Since the recent stock market low in March, the rising market tide has been lifting most boats – including the solar stock armada. With hindsight (the stock picker’s best friend), it appears that that the solar sector was extremely oversold in early March (down over 70% on average) and when the general market turned around the solar sector was swept up with the general tide. For example, an index of 25 selected solar stocks is up a very impressive 34% since March 17, 2009.
To get a better sense of how rough the seas have been, it is useful to review some past performance. One measure to consider is the MAC Global Solar Energy Index Total Return (ticker: SUNIDX), which provides a means of tracking the rapidly growing global solar energy industry. The 52-week range for SUNIDX is 215.71 – 1,303.52 and the index closed at 323.08 on April 30, 2009. The chart below describes the six-month SUNIDX performance.
The following chart shows the wild SUNDIX ride for the last six months, as compared to the S&P 500 Index (GSPC).
Unfortunately, Green Investor believes that the solar sector is facing some serious internal problems that will likely to continue into early 2010. The industry is still in the midst of a shakeout. There is tremendous overcapacity, dropping prices and weaker demand due to the worldwide financing challenges. This will all result in lower gross margins and lower profits.
While the future of the industry is without question extremely bright, making money in solar stocks is a speculative undertaking that carries higher risk but also holds the potential for much higher profits.
Green Investor believes that those investors who can stand the risk should jump into the solar pool at this time. Perhaps the easiest way is to simply play the SUNIDX. To do so, one might consider the Claymore/MAC Global Solar Energy Index ETF (TAN). TAN, which was launched on April 15th, is a passive exchange-traded fund (as oppose to active ETF) that uses MAC Global Solar Energy Index (ticker SUNIDX) as benchmark. The index mainly tracks companies that either manufacture solar power related equipment or supply materials used in solar power system, or provide consulting, integration, or financing for solar power industry. Currently, the fund is invested in 25 stocks, including many popular Chinese solar power players such as JA Solar and LKD Solar. Companies covered by SUNIDX have market caps from $300 million to nearly $18 billion. Specifically, 42.65% of the components are small-cap stocks, 29.67% mid-cap, and 27.68% large-cap. According to the fund’s prospectus, the index is rebalanced on a quarterly basis.
A recent list of TAN’s component stocks and their respective weightings in the index are as following:
First Solar (FSLR): 8.87%
Renewable Energy: 8.25%
Q-Cells: 6.65%
Suntech Power (STP): 6.32%
Solarworld: 5.51%
JA Solar (JASO): 5.39%
Yingli Green Energy (YGE): 4.81%
Sunpower (SPWR): 4.73%
LDK Solar (LDK): 4.55%
Memc Electronic Materials (WFR):4.45%
Solaria Energia Y Medio Ambiente: 3.63%
Centrotherm Photovoltaics: 3.44%
Trina Solar (TSL): 3.27%
Energy Conversion Devices (ENER): 3.25%
Ersol Solar Energy: 3.14%
Solarfun Power (SOLF): 3.03%
Canadian Solar (CSIQ): 2.85%
Solon Ag Fuer Solartechnik: 2.78%
Evergreen Solar (ESLR): 2.75%
Meyer Burger Technology: 2.43%
Roth & Rau: 2.17%
Conergy: 2.09%
Manz Automation: 2.09%
China Sunergy (CSUN): 1.94%
Emcore (EMKR): 1.60%
The 52-week range for TAN is 4.65 – 30.79 (backcast) and the fund closed at 8.2291 on April 30, 2009.
For the next post, Green Investor will reveal a special situation solar stock.