MorningWord 8/7/13: On Monday I took a quick look at the frothy action in Web 2.0 stocks ytd (FB, YELP & Z) vs their Web 1.0 peers EBAY, AMZN & YHOO in an effort to show what could be some late bull cycle speculative price action (here). Yesterday I extended the theme to the recent parabolic move in Chinese internet stocks listed here in the U.S. (here) and suggested that despite reasonable valuations relative to expected to growth to their U.S. peers, the out-performance to their local markets also suggests speculative action. This morning I want to take a quick look at another sector that has been volatile of late, after a massive ytd run, where it appears that valuation and and lack of earnings visibility are beginning to cause concern among investors in U.S. – listed Solar stocks.
Just last night FSLR reported disappointing results and lowered their outlook for the balance of the year and the stock is down about 8% in the pre-market despite its ytd gains of ~50% (as of last nights close). This price action comes a week after SPWR fell 13% after their own earnings disappointment (which is a rounding error on the stock’s 300% ytd gains). Tonight’s report from SCTY, and the stock’s reaction to what is likely to be less than stellar earnings visibility will be an interesting “tell” as to the speculative appetite of investors, as the solar leasing darling boasts Elon Musk (of TSLA fame) as its the Chairman and largest shareholder…..who in their right mind would bet against the living incarnation of Tony Stark??
The solar sector ETF, TAN, is at risk of breaching near-term support around $27 this morning after the FSLR miss:
The ETF almost doubled from its April low to its intraday high on yesterday’s open, an incredible move in just 4 months. Speculative fever indeed.
On a long-term basis, this is still a sector that has seen a massive fall from grace, despite this year’s rally:
The economic feasibility of solar power is improving, but there are obvious growing pains as the sector evolves towards lower costs.
Just as I stated earlier this week in this space, the broad market has stalled a bit at the previous highs, maybe just a consolidation in an effort to make another meaningful push higher, but the fact that the highest valuation stocks, with the lowest earnings visibility have gone parabolic at this stage of the games, with some starting to show signs of exhaustion could be worth keeping an eye on. In my mind SCTY and TSLA tonight are the TWO to watch. Both stocks. given their attachment to the aurora of Musk, and an unproven business model for SCTY, should prove to be a good litmus test for the overall market and the renewable energy sector that has been driven by raging animal spirits in 2013.