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SOURCE Zacks Investment Research, Inc.
CHICAGO, Feb. 10, 2014 /PRNewswire/ -- Zacks Equity Research highlights Canadian Solar (Nasdaq:CSIQ-Free Report) as the Bull of the Day and General Motors (NYSE:GM-Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onSolarCity (Nasdaq:SCTY-Free Report), Canadian Solar (Nasdaq:CSIQ-Free Report) and Sunpower Corp (Nasdaq:SPWR-Free Report).
Here is a synopsis of all five stocks:
Although the solar power industry took a bit of a breather in the fourth quarter of 2013, it now appears that the sector is back on track. Strength has been seen in many names to start the year, and there is plenty of reason to believe that more gains can be had in this corner of the market in 2014 as well.
While there are a number of solid names in this segment, one that you have probably overlooked until now is Canadian Solar (Nasdaq:CSIQ-Free Report). While the name 'Canadian Solar' might sound like a bit of an oxymoron, investors should definitely be paying attention to this solar company which could be the cream of the crop for investors this year.
Canadian Solar is a leading vertically-integrated solar module producer that has operations around the globe, but focuses in on North America, Europe, and Asia. Much of the company's manufacturing capacity is located in China, though it does have a plant in the Ontario province of Canada as well.
The firm has a definite tilt towards European operations, as this segment accounts for about 50% of total revenues. While this was a bit of an issue in years past, European is turning around and CSIQ is looking to clean up in this market once again.
Beyond Europe, the company is also making a name for itself in Asian markets, and particularly in the fast-growing Japanese solar space. This is a very important market-given Japan's desire to replace nuclear power-and since Canadian Solar is now the top foreign solar company in Japan, the firm looks to have a bright future in this key country.
We have already seen strength in many of these markets, as the company's latest earnings report-although it missed our consensus estimate by one cent-- saw net revenues that were up nearly 29% (qoq), while gross margins hit 20.4%, a huge increase from the previous quarter which was at just 12.8%, suggesting a huge uptick in some of the firm's key metrics.
2013 was a great year for the automotive industry as a stronger economy pushed many to buy new cars, while an improved European market had a similar effect on car sales across the Atlantic. Hopes were pretty high for a solid 2014 too, though with recent data some are wondering if that will really be the case.
These concerns have really been centered on the January car sales report which came in far below expectations. Most major automotive manufacturers saw plunging sales which were largely blamed on the frigid weather across much of the Midwest, and the intense snow in much of the Northern part of the country.
Yet while many viewed the weather as a culprit for the lax sales, luxury brands actually saw a pretty decent January. BMW, Mercedes-Benz, and Audi all saw gains for the month (year-over-year), while Nissan and Fiat Chrysler both saw double digit increases from the previous year.
To me, this suggests that more than the weather was at play for the January figures, and that a shifting demand picture could really be hurting some car makers this year. This is particularly true for General Motors (NYSE:GM-Free Report), as the company saw one of the biggest declines in sales for the month, with total sales slumping 12% (year-over-year).
This is quite the disappointment for GM as the company had seen a smooth ride for much of 2013, and it finally broke free from the 'Government Motors' label as the U.S. Treasury sold off the rest of its stake in the automotive giant. However, thanks to its weak January sales and a sluggish earnings report, 2014 isn't shaping up too well.
In the firm's most recent earnings release GM was expected to post earnings of 88 cents a share. However, the company saw just 67 cents in profits, a miss of over 23%, and the first such miss since the December 2012 quarter.
Sunny Side Up or Over Easy?
There could be several reasons why demand for clean energy is increasing. There is the Fukushima Reactor story that reads like a Sci-Fi/Horror script. There are prices at the gas pump on a seemingly constant upwards trajectory. And there is even a crazy group of people that think we should try to save the planet for future generations to enjoy. As a result, electric cars, solar panels and wind turbines are here and they're not going anywhere anytime soon.
I do not know how much attention you have been paying to solar stocks but the sun is certainly shining. Last year many of these stocks doubled with others up nearly 10-fold. Looking in the rearview mirror is no way to make money in the market though. Usually looking behind you just leads to frustration or a false sense of confidence and both sides of that coin are losers. Let's look forward to sunshine and I'm not saying that just because it's February in Chicago.
National Incentive Programs
Sharp Corp in Japan just reported their solar business returned to profit in the third quarter. Revenue nearly doubled for them. A lot of this has to do with Japan's incentive program for clean energy. Here in the US incentives include federal tax credits and state by state provisions. The Department of Energy at one time even had a loan guarantee program which backstopped over $16 billion in loans. As a result, new investment in clean energy has ballooned from about $10 billion a quarter in 2004 to nearly $60 billion in Q4 of 2013.
The US and China are at the center of the solar story. Last year Chinese demand was 12.1 GW in the face of 21.3 GW of production where the US demand of 3.9 GW surpassed US supply of 3.3 GW. This helps to explain Chinese solar companies are attacking the US market by undercutting US manufactures on pricing. This helped push solar to the forefront of the trade war. We already have the headlines surrounding accounting practices of Chinese solar stocks, and now we can add an International Trade Commission decision on a protective US tariff due on Valentine's Day.
There are a few main players in the solar market with stocks that are publicly traded. The solar industry hit my radar when I saw a Zacks Industry Rank in the top 3% of all 265 industries we follow. First we'll take a look at installer SolarCity (Nasdaq:SCTY-Free Report). The company offers solar power, energy efficiency monitoring and maintenance services to homeowners, businesses and government organizations here in the US. Even though earnings have been revised downward for 2015 the stock has maintained a Zacks #2 Rank.
From a technical perspective SCTY is testing the 25x5 SMA which is great because at the same time the Stochastics are relatively oversold. Stochastic levels below 50 are oversold with levels below 20 extremely oversold. So a bullish cross, which may be happening today or Monday, would trigger a buy. Even better is we could put a relatively tight stop loss just below the 25x5 near the latest swing low of $65.61. There is still some downside risk here given the pullback from $80 has not produced many higher highs versus the previous day on the way down here to $70, and until we see a bullish Stochastic with the stock above the 25x5 I would not buy.
Canadian Solar (Nasdaq:CSIQ-Free Report) looks best from a pure technical perspective, backed by good fundamentals with a Zacks #1 Rank although the valuations are a bit out of hand. Rather than being an installer like SCTY, Canadian Solar is a solar module producer that offers ingots, wafers, solar cells, solar modules and other solar applications for on-grid and off-grid use. Here we already have exactly what we were looking for from SCTY stock, a bullish Stochastic cross in oversold territory with the stock retesting the 25x5 SMA. This stock screams "Momentum" like the Seahawks defense on Super Bowl Sunday.
Sunpower Corp (Nasdaq:SPWR-Free Report) designs and manufactures silicon solar cells and panels based on an all-back contact sell design. The cells generate electricity for residential, commercial and remote power applications. A quick look at the Price and Consensus chart helps give an idea why this stock carries a Zacks #2 Rank.
The chart has been a bit choppy and range-bound since October's break out above $28.15. Retests of this level have proved to be profitable prices to peck at. It does seem that price stalls near the $35 level. There has just been a bullish Stochastic cross but with the stock trading below the 25x5 SMA it does not mean much in the way of reestablishing the longer term upwards trend. With a stock like this I would be more patient, waiting for a pullback again to $28 or even better a breakout above $35 followed by a pullback to the 25x5 coupled with a trigger from the Stochastics.
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