TAN, the solar ETF, is breaking its 200 day moving average today for the first time since April 2013. It has been quite a run for the sector, as TAN has gone from $15 in April 2013 to $37.50 today (and that’s down from the $51.07 high in early March):
The largest component in TAN is First Solar. FSLR actually broke out to a new 2.5 year high on its April earnings report, but the stock has failed to hold that breakout. That’s actually a familiar pattern for FSLR during the 2 year bull run:
After FSLR topped in May 2013, it corrected lower over the next few months to eventually find support around its rising 200 day moving average. It then broke out to a new high in the fall, before correcting lower over the next few months to test the 200 day ma once again. After the March breakout, FSLR is once again on the path to testing the rising 200 day ma once again, which is now around $54.
What about the fundamental business trends? I wrote extensively about FSLR in a September Deep Dive post, with the following observation:
FSLR is the largest thin film solar module manufacturer in the world. Its total average module manufacturing cost in the second quarter was $0.67 per watt, which is competitive with the major polysilicon manufacturers globally. However, the manufacturing side of the solar business is extremely competitive (with Chinese manufacturers frequently the cheapest), so FSLR’s current advantage is in its vertical integration.
FSLR is one of the few solar module manufacturers that also plans, finances, constructs, and then maintains utility-scale solar projects (what FSLR refers to as its “systems” business, as opposed to just selling its solar cells to others). SPWR and SUNE are two other U.S. companies in that space. Many of the other global players are focused on a few steps in that process, rather than the whole set of needs to get a utility-scale solar plant up and running.
Since then, the global prospects for continued solar power plant growth have improved, as costs continue to decline and sustainable energy demand remains in a secular growth period. FSLR’s earnings volatility continues to be a source of concern for the stock, but FSLR is definitely the “value” stock in a growth sector with a cheap valuation, though a lower growth outlook for the business overall.
Regardless, if FSLR approaches its 200 day ma in the coming weeks or months, I’ll be on the lookout for a bullish options structure 3-6 months out. The chart indicates a stock under long-term accumulation, with bursts of euphoria and panic mixed in.