Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Chinese solar stocks are jumping again today on speculation that easy money from China will have no end. Canadian Solar (NASDAQ:CSIQ) was up over 12% early in the day while LDK Solar (NASDAQOTH:LDKSY) and Yingli Green Energy (NYSE:YGE) were up as much as 11% and 14% respectively.
So what: Bloomberg News posted an article late yesterday that said China is likely to encourage domestic demand as a way to get the solar industry back to profitability. Case in point is reports that Yingli could win 3 GW of solar projects outside of Qujing in China.
Nomura analysts also gave reason for some to buy, remaining bullish on Canadian Solar and predicting positive earnings before interest and taxes, or EBIT, in the second quarter.
Now what: Chinese solar stocks can swing 10% any day with little significant news, just like they're doing today. What investors need to keep in mind is that more subsidies don't necessarily mean that Chinese solar manufacturers are good investments. Canadian Solar is one of the best Chinese solar companies, and it still has $1.7 billion in debt hanging over it. Even if subsidies do continue and EBIT does turn positive, the company is a long way from net income and would have needed $14.6 million in EBIT just to cover interest expenses last quarter. As for LDK Solar and Yingli, their balance sheets are a nightmare, and they'll be two of the last Chinese solar companies to generate net income, if they ever do. I'm still staying away from these volatile stocks and sticking with steadier U.S. ones, which don't need easy money from state-run banks just to stay alive.
Interested in more info on Canadian Solar? Add it to your watchlist by clicking here.
Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.