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,
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