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Closing LDK Solar, Keeping Trina

by: Trader Mark May 15, 2008 | about stocks: LDK / STP / TSL / YGE    
Trader Mark

Trader Mark

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After the earnings report (solid) and guidance(not so much) from LDK Solar (LDK) earlier this week, I cut back my stake. I've decided to sell out completely for a few reasons. First, the sophistication level in solar seems to not be so high, so these stocks all trade in tandem... if company A reports a bad number they all sell off, or if company B reports a good number they all go up. So in some ways a basket approach is a bit useless.

Second, I think LDK Solar is more of a late 2008 to mid 2009 story so I'll revisit it then. While it can jump in the meantime [up], I believe it will just be due to the sector and not anything specific to the company, so I can get that same 'sector' exposure through other names (with fewer headwinds). I want to keep my solar exposure (allocation) consistent - and I've piled a lot into Trina Solar (TSL) due to its valuation and prospects the next few quarters. I'd rather own more Trina, than put that same money into LDK Solar.

Now we do have some risks owning Trina as well, as (1) the market is well overdue for a correction (2) the solar sector has exploded and is due for its own correction and (3) Chinese leader Suntech Power (STP) might have a bad quarter due to some company-specific situations and it reports next week (Trina is not out with their date but they report next week as well)- and as I said above, when 1 name has a bad quarter people trash the whole sector, regardless of individual fundamentals.

So while I've moved Trina Solar up to the top stake in the fund, I've cut back elsewhere to keep my allocation flat. At this point Trina Solar could gain 100% from here, and only trade at par with valuations of its peers such as Suntech Power (STP) or Yingli Green Energy (YGE) - this is why I am willing to hold it even though the above 3 conditions could lead to a sell off in the name. It's valuation is just that compelling, and it is being missed by the market.

So as a warning ahead of time, we might take some losses in the near term (weeks) from this position, but I think by end of year 2008 this will be a huge winner, and when I think of applying new money to the sector I'd rather go there instead of LDK Solar. With earnings from Trina coming in a few weeks, I'll know shortly if this thesis is correct; but I'm going to a more narrow focus in the sector (less names).

Once again let me stress this sector has come a long way in a short time and all the names are at risk of substantial pullbacks - and when this group pulls back it does not mess around - 25-30%+ pullbacks are the "norm". I'm selling the last 150 shares of LDK Solar around $36.00; this has been one of the fund's biggest losers [Top Fund Winners and Losers] and I've owned it since Aug 30, 2007. I do believe it will have a nice 2009, but the chart below shows how it has done since September 07, and how difficult it has been to make money in this name.

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This article has 24 comments:

  •  
    May 16 12:09 AM
    You may be right about TSL as I also hold a long position. But I don't think it wise to abandon LDK until later. Goldman Sachs just increased their position in LDK by 179,970 shares bringing their total to 725,782 shares or about $26 million. I am sure your 150 shares are important to you but I would rather follow GS.

    It is also interesting that GS still has a HOLD rating on LDK even though they are buying up shares.
    Reply
  •  
    May 16 12:13 AM
    This article is pathetic. clearly this writer is one of these misguided technicians who shorted this stock in the twenties and is now holding a losing position. Please compare any fundamental measure between LDK and TSL and you will clearly see LDK is the better value. TSL is also a good company, however LDK has a new poly plant on the way, higher margins, lower PEG, lower PE, $200 million share buy back, $20 billion booked orders with pre payments, blah blah blah do your own DD. This writer clearly is trying to influence holders of LDK to liquidate, he must be holding what is most probably a losing short position. Currently there are approximately 14 million shares sold short, and these sellers are trapped, as many have sold well below the current price. Just look at the daily chart it shows a series of higher highs and higher lows off the march low. We are now consolidating in what appears to be the right shoulder of a reverse head and shoulder accumulation pattern. This is definately a time to buy, not to sell. With tomorrows options expiration, market makers will be giving us one more chance to add before the squeeze begins. Yes I am talking my book. I started a large position in the low twenties and added in the low thirties and will add again in the 35 or lower range if I get the chance. Thanks in advance short sellers.
    Reply
  •  
    May 16 01:58 AM
    It is eally difficult to understand how it would be possibile for such poor analysis to be published.No strategic view, no fundamentals comparison, it seams to me a kind of bar discussion in front of a big glass of beer..
    But better to talk about women and soccer, at the bar...
    Reply
  •  
    May 16 02:54 AM
    I can't understand why LDK has so many small investors, which are pumping wherever they can.

