Is the Solar Industry Gearing Up For a 2013 Recovery?
After trading under $1 for most of October and some of November, LDK Solar Co., Ltd. (NYSE:LDK) looks like it will enter the new year with a buffer between it and penny-stock territory. The Chinese solar manufacturer traded around $1.22 on December 27, riding high after news broke earlier in the month that Chinese officials would double their solar subsidies, spending about $2.1 billion to support the struggling industry.
The stock, down over 72 percent this year to date as a result of tremendous overcapacity, lower demand, and new trade tariffs issued by the United States government, is up 23 percent over the last month. This movement is echoed by Suntech Power Holdings Co. Ltd. (NYSE:STP), another Chinese manufacturer that often traded below $1 per share between August and December. Shares are down nearly 46 percent this year to date, but are up more than 47 percent over the last month.
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The market’s positive reaction to the subsidy hike underscores the industry’s dependence on government assistance. Without the catalyst, these solar stocks could easily have continued to bump along under $1 per share, facing selling pressure and warnings from the exchanges to stabilize their prices or face being de-listed. Both companies have a beta over 3.1, double their major publicly-listed competitor in America, First Solar, Inc. (NASDAQ:FSLR)
Looking at the stock chart, First Solar’s price movement is archetypal of the industry as a whole. Shares are down 14.4 percent this year to date, and up 16.5 percent over the last month. The Market Vectors Solar Energy ETF (NYSE:KWT) follows a similar course, down 39.28 percent this year to date and up 18.23 percent for the last month, while the Guggenheim Solar ETF (NYSE:TAN) is down nearly 50 percent since the end of February, and has risen 15.42 percent this past month.
The solar industry at large is heading into the new year on a more optimistic footing. A report released by the Solar Energy Industries Association indicated tremendous third-quarter strength in the U.S. solar market, with installations up 44 percent year over year, and highlighted several healthy indicators.
But as with any trend, it’s not all good news…