Right now anything that rhymes with mina, fina, pina or china is ramping up huge - I have seen some small cap Chinese stocks up >70% since last Tuesday's Fed cut. 30-50% gains are typical, even in mid caps. It's a 'bit' extreme, as those companies businesses obviously did not improve 50% in 4 days. While this can continue indefinitely as it's a speculator's market once again, I am not running this fund to play in that part of the pool, so I will say thank you and move on. I have a good bit of exposure to this space in the more integrated solar PV makers whose valuations I like better, Suntech Power (STP) and Trina Solar (TSL). Not that it matters but LDK Solar was downgraded today (didn't stop the stock from jumping up >5% in this madness for all things Chinese).
There was one interesting quote in the downgrade today: "He said LDK shows that companies without experience in producing polysilicon can enter that business quickly. That means new competition could spring up quickly, and the increase in polysilicon capacity over the next few years could drive prices down. He reduced his 2009 profit estimates."
This is basically my thesis on the whole group - while the above commentary is negative for LDK Solar, it would tremendously benefit those companies who are straining to find any supplies of polysilicon in today's constrained market. So when the market begins pricing this in, I don't know. But as it stands now companies like LDK have the pricing power and gross margins to prove it while the integrated names have seen gross margin erosion, hence the difference in performance of late. Eventually this will flip, so I am positioning the fund for that. Also, not that valuation matters to a momentum stock like LDK, but at $70 it is now trading at 58x 2007 estimates and 36x 2008 estimates. When I bought it, I was paying 39x 2007 and 24x 2008 so you can see in just 3 weeks how much the valuation has changed.
Long Suntech Power Holdings, Trina Solar in the fund; no personal positions
