I’ll never forget the first time I saw Jim Cramer’s MAD MONEY. I arrived in Los Angeles, checked into my dirty hotel (after a 24 hour flight) and turned on the TV while I tried to fall asleep. While flicking through the channels, I came across a wide-eyed, over-the-top madman throwing chairs around while discussing stocks. After being bored to tears by statistics professors throughout my university years it was a real culture shock to see someone make investing look like horse racing. If you are not familiar with Cramer’s antics, click here, here and here.
Hate him or love him, Cramer has a major influence on investors and he moves stocks. His legion of followers started dumping solar stocks after he said current solar valuations aren’t justified. After hours trading saw First Solar (FSLR – $65.17) trade down 3.16%, Canadian Solar (CSIQ – $9.79) down 2.25%, SolarFun (SOLF – $12.11) down 3.47% and solar heavyweight SunPower (SPWR – $54.63) drop more than 2.0%.
During the show, Cramer also suggested buying Cypress Semiconductor (CY – $21.05) for all the reasons we have mentioned before.
Is this the beginning of the end for gravity-defying solar stocks? Should we get ready for the long anticipated correction? It’s still too early to tell, but I can’t help feeling nervous when looking at the endless influx of Chinese solar companies. A few days ago Yingli Green Energy Holding, a solar-panel maker from China, filed for an IPO offering of $350M in American depositary shares. Yingli Green Energy would become the sixth Chinese solar-power company to be listed on U.S. exchanges. Other anticipated Chinese solar IPOs include LDK Solar and CEEG Nanjing PV-tech.
With all of these Chinese companies coming to the market, I can’t help wondering if this is the beginning of margin compression in the solar industry (raising a “red” flag?). Maybe Cramer is right. Maybe cheap labor and government support is why investors are going after the Chinese solar companies, but it is still unclear where many of these newcomers are getting their polysilicon. These companies all have aggressive expansion plans, and it is a real concern that capacity will grow more rapidly than demand.
If we had to see a correction in solar stock valuations over the next three weeks, Jim Cramer will probably be blamed. Investors in Chinese solar companies will probably learn the supply-demand lesson the hard way. But bulls should remember to look on the bright side: thanks to Jim Cramer and supply-demand imbalances there will be a few bargains. I can’t wait for the likes of SunPower (SPWR) and FirstSolar (FSLR) to become cheaper. But remember not to “bargain for fish that are still in the water” (Indian proverb), we’ll have to wait and see how soon the polysilicon shortage is resolved.
Disclaimer: I do not own any of the stocks mentioned above. I don’t own a solar panel.