Is Wall Street Manipulating Solar Stocks?
Solar companies have soared in revenue, profits and guidance.
Yet, in the past 1-2 years, there have been a lot of short selling, downgrades, negative press and bearish articles pushing solar stocks down to unbelievable levels, especially for the Chinese solar stocks. Their share price is lower than it was in 2007, but their 2010 revenue is approx. 300% higher. What gives?
There is a lot of frustration amongst solar investors with these Wall Street analysts, rating agencies, publications and short sellers. They claim that there is stock manipulation. Are they right?
In this article, I talk mainly about the Chinese solar stocks because their valuation is even more oppressed than for the American solar stocks. I use data about JA Solar (JASO), but several Chinese solar companies have similar data.
EVIDENCE OF MANIPULATION?
JASO’s Q4 release showed that they grew by 211%, faster than almost all other growth companies including Apple, Netflix, Baidu, Google, Amazon, Salesforce.com and Akamai. According to this article, JASO, with a P/E of 5.3, reported 59 cents EPS, beating expectations of 48 cents. Nevertheless, S&P downgraded JASO to a “strong sell”.
S&P is the same company that gave AAA ratings (thru CDOs) to homeowners with no income, no job and no assets. This supported Washington’s goal of getting every American to buy a home. Yet, S&P wouldn’t give AAA ratings to most Canadian banks, which made billions and were amongst the most solid companies.
Value companies have flat revenues and low P/Es. Most Chinese solar companies have lower P/Es than value companies. But the Chinese companies are Growth, not Value companies, and they are growing faster than most growth companies.
Revenue growth from 2009 to 2010:
JASO: 211%
Netflix: 30%
Akamai: 19%
Amazon: 40%
Apple: 52%
Google: 24%
Baidu: 78%
Salesforce.com: 21%
Oracle: 15%
Also, JASO expects 2011 revenue to increase by 50% and says that 90% of the 2011 sales is already under contract (Q4 release). How many other companies can say this?
Net Income Margins:
JASO: 15%
Netflix: 7.4%
Akamai: 16.7%
Amazon: 3.4%
Apple: 21.5%
Google: 29%
Baidu: 44.5%
Salesforce.com: 6.2%
Oracle: 22.9%
Trailing P/E ratios:
JASO: 4.68 (based on price of $7.09)
Netflix: 74
Akamai: 44
Amazon: 66
Apple: 19
Google: 23
Baidu: 78
Salesforce.com: 246
Oracle: 24.5
The P/E range, for the companies growing slower than JASO, is 19 to 246. Using this P/E range, JASO's price should be $28 to $372. However, JASO is growing MUCH faster than these other companies and their 2011 guidance of 50% growth is almost guaranteed because 90% of the 2011 sales are under contract. Few companies can give this kind of guidance for 2011. Therefore, JASO's price should be much higher than $28 to $372.
First Solar (FSLR) is an American company with a P/E of 19, while most Chinese solar companies have P/Es that are half of that or less.
According to Nasdaq, 16% of JASO’s stock is shorted. This is much higher than for the average stock.
Chinese solar stocks were slammed on March 3, 2011, but not the American ones (First Solar, GT Solar and MEMC).
Wall Street’s publications, such as Barron’s, Investor’s Business Daily and TheStreet, have published numerous negative articles about solar.
China Daily and Anhui News published articles stating that JASO and Hefei Government are investing 13.5 billion Yuan ($2 Billion) to build the world’s largest 3GW integrated solar production base because JASO’s CEO expects the solar market in China to grow several times to several hundred times in the next 5-10 years.
However, the Wall Street publications won’t publish this news, even though I brought it to the attention of Barron’s and TheStreet’s Eric Rosenbaum.
Last year, Wall Street media said that European subsidy cuts will hamper solar revenues by latter half of 2010. Many of the solar companies grew like crazy nevertheless.
Wall Street used declining gross margins as a reason to downgrade JASO. However, there’s no mention of JASO’s net income margin growing significantly. Also, some publications erroneously reported that JASO missed EPS expectations when it had beaten it.
Now, Wall Street is saying that revenues in 2011-2012 may be flat. How do they know, when they were wrong about 2010’s revenue? Even if it is flat, so what? Value companies with flat revenues have much higher P/Es than many Chinese solar companies.
However, many solar companies expect revenue to increase, and increase significantly.
Micron Technology, JDS Uniphase and NVIDIA are three of the fastest rising stocks this year. However, many of the Chinese solar companies’ 2010 revenue grew much faster than any of these three companies, and their 2011 revenue is going to grow much faster.
Yet, Wall Street’s analysts continue to downgrade Chinese solar stocks, such as JASO.
Wall Street lost all credibility in the 2008 meltdown. Have they lost credibility again?
POSSIBLE MOTIVATION TO MANIPULATE?
Money is a motivation to manipulate, as short sellers can make money doing this.
SeekingAlpha user “sail.rick” explains why the oil industry and the Republicans are motivated to oppress alternative energy.
Also, since Obama’s campaign in 2007, he has wanted to build a green industry in the US. Recently, he passed a law requiring the Dept of Defense to buy solar panels from NON-Chinese companies. Here’s one of the articles describing this.
At his state of the union speech, Obama said:
"… Just recently, China became the home to the world's largest private solar research facility..."
CNBC is using the above clip to advertise their episodes on China vs US.
Washington wishes that the fast growing solar companies are American and Wall St knows this clearly. Wall Street is more than happy to help Washington squelch the Chinese solar companies for quid pro quo.
Quid pro quo is confirmed in the movie “Inside Job” and this article which states: “financial house might alter stock ratings in exchange for company business”. As you should know, Washington spends millions on fees to Wall Street, such as dealing with stocks from AIG, Citigroup, etc. A little quid pro quo may go a long way to getting more fees, relaxed regulations and bail outs.
In 2007, JASO and other Chinese solar stocks had much less revenue and profit and had a higher share price than today. Ever since Obama came into office two years ago, the reverse has happened to Chinese solar stocks.
IS IT IN AMERICA’S BEST INTEREST TO PROHIBIT PURCHASES FROM CHINESE COMPANIES?
Obama passed a “buy American only” law for solar panels.
There was a raging debate when Obama tried to pass a “buy American only” law for the stimulus package. Luckily for the US, this was rejected for good reason. “Buy American only” is protectionism, which is anti-free trade. If you believe in free-trade where you want other countries to buy your products, such as GM cars, IBM computers, Cisco routers, Android phones, iPhones, iPads, Boeing planes, Caterpillar trucks, etc., should you ban the purchase of their products in your country? Is this hypocrisy?
Besides, the worst part is that protectionism can make each country poorer. When countries saw their GDPs contract and unemployment go up in the early 1930’s, they passed protectionist laws, which reduced trade between countries,