Short Sellers Should Be Terrified of Solar

The short interest in solar stocks has set up investors for a short squeeze if the fourth quarter is as good as anticipated.

Feb 2, 2014 at 4:00PM

There's a deep-rooted pessimism in the market against solar companies. Maybe it's the after-effect of Solyndra or a belief that solar power is only competitive with the help of government subsidies and handouts.

There was a time when many of those beliefs were true, but today the solar industry is competing with the grid on economics, not subsidies. The solar feed-in tariff rate in Germany is lower than the cost of power from the grid, SunPower (NASDAQ:SPWR) recently began construction on a utility scale project in Chile that will sell power in the spot market, and First Solar (NASDAQ:FSLR) is building utility scale projects in the U.S. and selling power for nearly half the retail price of electricity.

When you consider that it's only becoming cheaper to build solar projects and demand will rise exponentially as costs fall, investors shorting solar stocks are playing a dangerous game. Fight the facts all you want, if my predictions are right and solar companies post impressive profit numbers for the fourth quarter these stocks could skyrocket. Some of that fuel will come from short sellers themselves.

Short interest in solar has gotten insane
When you short a stock, you're borrowing it from your broker and selling it to someone else with the promise to return the share to your broker in the future. If the share price goes up, you lose money and eventually your broker will limit the losses they're willing to take on the share you borrowed.

That's what's called a short squeeze. When a share's price starts to rise, short sellers or their brokers panic and buy back shares, increasing the number of buyers in the market. The most famous short squeeze in the past year was Telsa Motors, who was propelled from around $30 per share a year ago to more than $100 in a short time because of short sellers buying in bulk.

TSLA Chart

TSLA data by YCharts.

Short interest becomes a problem when everyone wants to close their short positions at the same time. If the percentage of shares outstanding sold short is too high, the short squeeze is more likely.

What's interesting in solar is that short interest has gotten out of control. Below, I have a table of the percentage of shares on the market sold short and the number of days the days to cover, or number of shares short divided by average daily volume.


Percent of Float Sold Short

Days to Cover




First Solar






Yingli Green Energy (NYSE:YGE)



Trina Solar (NYSE:TSL)



Source: Nasdaq and SEC filings.

What's most notable is that 31.7% of SunPower's shares are sold short. This pulls out the 66% of the company Total owns and aren't going to be bought or sold in the open market anytime soon. That's even higher than Tesla's short interest when it went on a hot streak.

First Solar, SolarCity, Yingli, and Trina Solar aren't all that far behind at around 10% of shares sold short.

Why shorts should be worried
What should be worrisome for shorts is that financial conditions for solar companies are only getting better and Q4 may be a blowout. China reportedly installed as much as 12 GW of solar in 2013 and up to 8 GW of that may have come in the fourth quarter. If the reports are true, Yingli and Trina will have seen a tremendous amount of demand and likely raised prices as well. Financials may have improved so much that both companies could make a profit for the fourth quarter and project a profit in 2014.

First Solar and SunPower are already profitable and if they surprise investors with higher margins in Q4, these stocks could shoot higher. Then there's SolarCity, which continues to wow investors with the speed it can grow installations in the residential market.

Top-end solar companies have been outperforming expectations during 2013 and, with the momentum building in Q4, we could be in for a short squeeze when earnings come out. I certainly wouldn't want to be betting against solar right now.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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