This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A Bottom in Solar Stocks? Maybe, Says Deutsche Bank (Update 1)

Updated with Mizuho analyst comments, an more on LDK Solar and Suntech Power)

NEW YORK ( TheStreet) -- Solar stocks, as big a market dog as there was in 2011, are suddenly back in favor. The broad market rally to start 2012 had led to some gains in solar from the lows at which the stocks ended trading last year, but Wednesday morning was a monster solar rally on big volume.

First Solar (FSLR - Get Report) touched $42 a share for the first time in a month, while Trina Solar (TSL - Get Report) was up 24% and tore past its average daily volume within a half hour of the market open.

The likely catalyst was a report from Deutsche Bank saying that solar stocks may have fallen too low given a reasonable demand forecast and a lessening inventory overhang. Any one positive trend plays out against bearish expectations, and solar stocks have been overly discounted, Deutsche Bank said in the report.

Deutsche Bank analyst Vishal Shah wrote, "Recent conversations indicate investor sentiment is still very low and short interest near record levels. Given the rising 1H12 demand prospects in Europe/US, we now believe the recent trend of encouraging poly pricing data points could likely continue for the next month and as such, likely drive solar stocks higher. Although we expect solar companies to report losses during the upcoming Q4 earnings reports, we note that street estimates are already low and confirmation of the above trends could likely drive upside sentiment surprise."

He added, "Our checks indicate that inventory levels across the supply chain are now at record low levels and we believe record December month shipments is likely to create a sense of rush among installers in 1H12 before another anticipated 15% subsidy cut from July."

If you don't trust Deutsche Bank, you may want to take note of the fact that the biggest solar bear on Wall Street, Axiom Capital's Gordon Johnson, removed sell ratings on five solar stocks on Wednesday, saying that a German demand surge might lead to stabilization in the short-term -- though he remains a bear on solar in the longer-term, predicting that all of these stocks will reach new all-time lows by year-end.

Last Friday, the German solar trade lobby announced that installations in Germany reached 7.5 gigawatts in 2011. It was a shocking number for a market expected to trail off from previous year levels, though it wasn't all rosy. For one, spot market pricing in solar showed no improvement in December even as Germany likely had a huge final month of the year. Also, the German method of "slowing" solar growth by setting annual digressions in feed-in tariff levels hasn't worked -- as evidenced by the rush in December leading to a 7.5 GW market -- and that has already led this week to chatter from German politicians about taking more severe steps to limit solar.

To show the type of tortured logic that is inherent in betting on demand caused by looming subsidy revisions in Germany, Mizuho Securities analyst Paul Clegg noted, "Sure, Germany can be strong but you are talking about the fear of a hard cap on solar leading the German market to suck up modules in the first half of the year. That's a bad reason for getting strength in the first half of the year."

Shah, the Deutsche Bank analyst, cited Trina, Yingli Green Energy (YGE) and Jinko Solar (JKS - Get Report) -- all Chinese solar module makers -- as the solar stocks likely to benefit from an improving scenario.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
STP $0.53 0.00%
LDK $0.00 0.00%
FSLR $55.84 0.00%
JKS $22.27 0.00%
TSL $9.75 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs