"PV Industry Oversupply in 2008":
...Stock impact and timing… the ethanol example
So, what to do with the stocks? At the moment, traders and momentum are in control of solar stocks. When will fundamentals start hitting them? I find the ethanol industry provides the best and most recent example. By the end of 2006, it was apparent that the ethanol industry was headed for oversupply as high ethanol prices stimulated investment. Through all of 2007, ethanol prices fell in anticipation, bottoming at cash cost near $1.55 in October ‘07. Ethanol stocks fell as well, all year long, in anticipation of an oversupply which won’t actually be cresting until 1H08 as new plants complete. The stock trend shifted downward a full year before the actual supply/demand imbalance peaked, and the stocks kept moving downward as the situation clarified. Now, ethanol prices and the stocks are both starting to rebound, looking ahead as the new RFS standard and declining investment should restore market balance by 2010 or so. In the case of PV, the Spanish market is working its way through a near-term peak right now as projects need to be turned up by Sep 2008, when tariffs drop from .44 eurocents to perhaps .31 eurocents. Working that wave back in time, panel orders to suppiers are presumably peaking in 4Q07/1Q08 for this hot sector of the market. There is hope for a similar wave of projects in 2H08 in anticipation of German subsidies declining. In both Germany and Spain, I believe 2008 sees installation peaks in anticipation of tariff reductions and the stocks will soon need to start factoring this in. Overall, without attempting to time the market, I don’t anticipate having to wait very long before momentum gives way to doubt in these stocks; I think they start looking ahead this quarter (1Q08).
In my view, there will be four levels of stock reactions, from most negative to least negative, basically driven by the company’s industry position. Worst hit, IMHO, will be the non-integrated silicon-based producers in the supply chain: LDK, SOLF, WFR, JASO, etc. Vertically integrated crystalline silicon producers will be second worst; the smaller they are the worse off they’ll be. ESLR, SPWR, STP, YGE, etc should all react. Thin-film may have the least negative reaction because, as low cost producers, they should fare relatively better in a downturn even though their ASPs will drop as fast as the next guy’s. Nonetheless, I think FSLR gets hit hard due to overvaluation and growing recognition that Nanosolar has a fundamentally better approach. (i.e., FSLR is king of a time window). The fourth class of stock reaction is actually positive: companies like Akeena (AKNS) actually benefit from panel price wars. Sunpower, because a significant portion of revenue comes from project business, also benefits and this somewhat offsets the hit they’ll take as a manufacturer....MORE
Here's his site.