October 22, 2008 - Stocks have been revaluated in the past couple months

Oct 22, 2008
Author: Administrator


October 22, 2008 - Stocks have been revaluated in the past couple months, to say the least, and we hear pundit after pundit in the financial media prognosticating as to whether stocks have hit levels which truly represent oversold conditions, or whether there is still more downside, or both. No one knows, and generally speaking this point is not controversial. We will continue to report on a number of companies we think that regardless of whether the markets move up or down five hundred points in the near term - and they will - investors should own for the mid-to-long term. We continue to keep our sights on the alternative and clean tech sectors as being amongst the most compelling from a growth perspective. On a bipartisan basis, support for alternative energy is strong. The private sector continues to invest, and the international community is on board as well. The international energy agency has called for an remarkable $45 trillion to be invested into alternative energy and clean tech between now and 2050 to hit targets for carbon and GHG reduction. Investments will continue to pour into solar, wind, geothermal, biofuels, energy efficiency, energy storage and electric as well as hybrid automotive. Here is one of the most impressive companies, in our opinion, in the solar industry: 

LDK Solar (NYSE: LDK) - a Chinese solar wafer maker, which is moving upstream building a massive polysilicon plant which will enable it to better control its costs, and maintain stronger margins. The company has made a habit of raising guidance and beating expectations. Recently, it raised guidance for revenue to a range of $530 to $540 million for the Q3, up from a previous guidance range of $486 to $496 million. We expect it to post $1.8 billion in revenue this year, and $2.9 billion in revenue next year.

The stock closed at $20.13 yesterday, about 1.20x this FY2008 sales,  .74x FY2009 sales, and 6.6x projected earnings for this year. These multiples are characteristic of a low-growth, dividend paying utility company but they are not characteristic of a business that is growing revenue 243% from 2007 to 2008 and growing earnings 132% from 2007 to 2008.

At a 2x price to sales ratio for FY2008, the stock would be trading at $33, and a 14x P/E ratio for this year's forecasted earnings, the stock would be trading at $42. We think that both of these multiples are absolutely defensible and reasonable.


Global growth in the solar market has been dramatic, and will only continue. Consider these points:

· World solar photovoltaic (PV) market installations reached a record high of 2,826 megawatts (MW) in 2007, representing growth of 62% over the previous year.(*)

· Global industry revenues were $17.2bn in 2007, while capital investment through the PV business chain totaled $5.3bn.(*)

· The extension of the ITC could drive 19,000MW additional solar installations, and increased investment of $232 billion between 2009 and 2016. (**)

(Source: Solarbuzz (*) and Navigant Consulting (**)

So we are extremely bullish on the growth of solar for the foreseeable future, and solar companies building modules, wafers and cells to meet burgeoning demand downstream will need to get their polysilicon supply from someone. LDK will be one of the four to five primary suppliers. It is on track with all production, having recently announced that it reached annualized wafer production capacity of 1.2GW at the end of the third quarter, and ahead of its previously announced schedule target of year-end.

This is a business that has set, and continues to set aggressive targets and meets and beats them. The stock is cheap, and to our point at the outset, whether the broader markets dip 500 points on any given day, the upside here, in our opinion, is undeniable.

IMPORTANT DISCLOSURE NOTE: SCPEditor is LONG LDK. The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance.

Disclaimer: Information has been obtained from sources considered to be reliable, but we do not warrantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities. While we believe all sources of information to be factual and reliable, in no way do we represent or warrantee the accuracy thereof, nor the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO HIS OR HER OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. COMMON STOCKS INVOLVE SUBSTANTIAL RISK AND IT IS POSSIBLE TO LOSE YOUR ENTIRE INVESTMENT.   This information is not an endorsement of the Company by SCP. SCP is not responsible for any claims made by the Company. You should independently investigate and fully understand all risks before investing. Statements included in this email or fax may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the Company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues in the sponsoring client. Further information on potential factors that could affect the Company's financial results, can be found in the Company's Registration Statement and in its Reports on Forms 10-K and 10Q filed with the Securities and Exchange Commission (SEC).


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