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: Shares of solar manufacturers continued their roller-coaster ride today after China set a big target for solar installations. Suntech Power (STP) jumped 11% today, while LDK Solar (NYSE: LDK) is up 10%, and Trina Solar (NYSE: TSL) also popped 10% for a short time today.
So what: China's deputy director of the National Development and Reform Commission, Liu Tienan, said that China installed 7 GW of solar in 2012 and will install another 10 GW in 2013. The country is dumping money into solar at a time when most of its domestic manufacturers are struggling and there are shrinking outlets for supply, with Europe struggling with its own financial problems.
Now what: China is trying to save its solar industry, but even 10 GW may not be enough. Even in a year when China installed 7 GW, the industry reported huge losses, and debt from state banks was still needed to prop up the industry. There was about 40 GW of overcapacity in solar this year, and adding a few GW of demand won't solve the structural problems in the industry.
If you really want to invest in China's solar manufacturers, I would stick to the better (relatively speaking) balance sheets of JinkoSolar (JKS 4.15%) or Trina Solar over debt-laden companies like LDK Solar and Suntech Power. If you're looking at LDK, Suntech, or Yingli Green Energy (NYSE: YGE) you should ask yourself: Do you want to own a company with billions of dollars in debt and losses every quarter in the hope you'll get a bailout from the Chinese government? Short-term these stocks may be popping, but long term, their financial performance will continue to struggle, and that's bad news for investors.
I still think the way to play the industry is with First Solar (FSLR 0.73%) and SunPower (SPWR 0.97%), because they don't have to rely on Chinese state-run banks for funding and they have a history of stronger financial performance than most Chinese competitors.
