Have Solar Stocks Bottomed?

150 Million Sheep

The Market Today

Have Solar Stocks Bottomed?

Recent weeks have brought an abnormally high number of days when the Dow gained or lost 200 or more points, as the overwhelming majority of stocks joined in the trend of the day. What do I think about this volatility, and what does it mean for the future?

On one hand, I’m sanguine, as I don’t own the market; I own individual stocks. So it’s not what the market does that concerns me; it’s what my own stocks do.

On the other hand, I know that my stocks are susceptible to the moves of the broad market, particularly when the market is so news-driven that people react en masse—like sheep—to every new tidbit of information.

And even though I prefer not to join the crowd, it always pays to be aware of how the crowd is feeling, if only so you can sometimes act differently.

Benton W. Davis, in his 1964 book, Dow 2000, explained this aspect of contrary opinion with a colorful illustration:

“Think of it this way. There is this great big pasture stretching up and down on a long hillside with a fence all around. Today, there are eighteen to twenty million sheep in this pasture, the majority quite unseasoned. In fact they would seem to be, at times, conducive to panic. If someone appears shouting “wolf,” these sheep can take off as one, in a cloud of downhill dust and thundering hooves, to wind up a shivering, shaking mass, stopped only by the bottom wire.”

This, perhaps, is where the market was last week—or where it will be somewhere in the future. Time will tell us where the real bottom is. In any event, we now have a very nervous group of investors, with their trigger fingers poised to buy or sell at the next piece of news.

And instead of 20 million, as it was in 1964, the number of investors now looks more like 150 million. And that’s just in the U.S.!

These investors like to think they’re rational people, using rational investing systems. But when so many are looking at the same metrics—the unemployment rate, the Federal Reserve Board’s latest minutes, the Consumer Price Index—they can’t help but being part of the herd.

So how do you avoid being a sheep? You can start by truly thinking for yourself, working hard to stay out of the well-traveled and easily-found pathways.

The Market Today

Looking at the market today, I see that we had a six-year bull market in stocks, followed by a four-month correction that gained momentum heading into its late August low.

That low was tested last week, as many experts expected.

But the volume on the retest was mild, not convincing. Furthermore, the buying since then, even though it’s boosted the indexes, has not been broad enough to lift all boats. Most specifically, it hasn’t been broad enough and strong enough to reduce the number of stocks hitting new lows to fewer than 40 on a consistent basis—and that’s troubling.

To me, it says the downtrend is not complete. It doesn’t tell me when it will be complete—after all, the future is not written yet—but it does tell me that more time is required.

And that’s not surprising! The market is famous for not doing what we want when we want.

Nevertheless, it’s important to make contingency plans, so that you’ll be prepared when the market does get rolling again. Part of my plan involves solar energy stocks, which were one of the sectors hit first, and one of the sectors hit hardest.

Have Solar Stocks Bottomed?

Gasoline prices recently dipped to their lowest levels since 2004, and for that we can thank fracking, which has enabled drillers in the U.S., more than anywhere on earth, to get more oil out of the ground at lower cost.

At the same time, it’s crippled OPEC, disarmed Venezuela, given a shot in the arm to the air travel industry, and given U.S. automobile drivers a price break.

It’s also wreaked havoc with solar energy producers, who have found their economic arguments increasingly undercut by falling costs of traditional fuels.

As a result, the solar stocks have been a great place to lose money over the past couple of years.

First Solar (FSLR), with the biggest market capitalization of them all, is 37% off its high of last year.

 

SolarCity (SCTY) is 47% off its high of last year.

SunPower (SPWR) is 46% off its high of last year.

Canadian Solar (CSIQ) is 57% off its high of last year.

Trina Solar (TSL) is 48% off its high of last year.

Jinko Solar (JKS) is 34% off its high of last year.

And that’s after last week’s big bounce in all the energy stocks!

There are no uptrends in place yet, so I’m not advising buying. But I do see bottoming patterns forming, not least because most of the panicky sheep have sold out of the sector and now I sense that smart bargain-hunters are slowly moving in.

Also important: there are a number of younger names in the industry, whose stocks came public in the last year or so, that are less well known and therefore more susceptible to buying campaigns when the market and/or sector turns up.

I’m watching all of them carefully, and I’m planning to recommend the best to my Cabot Stock of the Month readers when the time is ripe.

These readers, by the way, are doing pretty well. My portfolio of six stocks holds only one (small) loser. The rest of my recommendations have profits reaching as high as 748%.

If you’d like to join them, and be among the first to read my first solar energy recommendation, you can get full details here.

Yours in pursuit of wisdom and wealth,

Tim signature

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory 

Comments