Both the S&P 500 and the Nasdaq have declined sharply in recent trading, an acutely worrisome trend for sectors that previously rose faster than the general market. This is not to say that the higher stocks rise, the harder they fall — just that sectors that rose due to speculation risk falling heavily in the weeks and months ahead. Three of the most speculative sectors that could face a decline are 3D printing, solar energy, and Japanese industries. Let’s see what might lie ahead for three of those sectors’ biggest outperformers.
Year to date, 3D Systems Corporation (NYSE:DDD), First Solar, Inc. (NASDAQ:FSLR), and Sony Corporation (ADR) (NYSE:SNE) are up 22.1%, 65.8%, and 69% respectively, far above the S&P 500 and the Nasdaq index:
As the market panic accelerates, which of these companies is most likely to retain its value?
Solar: Overall, a positive story
The general overall conditions for the solar energy sector are improving. Many solar energy companies’ earnings reports demonstrate stable output and prices. JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO)‘s reported quarterly earnings that beat the street. The company lost $0.85 per share, exceeding estimates by $0.35. JA Solar’s $270 million in revenue beat estimates by more than $41 million.
Another solar play suggested its outlook was positive. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) raised its shipment estimates for the current quarter. The company expects shipments to grow instead of decline, as previously guided.
First Solar, Inc. (NASDAQ:FSLR)’s share price benefited from those related suppliers’ positive news. Its shares are up 73% in 2013, and it has a healthy backlog for the next two years. The company aims to produce 15%-20% in margins for new projects.
First Solar, Inc. (NASDAQ:FSLR) has the option to be selective with its opportunities. To get ahead of the competitors mentioned, First Solar, Inc. (NASDAQ:FSLR) substantially restructed in its business last year. By focusing on the biggest solar-panel-farm projects around the world, First Solar, Inc. (NASDAQ:FSLR) ensures a more stable revenue stream even if solar prices weaken.
The news isn’t quite as rosy for all solar companies. Trina Solar Limited (ADR) (NYSE:TSL) reported weak earnings and provided a weak forecast. The company lowered its shipment estimates to 390-400 megawatts because it’s having a hard time generating positive margins from its sales, earning the company a downgrade from Goldman Sachs. For investors, Trina’s weakness will mean that profit taking is in the cards at least in the short term.
3D Printing: Off 9% in a week
In the 3D printing space, 3D Systems Corporation (NYSE:DDD) peaked at above $51 on a number of occasions in May 2013. Lately, shares have stumbled, down 9% in just one week of trading.
The company’s sales growth rates and positive returns from acquisitions both justify its high P/E. However, management recently took advantage of the rising share price to issue 100 million more shares. Insiders also sold more than 1 million shares after offering 7.5 million shares earlier in May.
Despite the volatility those share issuances generate, 3D Systems Corporation (NYSE:DDD) will likely have another strong quarter, thanks to growing revenue from its services and printer business. The company’s track record also suggests that its future acquisitions will likely prove successful, which could also help support growth.
But in the short-term, 3D Systems Corporation (NYSE:DDD)’ shares could sell off heavily, as investors reduce their exposure to expensive stocks. Note also that bearish investors, skeptical that the company can maintain its growth-by-acquisition model, have a 26% short float in the company.
Japan: Spinoff uncertainty for Sony Corporation (ADR) (NYSE:SNE)
In Japan, the Nikkei 225 index peaked at nearly 16,000. Since then, the index has dropped more than 15%.
Japanese conglomerate Sony Corporation (ADR) (NYSE:SNE)‘s recent rise may have ended along with the Nikkei’s. Sony is up almost 70% in 2013, but it pulled back almost 7% in the past week.