Solar Credit Crunch: Buy When There’s Blood on the Streets (Part 2)

Shopping for bargains in the solar sector? As we pointed out in Part 1, some selling may have been overdone, creating attractive entry points for solar investors. I wish I can sit here and write about why you should buy TrinaSolar (TSL – Last trade $41.77) after they surprised everyone with their recent earnings report. I want to tell you how FirstSolar (FSLR – Last trade $94.20) continues to amaze me. I want to tell you to buy solar stocks that are fundamentally strong. I want to reassure you that everything is going to be ok, and that the past month has just been another "necessary correction" in a bull market that will continue to defy gravity for years to come. But I can't. I don't know if I'm too cautious, or if I'm not greedy enough, but I wouldn't want to buy stocks right now. There is not enough fundamental data out there to start betting on a trend for stocks; it makes more sense to jump on a bus to a dodgy casino in Atlantic City and double up on red at the roulette table. Why? At least I know my odds in that game, unlike the current situation in the stock market that is being dictated by emotionally charged investors with no idea of the extent of subprime spillover. If you invest now without sufficient data to guide your decisions, you might as well be throwing darts while blindfolded.

If you're looking for bargains in the solar sector, it doesn't make sense to start talking about company-specific fundamentals at this point. You have to look at the big picture (i.e. the impact of the subprime mess on the real economy), and the big picture is looking murky. If the wider market goes down, solar stocks will inevitably be dragged down with the rest of the crowd. To make matters worse, solar stocks face a potential double punch, as losses on stocks could drag down oil prices and erode the appeal of alternative energy investments.

The bottom line: Bargain hunters should sit on their hands and see how much damage the credit crunch has inflicted on the real economy before they start throwing their life savings at risky stocks. So get out your calender and mark the following data release dates:

8/24  New Home Sale for July
8/27  Existing Home Sales for July
8/28  Consumer Confidence for August
8/30  Q2 GDP 
8/31  Factory Orders for July
9/4   ISM Manufacturing Index for August
9/7   Change in Nonfarm Payrolls for August

I'd keep a close eye on consumer confidence data, as it is the consumer that has held up the U.S. economy so far, and consumer spending makes up about 70% of the U.S. economy.  Early signals don't look great for stock bulls, with recent market chaos denting consumer confidence.

It looks like we are going to have to wait until September 7 to see the credit market's impact on the consumer and jobs market. Only then can we start talking about fundamentals again. Brace yourself for more volatility until then.

Disclaimer: I don't own any of the stocks mentioned above. I don't own a solar panel. I do sometimes double up on red at the roulette table, and I know it's a really stupid strategy.  

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Solar Crunch
Photo:Stoneflower, Creative Commons, Flickr