New All-Time Low! Now What?

Last I checked, there were over 300 NYSE-listed stocks hitting 52-week lows today. Same stuff, different day, right? Still, I can't help but notice the preponderance of firms hitting all-time lows these days. And I'm not even talking about the walking dead like Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) .

Take LDK Solar (NYSE: LDK  ) , for example. The Chinese solar wafer supplier has been publicly traded for less than two years, so today's all-time low isn't too dramatic in the grand scheme of things, I suppose. But I honestly never thought I'd see this stock, which peaked at around $75 in September of 2007, trading for $6 and change. At least not once those fraud allegations got cleared up, that is.

Why the 25% haircut today? LDK is taking a huge writedown on its inventories, the value of which has plummeted along with plunging polysilicon and wafer prices since the solar market froze up in the fall. This charge, which will top $200 million, will cause the firm to report a loss for the fourth quarter. There was also a raft of guidance cuts, so let's put the latest information side by side with the numbers that LDK provided in early January:

 

Old Guidance

New Guidance

2008 fourth-quarter revenue

$425 to $435 million

$415 to $425 million

2008 fourth-quarter gross margin

10% to 13%

negative

2009 revenue

$2.3 to $2.5 billion

not provided

2009 year-end wafer capacity

2.3 gigawatts

2 gigawatts

2009 year-end poly capacity

16,000 tons

12,000 tons

Data from company press releases.

In addition to the inventory hit, which threw margins into the red, LDK has also slowed its various expansion plans. As described in the press release, they're being delayed rather than put on hold. This is a sound decision, and is quite modest compared to Suntech Power's (NYSE: STP  ) . I have to believe that people are primarily panicking about the inventory charge.

The tables have certainly turned, here. Whereas the cell and module makers were the ones getting squeezed when polysilicon prices were hurtling skyward, wafer players LDK and ReneSola (NYSE: SOL  ) are now feeling the heat. I don't personally find this capital-intensive operation a compelling investment, but given the non-cash nature of the inventory charge, I can't really see how LDK's business is 25% less valuable than it was yesterday.

I can only surmise that LDK's integrity is once again being called into question by investors. If anyone is calling shenanigans on LDK's inventory accounting, however, word has yet to reach my ears -- or inbox. And I do usually hear from the company's detractors.

Now who's getting drilled?
Changing gears a bit, let's turn to a land driller getting no love. Earlier this month, I suggested that people picking up shares of drillers like Precision Drilling Trust (NYSE: PDS  ) or Helmerich & Paynes (NYSE: HP  ) were likely to get burned in the near term. That's turned out to be horribly prescient in the case of the former company.

The shares of this well-heeled contract driller have collapsed from what seemed like already depressed levels to $2 and change. Precision has been attempting to shore up its balance sheet by various means, from dashing its dividend to raising fresh capital. Mr. Market has been most unimpressed. Somehow, Precision managed to place new units at $3.75 yesterday. The proposed debt issuance, however, has stalled. That leaves Precision stuck with a bridge loan charging 17% interest.

Is Precision perilously close to defaulting on its obligations? The market price suggests an affirmative answer, but the real pressure doesn't hit until the very end of 2009, when debt maturities begin to surface. That suggests to me that Precision has time to maneuver its way through this funding crunch. But I'm just one guy, and the market has spoken. Unless you have some unique insight into the situation here, I would probably suggest standing aside.

Precision Drilling is a Global Gains recommendation. Suntech Power is a Rule Breakers pick. Gain unique insight into our Foolish stock-picking approach with a free 30-day trial of any of our newsletters.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

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 February 19, 2009, at 5:21 PM, imaginegreen wrote:

    Thoughtful and rational comments about LDK and I wish it could be so rational. But haven't you noticed that for a long time, nothing is rational anymore in the stock market. Wisdom that may exist in a free market is obscured by the fog of violation and it's not free anymore.

    Stocks have been consumed by short oriented traders and gross manipulation, especially LDK.

    Fundamentals become irrelevant when these other factors dominate. It like there's no use in locks when everyone is a locksmith.

  • Report this Comment On February 19, 2009, at 5:30 PM, wassercom wrote:

    Imaginegreen is spot on with his observation. Now the question is: why have neither GWB nor Obama seen the need to provide some adult supervision of our markets (ie, reinstating the uptick rule, prosecuting the naked short sellers, banning financial instruments of death like SKF, etc)?

    With GWB, I chalked it up to incompetence. With Obama, I have to assume he sees no need to stabilize the markets and perhaps wants to use the uncertainty to advance his political agenda. What a shame.

  • Report this Comment On February 20, 2009, at 3:00 PM, melissa279 wrote:

    Wass

    Maybe Obama just missed those ideas cause he has been a little busy. Why not pass them on directly?

    blauball

  • Report this Comment On February 22, 2009, at 12:01 AM, tankmanbob wrote:

    Precision Drilling is going to turn out to be a once in a lifetime opportunity.

    When times turn around there is a very good chance they will be paying 100% dividends in terms of today's price.

  • Report this Comment On February 23, 2009, at 1:39 PM, kabierwatz wrote:

    Agree with the analysis on PDS but not on the conclusion. Even if they turn out to be at risk of defaulting by year-end (which I don't think they will) they would end up being an excellent takeover target. This stock, by virtue of its industry, its management, and its assets, is win-win and is a huge buy at these levels.

  • Report this Comment On April 04, 2013, at 1:00 PM, davidwaters007 wrote:

    Thanks for this update. I actually overheard a lot of this from my locksmith in Whitby. You never know the varied ways word spreads! Thanks again. http://www.beesafeandlock.ca/en/

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