At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and “initiating coverage at neutral.” Today, we’ll show you whether those bigwigs actually know what they’re talking about. To help, we’ve enlisted Motley Fool CAPS to track the long-term performance of Wall Street’s best and worst.
Who’s hot and who’s not in solar stocks
In what it called a purely “tactical” decision, investment banker Raymond James announced Wednesday that it has decided to upgrade solar stocks practically across the board. In one fell swoop, the analysts swapped out underperform (aka sell) ratings on each of First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR), Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) and Trina Solar Limited (ADR) , substituting market perform ratings for each. But why?
According to the analyst, the reason for the reversal of opinion on solar stocks is simply this: “The risk/reward balance has shifted toward a more neutral stance.” As StreetInsider.com explained the ratings move, Raymond James noted that all four of these stocks had fallen at least 13% below their 52-week highs. That being the case, there’s less downside in the stocks, and less of a case for selling them.
I disagree — and I’ll tell you why.
Facts and conclusions
On the one hand, Raymond James is undeniably correct about a couple things. The four solar stocks in question have lost a lot of value over the past year. Three of the four — First Solar, Inc. (NASDAQ:FSLR), Suntech, and Trina Solar Limited (ADR) (NYSE:TSL) — are actually down quite a bit more than the 13% that RJ cites. And yes, having declined in price means there is less downside… in one sense.
Take First Solar, Inc. (NASDAQ:FSLR) for example. Over the past year, the solar thin film producer’s shares have traded as high as $37. Today, they sell for just $26 a pop. And viewed one way, that’s $11 worth of downside that you no longer have to worry about, because the shares have already fallen down those stairs.
Problem is, though, whether you start counting down from $37 or start counting down from $26, either way, a decline to $0 is still a 100% loss — and if you ask me, a 100% loss is a very real risk investors are taking at all four of these companies.