Auriga's Mark Bachman is one of the best in the space.
From Reuters:
Shorts piling on First Solar
* Bears see competitive advantage fading
* Bulls see rebound, say stock price is attractive
By Nichola Groom and Matt Daily
LOS ANGELES/NEW YORK, May 26 (Reuters) - First Solar Inc (FSLR.O) became the world's most valuable solar company because its cadmium telluride panels are the cheapest in the industry.
Investor euphoria for green technology sent the Wall Street darling's shares to an all-time high of $317 in May of 2008, just 18 months after debuting on the market at $20 a share.
On Thursday, the stock closed down 2.2 percent at $117.96 on the NASDAQ.
Three years later, however, the stock has shed more than 60 percent of its value and it is among the most heavily shorted stocks in the Standard & Poor's 500 index. As of May 13, more than 30 percent of its free float was held in short positions.
Investors who sell securities "short" profit from betting stocks will fall. Short-sellers borrow shares, then sell them, waiting for the stock to fall so they can buy the shares at the lower price, return them to the lender and pocket the difference.
On Wednesday, famed short seller James Chanos said he is betting that shares in First Solar will fall, in part because solar power is still too expensive to compete with traditional sources of electricity generation. He also said Chinese competitors are increasing capacity and cutting costs so rapidly that profits across the industry are suffering.
So is Chanos correct that First Solar is caught in an irreversible downward spiral? Or is recent weakness in the stock a prime opportunity to buy into one of the industry's market leaders?
COST ADVANTAGE DETERIORATING
Gordon Johnson, head of alternative energy research at Axiom Capital Management in New York, said the cost advantage of First Solar's thin film modules is deteriorating as prices for polysilicon, the material used by most panel makers, have declined sharply. He has a "sell" rating on First Solar.
"Crystalline silicon (modules) were $1.45 on a per watt basis ... and in the first quarter of this year, First Solar's prices on average were $1.33. First Solar has to be at a 25-cent discount to crystalline silicon to compete because thin film modules are less efficient than crystalline silicon. You could see crystalline silicon prices on par with First Solar by the end of the second quarter."
Increasing manufacturing capacity across the industry will boost global supplies of modules, while big solar markets such as Germany, Italy, France and the Czech Republic have cut their subsidies for solar.
"The market will actually decline this year at a time when you have supply more than doubling," Johnson said.
Investors should also be concerned about the expiration of a U.S. government cash-grant program for renewable energy plants. Four of First Solar's biggest U.S. projects are also relying on a U.S. loan guarantee program, but those funds may not get approved, and the program expires later this year....MORE
