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3 Chinese Solar Stocks to Sell Right Now

Growing demand for solar panels in 2013 has led to rising margins for most Chinese solar manufacturers. But not every company is faring as well as others. Here are three Chinese solar stocks to avoid in 2014, even as the market improves.

LDK Solar
If it wasn't bad enough that LDK Solar (NASDAQOTH: LDKYQ  ) reported just $156.6 million in sales last quarter, reported a $127.0 million loss, and has $2.8 billion in debt -- the company can't even pay its bills. Last week, management offered $0.20 on the dollar for dollar denominated debt and hasn't made interest payments on those bonds due last August.  

It's inconceivable how LDK Solar could grow enough to get out of that much debt and return any cash to shareholders. The company took a huge gamble loading up on debt to expand capacity and the gamble has been a failure and will continue to be for shareholders.

Yingli Green Energy
The problem with Yingli Green Energy (NYSE: YGE  ) begins and ends with debt. In fact, it's one of the more reputable manufacturers with a strong global brand, but the company still has $2.6 billion in debt hanging over it.

To put that debt into perspective, if we annualize Yingli's $43.8 million interest expense last quarter, the company would have to generate a $175.4 million operating profit just to break even (before taxes). Add in another $372 million in operating expenses and gross profit needs to be $547.3 million annually to break even. That would be about a 22% gross margin on $2.4 billion in revenue, which would be last quarter's revenue... times four.

It's certainly possible for Yingli Green Energy to swing to a profit because a 22% gross margin isn't unattainable from the 13.7% generated last quarter. But why not bet on a company like JinkoSolar, Trina Solar, or Canadian Solar instead, because their break even margin is much lower and profit upside is much higher. Plus, they have more ability to invest in the next generation of solar equipment when necessary, something Yingli may not have the balance sheet to do.

Like Yingli Green Energy, there are some things to like about ReneSola (NYSE: SOL  ) . The company would have broken even last quarter if not for a $202.8 million impairment for a polysilicon expansion, but it's that execution risk that poses too much risk in 2014.

In last quarter's conference call, management admitted it didn't know when the Chinese government would pay subsidies supposedly due to utility scale projects built by companies like ReneSola.  Add that to the failed plant upgrade and an industry lagging 8.1% gross margin and you have a poor executing solar company.

Like Yingli Green Energy, this isn't a company I would take a risk on in 2014.

Chinese stocks you could buy
For as many risks as there are from these three stocks, there are some companies performing very well right now. JinkoSolar, Canadian Solar, and Trina Solar have all reported quarterly profits in 2013 and look poised to improve both their income statements and balance sheets in 2014. They're much safer bets as the solar industry improves than hoping that LDK Solar, Yingli Green Energy, or ReneSola can turn around bad balance sheets or struggling operations.

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Read/Post Comments (8) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2013, at 10:24 AM, sonofTesla wrote:

    I've been following this author's articles for quite some time. I work in the solar industry and have for quite some time. I can say with certainty, this guy has no clue what he is talking about.

    Yingli is dominating the global market and will continue to do so for the foreseeable future. The consolidation of China's solar industry is almost complete, although I would also steer clear of LDK for the time being.

    Yingli's founder is connected to the Chinese military and they will ensure that YGE remains THE module manufacturer for many of their domestic projects. Also, the quickly emerging markets of the Middle East and Africa require a partner that has the capacity already in place to meet their demand. While other companies will have to spend millions upon millions to add capacity, Yingli is already capable. The author does not work in the solar industry and simply cannot devote the amount of time that is required to stay up to speed on the rapidly changing face of solar.

    Take what he says with an extreme grain of salt and then throw that grain out of your window and do your own research.

  • Report this Comment On December 30, 2013, at 11:22 AM, longline wrote:

    LDK still in the process of upgrading a poly plant

    and negotiating with creditors.Experts say that

    solar power to grow as strong as the world wide


    SOL receives good news every day and expects

    to return to profit soon !!!!!

    These companies are large Chinese employers

    and have the blessings of the Chinese Govmt.

    No oil spills ,gas explosions nuke radiation to

    deal with!!!!

  • Report this Comment On December 30, 2013, at 12:23 PM, noemailplease wrote:

    It's not the first time Motley has done this on a Solar rising stock.

    Maybe a circle of investors have bet on another solar stock and found out later Yingli was the giant?

    So they want everyone else to buy into something link JinkoSolar, Trina Solar, or Canadian Solar. It makes no sense why Trinar stocks is worth more than Yingli. it should be the other way around.

  • Report this Comment On December 30, 2013, at 7:12 PM, sonofTesla wrote:

    This is the same author that told everyone to stay away from Chinese solar altogether and that the Chinese manufacturers would be dealt a death blow by the EU's anti dumping duties...we all see how that turned out. He also said it would be years (if ever) before Chinese solar swings to a profit...well, we see how that's turned out too. Read his past articles, quite the different tune now.

  • Report this Comment On December 31, 2013, at 12:06 AM, dsong wrote:

    YGE has military background which is not secret in China.

    You just look that jks, csiq, sol, jaso all issued 2nd offers to collect money, while yge and tsl do not do the same way. That means the debt is not the issue to YGE. while Tsl has the strong balance sheet.

    Yge is larggest capacity. THE #2 is TSL They are much bigger than jks and csiq. Why invest in JKS, CSIQ which are all 30+。 While yge is only 5, TSL has the potential to 25+. JASO trading less than $2 before 1:5 reverse spliting.

    Therefore, you should invest yge, tsl, jaso, and the black horse CSUN.

  • Report this Comment On December 31, 2013, at 2:01 AM, haing wrote:

    I just don't understand why the author just ignores the latest good news from SOL. This is a misleading opinion from the author. I am very disappoint about him.

    ReneSola Ltd. (SOL), a Chinese solar manufacturer, plans to sell three projects in western China to cut debt and expand in new markets.

    The company signed a memorandum of intent to sell the grid-connected projects totaling 60 megawatts to Jiangsu Akcome Solar Science & Technology Co., it said today in a statement. The agreement is still subject to “specific provisions,” Jiashan, Zhejiang-based ReneSola said, without providing further detail.

    “Once completed, this deal will enable us to decrease our debt level and increase our cash flow, which will help us improve our financial position,” ReneSola Chief Executive Officer Xianshou Li said. “Thus, we will have greater flexibility to further expand our business in new and existing markets.”

  • Report this Comment On January 02, 2014, at 1:35 PM, longline wrote:

    Poly has reached 20 dollars today 23 seems to

    be the magic number doesn't seem that far away

    The plan as I read for for LDK has been to reduce

    costs for poly production and put one plant on the

    Hong Kong market This would be huge!!!1

  • Report this Comment On January 23, 2014, at 4:56 PM, longline wrote:

    The DOW is down today LDK is up and promised

    to negotiate with creditors.

    a forbearance agreement has been extended.

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LDKYQ $0.02 Up +0.00 +3.63%
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