Vad's Best Ideas

I can't stop getting confused and amazed with just how silly some stocks/investors can behave in the short term. As I said in my previous posts I fully believe that stocks while semi efficient in general, tend to overshoot in each direction when some stock or sector all of sudden gets "hot" or "cold"... Today's "craze du jour" is definitely the alternative energy field. Undoubtedly, solar is a great alternative to ethanol and many established solar companies are likely be successful in the long term. But do all the companies in the sector deserve the same fantasy valuations? I don't think so...

Look at the CTDC - up 70% today alone... http://finance.yahoo.com/q?s=ctdc The company has been around since the late 90s, never made any real money but recently has announced that it intends to be a "solar focused" company. Because it has bought a factory making thin film base plate and announced an agreement with a subsidiary of a bulletin board company called China Solar. Stock price of which in turn started going up after changing it's name from Deli Solar to China Solar and issuing more shares :)... Heh? It is simply very humorous how far the excesses could go in the short term...Stocks like this are simply going to end up costing retail investors a lot of heart burn and money...

Here is Vad's take- most of the solar stocks flying hot today are likely to trade much lower in the next 12-18 months- some will even go out of business. Let's be realistic- it's going to be (or actually as LDK's results show) already is a pure "commodity" business. What does it mean- it means competing predominately based on price, hence lower margins and ultimately lower multiples. Yes, there are several players that actually do make money and could probably deliver solid double digit growth for years to come. But current overinvestment and hype in this solar business is simply not sustainable... Manufacturing stocks (yes solar stocks are simply manufactures albeit having a very high growth rate) trade at lower multiples for a reason-they require heavy capex to support growth and are subject to constant pressures from commodity prices, suppliers and customers.

Anyway, just usual ramblings here but I really do wish we could short stocks at this contest as well...

Disclosure- this post is not directed at any person or stock (except CTDC) specifically. I simply wanted to state my opinion and put out a red warning sign out there- "Solar overheating"

Trade safe and cheers,
Vad

P.S. Here is a short term recipe for instant success for any high risk entrepreneurs out there- just open a plant in China (it could be actually even faster to buy one using investor's money :)), list on NASDAQ or may be even better in Hong Kong, call yourself something that has the word "solar" and may be even "fun" or "china" in it and go surfing on the Costa Rica :). Just hope you can get it done before the reversal unravels full speed...

Comments: View Comments |  Wednesday December 26, 2007