The Dow Jones Industrial Average started off the week dipping 21 points below Friday’s close on a day that proved to be the lowest volume day of the year so far, with traders likely looking for some sense to see how the financial situation plays out overseas and whether Congress here at home comes to grips with across-the-board sequestration cuts before next month’s deadline.
|SunPower Corporation (NASDAQ:SPWR)||19%|
|Diamond Foods (NASDAQ:DMND)||15.2%|
Now resist the urge to high-five everyone in the cubicles next to you. Smart investors won’t celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.
New lease on life
It was just last week that the second largest U.S. solar manufacturer, SunPower, was reeling from a disappointing fourth-quarter earnings report that saw losses gap 56% wider to almost $145 million as prices for its panels fell. But it was pricing news yesterday that caused its stock to shoot higher yesterday.
A trio of reports came out showing sunnier skies for the solar industry. Credit Suisse Group AG (ADR) (NYSE:CS) said polysilicon prices are at a trough and production cutbacks by manufacturers such as Dow Corning (NYSE:GLW) will allow them to soon rise again. The joint venture between The Dow Chemical Company (NYSE:DOW) and Corning Incorporated (NYSE:GLW) is a major producer of polysi, and it’s undergoing a reorganization of its business as a result of a steep slide in revenues. It cut back production last quarter and is expected to report further cutbacks this time around.
Additionally, GTM Research predicted U.S. residential solar financing will grow nearly fivefold by 2016, while the Financial Times said bonds back by cash flows generated from leasing solar panels could be in the industry’s future. While that sounds like a dicey development to me, both SolarCity and SunPower are among the biggest third-party ownership vendors, and they would stand to benefit from the arrangement. Indeed, GTM says SolarCity is the largest residential installer in the U.S. and at 18.8% has more than double the market share of its closest competitors.
Cutbacks in incentives and subsidies to the industry have allowed equipment leasing to gain new prominence, and analysts expect these opportunities to expand. While these are trends that favor the solar shops, I see nothing concrete here that can really justify the big jump their stocks enjoyed, and I expect they’ll give back some of these gains soon enough.