flummox \FLUM-uhks\, transitive verb:
To confuse; to perplex.
Following a decent earnings report, a disappointed investor base sent the stock free falling to the mid $40s from the $70s, I built a quite sizeable position. [LDK Solar Hits Targets]
We did a get decent bounce last week when the company announced preliminary guidance for 2008 and 2009... however it was not a very awe inspiring move considering the company is guiding for 42%+ gross margins in 09. I did take some off the table there, and mentioned:
At this point LDK Solar is marking time - we want to see a nice uptrend through $53+ before we know the investors are jumping back on the bandwagon. Until then LDK Solar is probably in a relatively tight trading range of $45-$51.
Unfortunately even my 2 value plays, LDK Solar (LDK) and Trina Solar (TSL) were marking time because the entire sector has been in mania. My hope was these 2 would hold up better then the names flying 25% a day for no good reason other than momentum, but during yesterday's correction these stocks were hammered just as hard as the stocks trading at far higher multiples. So it's sort of a lose lose situation.
With yesterday's sell off in my favorite name in the group, leader Suntech Power (STP) as it fell to its 50 day moving average of $72, I was able to add to that name at a price I wanted. To keep my solar exposure consistent (I don't want to be overexposed to a sector I consider in general overvalued), I am cutting back more LDK Solar today. Again, my exposure to the names I consider overvalued is nil, but when the sector sells off, investors are not interested in valuation - they just sell anything. So my thesis that those which had already been hit hard would hold up relatively well was proven wrong and if we continue a selloff in this sector (many names are still way too expensive) I don't want to have so much exposure in the fund to this sector. As I stated earlier, this sector is full of people who are performance chasers - they push stocks up much farther than makes any sense, and then they flee en masse. Hence I have had trouble assessing the stocks in this sector as most are way above my "fair value", and the ones that are "cheap" appear to simply be "value traps" as momentum traders could care less about valuation and just buy whatever went up the most yesterday, or last week. Not my style, so it's constantly making me miss entry points as movement in this sector is random and the most speculative companies are making the largest moves - not those companies that will actually be around in 5 years.
I do like LDK Solar for its position as an 'arms supplier' to the army of PV panel makers coming in from Taiwan and China [The Long Term in Solar], but now that we've broken below the 50 day moving average ($46) I don't want to be overexposed and with my dearth of cash I am going to sell these stocks breaking down below their moving averages. I will wait to build this name in scale once the market warms up to it again. I think this company needs to build a good long base, and get some 'strong hands' on board and then perhaps we can see a sustainable move.
With the 6%+ gain today, I am going to cut this position by half, book some loss and raise some cash. I am taking this down from a 2.3% position to 1.0% position by selling here in the $43s.
If the solar sector sees a "true" correction, these stocks will be far lower and provide better entry points. If (no guarantee) that does happen I'd rather be in a leadership stock like Suntech Power. And yes to use the political term of the day, I am a "flip flopper" on LDK Solar.
Long Suntech Power, LDK Solar, Trina Solar in fund; long Suntech Power, Trina Solar in personal account
