinese will eventually pressure Cree in the market. Cree shares have fallen 65% this year to $22. That makes Maxim's Chew believe that a 12-month to 24-month trade in Cree is a good bet for investors.

Andy Abrams, longtime LED analyst at Avian Securities, agrees: "The fundamental issues Cree faces they still face, and utilization rates remain low on chip production and that's going to continue for little while longer, but on a realistic basis, if you're looking over the next 12 to 24 months, in my mind it makes no sense to sit around and wait and see what happens beyond a year."

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"The difference is so stark between First Solar and Cree. Making LEDs is a different game than making a commodity like a solar panel," adds Cantor Fitzgerald analyst Dale Pfau, who has been on the short side of the First Solar trade for a long time and the long side of Cree.

And this difference between Cree's tech edge and the solar market commoditization is at the root of believing that Cree has at least a few years left before the Chinese pressure truly comes to bear.