The Oxen Report: A Sunny Outlook on Solarfun Power…At Least for Tomorrow
Hello readers,
I have a new Overnight Trade of the Day for you. I have been out of the office for the last couple days due to some other commitments, but I am going to be having a really productive week next week for you. If you follow anyone on Seeking Alpha, I just became a certified writer for the site. You can visit me on there at http://seekingalpha.com/author/the-oxen-group. I would love to have you as a follower. Next week, we will be getting back to daily two picks with some overnight trades thrown in there. i am feeling good about next week, so let’s get excited.
Here is the pick…
Overnight Trade of the Day: Solarfun Power Holdings (SOLF)
There has been a lot of speculation and turmoil in the solar market. It is one of those extremely volatile markets that can change direction on a dime and is heavily influenced by everything from governments to company reports to the weather. While I am not writing this article as an endorsement of the solar industry as anything productive in the long term. I do think that certain solar stocks, especially some of the undervalued ones, have presented some great trades over the past week and moving into next week. 
One of these such stocks that I am bullish about to buy today and sell tomorrow is SOLF. Solarfun is one of my favorite stocks, so I went extra in-depth on this one to make sure I was getting rid of any biases. The company reports its earnings tomorrow, and I am expecting big things out of SOLF for tomorrow. The company is your typical PV producer with most of its business in China and Germany like many others. Its most similarly structured and sized company is Suntech Power, which is good news for SOLF traders.
Suntech reported some exceptional earnings this morning, beating their estimates by over 100% and shedding light in an industry that has a great quarter but has a lot of questions surrounding it. A lot of these questions involve the market for solar energy. It is a highly subsidized industry that may be facing some major cuts in the coming year from Germany, which gave a lot of these companies a black eye moving into earnings. Solar companies’ response was for five of the major solar producers that have reported so far, all five beat earnings. Looking at Suntech, the company has beat earnings by the greatest margin so far in the industry.
As the Marketwatch report on Suntech noted, "Jefferies & Co. analyst Paul Clegg said in a note this week that Suntech and other manufacturers have benefitted from a rush to buy solar panels in Germany ahead of a move by the government to pare back its feed-in tariff subsidies in the middle of the year."
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Those other manufacturers include our beloved SOLF, who does about 20-25% of its business in Germany. Suntech’s earnings were also a big booster because they turned a profit, while losing -0.42 EPS one year ago. One year ago, SOLF reported a huge negative loss at -1.14 EPS. That loss crashed the stock, and a report of a profit, which is extremely likely, will be another boost. Looking at the quarter-to-quarter earnings, SOLF has followed right with STP, and that company just missed one quarter ago by 0.05 while having a nearly exact same quarterly estimate for this quarter as SOLF. That means that SOLF, we could expect to come in much closer to Q3 of 2009, which was 0.37. Estimates for this quarter are 0.11. That kind of beat would be phenomenal. The trend, though, across the industry is for earnings around Q3 in Q4, which was not expected.
The future, as Clegg, pointed out may have some clouds over it, but I think we have a solid pick for tomorrow. By getting in today, we can position ourselves to get a nice end of the day run up into tomorrow’s earnings report. SOLF, technically, even with gains today is still undervalued and has a very attractive fast stochastics chart that show buyers are pouring into the stock, which should get some longer investors also involved. With the high amount of buying, we are going to see the price skyrocket tomorrow on any beats.
Get in today and good luck!
Entry: We are looking to get involved in SOLF by 2:00 PM.
Exit: We want to get out in the morning tomorrow.
Good Investing,
David Ristau
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