Monday, February 4, 2008

Bookkeeping: Closing Solarfun Power (SOLF)

I've had little luck in the solar space outside of Suntech Power (STP) - these stocks are too driven by retail hands - they go up 90% in 4 weeks for no good reason, and then fall 60% in 4 weeks for no good reason. Just panic driven retail momentum traders who play these, and that style does not mesh well with my timing of entries/exits.

Specific to Solarfun Power (SOLF) I mentioned this over the past few weeks - when it announced its convertible debt I didn't want to stick around. Just a personal preference due to institutions who love to short common against the debt, along with it not being a very shareholder friendly way of raising money. Instead of selling at $14 on the panic drop, I sold half around $17 and was hoping for mid $18s or better for the rest, but I am content to get rid of the rest here as we approach $18. Solar is perking up today, as risk takers now venture back into the market slowly but surely...

I am selling the remaining 650 shares at $17.90, and exiting the position. (with a substantial loss)

Technically the stock bounced nicely off its 200 day moving average of $15.50 or so, and the 50 day moving average is near $20 (and falling daily). I will be interested to see how the stock reacts when it inevitably tests $20. Will it fall back or just push right through? I suppose it depends on how much Monster Energy drink the retail investors are drinking that day...

Now keep in mind, SOLF is the type of name that could be $40 tomorrow, as it's the playground of retail investors who really don't care much about fundamentals. (not all investors in this name, but many of the retail variety). As long as it moves up, it's a "great company", and when it moves down "it stinks". That's about the depth of 'analysis' for many stocks in this sector. This was a much easier sector to invest/trade in in late 2006 to mid 2007 before it become the sexy sector full of momentum players who care nothing other than what the stock did the past 24 hours.

I'll keep focused on a 2 tier strategy in this sector buying either leaders (Suntech Power, First Solar), or deep value names (Trina Solar, LDK Solar). I find the valuations much more attractive now across the board than I did in December when I warned this group was valued at levels that made no sense. That said, it is a bit disconcerting both on the way up (and down) how there is no discerning on quality versus junk. People run up all the stocks, or trash them all - this makes me not like the sector as I once did. It makes stock picking useless - you might as well buy any 1 stock, since they are all treated the same. I've said countless times, at some point people will recognize there are winners and losers coming to the sector, and the winners should separate but we are still not at that stage. When we do get there I will feel more comfortable in individual stock selection. At this point, you might as well throw a dart because that's how retail seems to do it. Institutions do not appear to be heavily involved in these names judging by the cratering of these stocks on each downturn.

Last, most of this group reports earnings in the next 3 weeks and the stocks usually enjoy what I call "bipolar" outcomes - meaning they can be up 35% or down 30% in an instant. There is no way to game it, this is simply Las Vegas, and not my cup of tea. It is just the nature of the beast in this sector due to the type of investors involved - whose idea of "long term investing" is "next week". So as I said, SOLF could be $40 post earnings or $12. Depending on the amount of Monster Energy consumed by said "investors". With that said, if you plot these stocks as a group, they are at an "ebb" stage so aggressive/risk tolerant traders could potentially make very lucrative "bets" during this trough period, understanding that "Wall Street gamblers" will return to this group at the first hint of market stability.

Long all names mentioned except Solarfun Power in fund; long Suntech Power, Trina Solar in personal account

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