    At 47

    TSL is at P/E 9-11 2008
    TSL is at P/E 4-5 2009
    TSL will grow appr. 100% 2006 - 2010 on yearly bases

    Do you want to compare this to LDK or any other solar stock?
    Reply
  •  
    May 16 07:20 AM
    @Trade Mark..nobody is expecting a blow out quarter by STP....they announced, or rather it is known they have limited supplies this quarter...so they had two options and will see in the quarterly report which one they chose...either pay spot silicon prices(which will kill the margin)....or sacrifice growth...so I dont think many are expecting that blow out quarter and i think that is already priced into the share for the most part...I think they will report in-line maybe a little above due to exchange rates...but surely not expecting more this Q. With Kind regards

    Long TSL, STP, ABX

    PS@ezetrader....I am pretty sure when Goldman got as many shares as they want, that hold rating could possibly turn into a buy rating:)
    Reply
  •  
    May 16 10:57 AM
    Trader Nick,
    LDK shr buyback????
    Reply
  •  
    May 16 12:52 PM
    There seems to be a lot of short positions in the solar cell manufacturers. I myself, don't see the short argument. If anyone can present the case for shorting these stocks, I would like to read it.
    Reply
  •  
    May 16 01:03 PM
    imthewiz - Yes LDK $ 200 million buyback, this was part of the shelf offering of $400 million to complete the poly plant (see article included). Timely completion is now a certainty in my opinion,with an engineering contract from Flour, money from the offering, as well as prepayments from bookings.

    Caio

    TEL AVIV (MarketWatch) -- LDK Solar Co., (LDK:ldk solar co ltd sponsored adr
    News, chart, profile, more
    Last: 37.17+1.03+2.85%

    12:39pm 05/16/2008

    Delayed quote dataAdd to portfolio
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    Sponsored by:
    LDK 37.17, +1.03, +2.9%) the Xinyu City, China, producer of solar wafers, the raw material for solar cells, priced an offering of $400 million of notes. The company said it would use the funds in part to enter forward contracts under which it would buy back $200 million of its American depositary shares. The notes are 4.75% senior notes due 2013, and they'll be convertible into LDK Solar's ADSs, cash or a combination of the two. The initial conversion rate is 25.4534 ADSs per US$1,000 face amount of notes, which equals an initial conversion price of US$39.29 per ADS. In turn, that's about 25% above LDK's closing price of $31.43 on Wednesday. LDK hopes to close the offering on April 15. Beyond the ADS buyback, LDK Solar said it would use 75% of the remaining proceeds to build a polysilicon-manufactur... plant, 20% to expand its wafer-production capacity and 5% for other purposes.
    Reply
  •  
    May 16 01:35 PM
    Nick, I could only wish I had been short LDK

    It would of served me much better than being long anytime in the past half year, no? :)
    Reply
  •  
    May 16 02:25 PM
    Why I'm long LDK:
    SAN FRANCISCO (MarketWatch)
    By Wallace Witkowski
    Last update: 4:29 p.m. EDT April 2, 2008 -- LDK Solar Co. LDK 37.08, +0.94, +2.6%) said late Wednesday it signed a 10-year agreement to supply solar wafers to a unit of Moser Baer India Ltd. Financial terms were not disclosed. Under the agreement, LDK will supply Moser Baer with 640 megawatts of solar wafers starting in mid-2008.

    I'd have to look for a long time to find any other co. inking 10 YEAR contracts with anyone. Maybe Boeing?
    Reply
  •  
    May 16 02:27 PM
    Mark, if you are holding a losing long position then I am sorry for you. Yes a good trader must cut his losses at some point. In response to your comment about being long anytime in the past half year. I have only held for about 2 and a half mos. . The market is a forward pricing mechanism and the new poly plant is not even priced in yet, but I beleive that the PPS will be much higher before they produce their first gram of poly. See my other comments and look at the chart youn posted from a technical stand point it looks great. G/L

    Caio
    Reply
  •  
    May 16 03:33 PM
    Nick I'll be long LDK later in the year. For now there are much easier plays in solar and I believe in money management. Sitting in a stock that I believe will trail its peers and or is only going up due to the sector enthusiasm is not where I'm going to focus my money.

