Selling Puts on First Solar (Nasdaq:FSLR) - June 100s Look Good
Posted: 10 February 2010 09:37 AM   [ Ignore ]  
Total Posts:  49
Joined  2008-05-06

February 10, 2010 – First Solar (Nasdaq:FSLR) remains the benchmark for solar companies in terms of growth, market share (thin film) and profitability, and the stock is trading down this morning to the $108-$109 level, currently at about 16.3x projected earnings this year of $516.7 million and 12.55x projected earnings in 2011 of $731.9 million. We would consider selling puts at current levels, specifically, the June 100 Puts for a premium of about $10.15 (most actively traded June Puts in today’s session).

We are strong advocates of selling puts into broader market weakness on stocks you would like to own at lower levels. First Solar, as a market leader in an industry poised for aggressive growth of the next decade meets that profile. Selling the June 100 Put for $10.15 implies the following:

• If stock price increases, or remains above the $100 level, the Put will expire and you keep the premium for taking the obligation to purchase the stock at $100 in June.

• If stock price decreases below $100, you will get put the stock at an adjusted price of about $90 (strike price less the premium paid when the Put was sold).

At $90, the stock would be trading at about 13.6x projected FY10 earnings and about 10.46x projected FY11 earnings. This is an attractive valuation level, in our opinion, to begin accumulating First Solar’s stock. Note that we emphasize ‘begin’ here. As a matter of discipline and principle, we always recommend keeping more cash on hand to take advantage of even more attractive prices should the stock price materially decline further (where, all things being equal, the fundamentals remain the same).

Our goals with this strategy is to lock in a solid return on the Put side of the trade based on our expectation that the stock price will appreciate, thereby reducing the premium for the Put and enabling us to close it out before June. On the other hand, if the stock declines and we do get put First Solar’s stock – at an adjusted cost average of $90 – that is a price we would be happy to begin accumulating the stock.

Important Disclosure:

This information is intended to assist investors.  The information does not constitute investment advice or an offer to invest or to provide management services and is subject to correction, completion and amendment without notice.  Any such offer, if made, will only be made by means of a confidential prospectus or offering memorandum or management agreement.  It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future results or expectations.  As with all investments, there are associated risks and you could lose money investing.  Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment