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China Solar Stocks for Bottom Fishing

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bottom_fishing_1Nov. 10, 2009 (Chinavestor) While most Chinese solar companies are yet to report third quarter earnings, one thing is for sure: Chinese solar stocks are undervalued. JA Solar (NASDAQ:JASO) has just announced third quarter earnings before the bell today, blasting analysts' estimates. Consensus revenue estimates were $136.2 million vs. actual $193.3 million. Besides stronger sales, JA Solar Holdings (NASDAQ:JASO) swung back to profit.

JASO_09Q3_1

As the chart testifies, revenues were down year-over-year but that's due to a high base and doesn't reflect on the strong comeback from last two quarters. JA Solar Holdings (NASDAQ:JASO) provided higher revenue guidance for the fourth quarter then previous estimates.

There are two things that are very important to notice:

  1. While revenues and earnings swung back up, stock price hasn't. This implies that a strong rally lays ahead. What's holding back JA Solar (NASDAQ:JASO) at this point is the lack of visibility for the solar market as a whole. LDK Solar (NYSE:LDK) is going to report somewhere Nov. 16 - 26, Solarfun Power (NASDAQ:SOLF) is scheduled for Nov. 17,  Trina Solar (NYSE:TSL) for Nov. 19, Suntech Power (NYSE:STP) for Nov. 19, and China Sunergy (NASDAQ:CSUN) for Nov. 23. Considering that LDK solar (NYSE:LDK) raised third quarter revenue guidance to $270mil-$290 mil. from $240mil-$270 mil. on October 27 yet the stock price lost 16% since then, there seems to be a significant mismatch between stock prices and revenues/earnings. If so, a bonanza is around the coner for Chinese solar stocks.

  2. The widely used overbought/oversold monitor picked up the solar sector as the most oversold sector. We wrote on October 19th that "Looking at the other end of the spectrum, e.g. most oversold China stock list, the high number of Chinese solar stocks is apparent. Considering that the price of the crude is trading above $75 a barrel, the whole Chinese solar sector remains undervalued." - read China stocks taking advantage of the rally article. We noticed that five Chinese solar plays were among the 20 most oversold China stocks, a highly unusual event. And when the next day the number of solar stocks rose to seven on the most oversold chart, it became obvious that industry leaders such as LDK Solar (NYSE:LDK), Suntech Power (NYSE:STP) and Trina Solar (NYSE:TSL) were ripe for bottom fishing.
Considering that stock prices for Suntech Power (NYSE:STP) and LDK Solar (NYSE:LDK) have fallen since October 19, the case just got better. Trina Solar (NYSE:TSL) is somewhat different because TSL is trading 8.1% higher but there is still a lot of room left for the upside.


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