    As for LDK everyone (almost) who bought from Oct 07 is either deep underwater, or flat at best except for some who piled in during the March lows through April and I'd argue there have been many stocks (solar or otherwise) which provided far greater return since the March lows. Everything has gone up since the March lows.
    Reply
  •  
    May 16 04:31 PM
    Larsson where you gettimg your # from
    yahoo says..
    2008 P/E for TSL 16 and for LDK 22
    Trailing P/E LDK 27 and TSL is 33
    peg LDK .21 and TSL .61
    forward P/E 2009 LDK 10 and TSL 12
    Although I agree TSL is undervalued but LDK is much more undervalued
    also don't forget short interest is around 15M out of 37M float for LDK
    Reply
  •  
    May 16 10:11 PM
    If you owned it since 8/30/07 you can't hold it a few more months and quality for a long-term distribution and lower taxes (if you show a profit by then, which is more likely than not)? That doesn't make sense, especially when you also say LDK is a late 2008 play.
    Reply
  •  
    May 16 10:48 PM
    i still like LDK, but your move is a good one. LDK seems to be at the high of its short term range while TSL seems to be the opposite.

    -Scott
    solarfeeds.com
    Reply
  •  
    May 17 10:15 AM
    In the long term it's going to be hard to lose money in solar stocks. In the short term, if there are a lot of shorts, they will trash stocks on earnings, no matter what. Be ready to buy on dips. Next week could be fun!
    Reply
  •  
    May 18 08:28 AM
    Mark - I do agree - when these stocks correct, 20-to 30% in a day or two is no big deal. And this could happen in the very short term if you get a bad report out of STP or a downgrade or oil corrects. BUT... LDK has built a serious bottom and Wall Street is starting to factor in that we are a few months away before LDK enters an entirely new level above the other PV solars. This is going to be reflected in the stock price BIG TIME. Already, the last quarter low-ball targets of $28 by Jaffery and the like are being ignored. Just like the market is rebounding because it is looking fwd 6-9 months, Wall Street is going to do the same with this company and is going to accumulate at these levels to get in before any factory announcements are made. Yeah it could be a bumpy ride, but I have seen this stock go up more than 15% in a day and once it gets going you are going to kick yourself if it gets away.

    Another point, this is a controversial stock unlike any of the others. It was marred by the whole Situ scandal and then, in the 4th qtr, Jesse Pichel was trying to find inventory accounting issues that would validate his Situ support back in sept/oct when the scandal broke on Barron’s. This whole issue is starting to truly dissipate for the first time as nothing was mentioned about it in the media following the first qtr results. For this company’s credibility, that is a major turning point. After all, this is really one of the main reasons this company has lagged behind all the other solars in the same sector even though the margins are amongst the highest.
    Reply
  •  
    May 19 11:03 AM
    As I write this, LDK up about 11% since this article was written. Could you please keep posting when you sell any stocks? I'd like to buy your shares. Thanks.
    Reply
  •  
    May 19 01:03 PM
    I just bookmarked this article so I can follow your other sell reccs - you're a fantastic contrarian indicator!
    Reply
  •  
    May 22 09:43 PM
    Time will tell. Shorties has failed. The writer of this article has been proved to be a moron.
    Reply
  •  
    May 26 01:59 PM
    I see your comments i DO NOT SALE MY LDK see that price now and compare with TRINA
    Reply
  •  
    May 27 09:40 AM
    Dumb move. LDK has gone up a lot since you wrote this. It has room to go up a lot more. It is probably the best bargain in the solar space at this moment in time, even after its rise to today's price of $47+. It has a great FPE and a great PEG. The conservative guidance LDK has been giving out lately tends to indicate that those figures may be conservative. Further if LDK gets its small poly plant done by the end of June (or close), this will be a big boost for the stock. It should give credence to LDK's claim that it can get the first stage of its large poly plant done by the end of 2009. Jesse Pichel's claim was that it would be delayed to 2010. Many brokerages downgraded LDK on that basis, especially Piper Jaffray. It seems likely that a schedule meet on the small poly plant would cause many of them to change their minds. Upgrades from several analysts would result in a huge boost to the stock price, especially in the current solar market.
    Reply
  •  
    May 27 03:57 PM
    Your post was VERY misleading. You say that TSL could go up 100% and still be on PAR with YGE? First of all it is obvious you are speaking about current P/E levels, but your even wrong there!
    But forget about that. Why don't you look into the future ( near future as in next year even ) Look at YGE forward P/E and Pegs compared to TSL's and then give me an opinion on which stock will have increased in value more by mid in 2009? Please post those FPE and PEGS for everybody to see.
    Reply
  •  
    May 29 08:59 AM
    all i see is the solar stocks going down and everything you all say is meaningless
    Reply
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