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Buy JA Solar, Not Solar Angst: Analyst

It's time to buy shares of JA Solar, says one analyst who seems plenty of upside for the Chinese solar company.



) -- The past few days in trading of solar stocks has included heavy losses, and

JA Solar


has featured prominently in the sector selloff. Does that make it time to buy up suddenly cheaper shares of JA Solar? JA Solar shares were up by 4% early on Thursday, one of the only stocks to open significantly higher in the solar sector.

The macroeconomic weakness that sent the equity markets into a nosedive on Tuesday and Wednesday, suggesting Thursday might be another tough day for equities.

Amid the market jitters, it's not surprising that investors would be taking money off the table in solar, and particularly from those solar stocks that have gained the most in recent trading, like JA Solar and



. It's also not surprising that JA Solar and Solarfun might receive some opportunistic buys, which was the case early on Thursday. The two Chinese solar stocks had the biggest solar sector gains at the open.

JA Solar dropped more than $1 in the past two days, which for a stock that has a 52-week high just under $7, is a pretty beg decline. Given the carnage in the markets this week, it's difficult to separate the macro noise from the investor sentiment on solar specifically. JA Solar provided a bullish outlook on 2011 in its recent earnings, and upped its capacity guidance yet again. Its quarterly results were marred by charges that led to an earnings per share shortfall that seemed to weigh on its share and was compounded by the turn south in the markets this week.

Uncertainty about the 2011 supply/demand balance in solar and the extent of pricing declines is weighing on solar stocks again, too. JA Solar said in its recent earnings that visibility into 2011 orders looks strong, but that view hasn't aligned with the commentary from other solar management teams, including those at




First Solar

(FSLR) - Get Free Report

, and German market leaders



Phoenix Solar

. These solar companies have all towed the line of caution when it comes to discussing the 2011 outlook.

>>Is Solar Pricing Squeeze Just Ahead?

Yet one analyst is not just saying that it's time to put money back into JA Solar specifically, but the solar cell maker is headed higher than its share price has ever been in 2011.

Mark Bachman of Auriga Securities is pounding the table on JA Solar, saying the stock hasn't just fallen below fair value, but is headed to $8 in 2011. It's a view sure to be met with some skepticism from more bearish solar analysts. Even among analysts who think the pessimism about next year is overdone, there is a conventional wisdom that players in the middle of the supply chain, like solar cell maker JA Solar, feel the pricing squeeze more acutely than others.

The Auriga Securities analyst states the case simply in his view of why JA Solar deserves an $8 valuation: more shipments equal more earnings. Auriga previously had a price target of $5.75 on JA Solar shares. The thesis for the JA Solar upgrade from hold to buy and the price target of $8 is predicated on a shipment increase to 1.4 GW, versus Auriga's previous projection of 1.17 GW for 2010. JA Solar raised shipment guidance from 1 GW to 1.35 GW. For 2011, Auriga thinks JA Solar shipments will reach 1.8 GW.

"We simply cannot ignore the low valuation nor the expected upside in shares of JASO," Bachman said. "Our estimates have moved considerably higher in both 2010 and 2011 as management has ramped capacity considerably faster that we previously modeled."

As for the bear case on solar in 2011, the Auriga doesn't ignore the risk, but thinks calling for an $8 share price in JA Solar is not going out on a limb. "If demand slips, and there is an abundance of supply, then ASPs will come down -- and given JASO's lack of vertical integration, margins could be squeezed -- this is a real risk and a real possibility....The stock is trading at just ~5x EPS. That is ridiculously inexpensive -- trading to 8x is doable, and only looks bold when compared with to the 1 year chart on JASO. ..Thus price appreciation isn't such a bold call," Bachman wrote in an email to



-- Written by Eric Rosenbaum from New York.


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