Stay away from solar investments next 3 – 6 months
Expect more bankruptcies, even in China.
September 19, 2011
Today the whole solar industry space was hit hard because of pollution concerns with a Jinkosolar solar factory — down 27 percent last I looked — where toxic chemical pollution has caused riots in China.
Unfortunately, this pullback in solar power stocks isn’t a good time to start building a position in stronger solar companies, at least according to Gordon Johnson of Axiom Capital Management.
Essentially, there is far too much supply and not nearly enough demand in the solar space. In fact, Johnson suggests that there is a supply of 55 gWh’s of solar capacity that has been produced, but just 15-20 gWh’s of demand. Unfortunately, Johnson’s interview on CNBC’s FastMoney, didn’t clarify whether that was world demand, or US demand, but that doesn’t seem to matter in the near term.
Consequently, Johnson suggested that avoiding the whole solar space was prudent for at least the next 3-6 months, even when it comes to Chinese solar companies, which will also be hit with bankruptcies according to Johnson.
In terms of US solar companies, Johnson seems even far more bearish.
For instance, Johnson referenced the $5 billion+ that First Solar has already received in government funds. For example, one recent First Solar project required $1 billion in tax payer money, yet has only created 20 jobs and is going to lead to higher electricity prices in the SouthWest region the project served.
As a result, Johnson has a $35 price target for First Solar. Likewise, Jim Cramer of MadMoney again called First Solar a “sell” during the Lightning Rough of his show today.
Ultimately, solar power will eventually return as a quality green investment, but not in the next few months. And, when things turn around in the solar industry, American solar companies just might not be able to compete with Chinese companies.
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