Chinese Solar Stocks Become More Attractive on First Solar Deal

First Solar (FSLR) wasted no time in securing a deal from China. One day after announcing the arrival of senior Chinese government leaders from the Standing Committee of the National People’s Congress of China, FSLR announced that it had secured a major contract in Inner Mongolia. This 2 gigawatt desert solar power plant is exactly the kind of large-scale, solar utility that First Solar has said it is pursuing as it transitions to the next phase of the solar market. This contract also indicates that the Chinese are serious about blunting growing charges that they are dumping panels on the market and engaging in unfair trade practices in the solar market.

While this contract is a positive for First Solar (and the stock market responded quickly to the news – although the initial surge was met with some high volume selling), I think it is even better news for Chinese solar companies. If the Chinese government is willing to throw FSLR this big a bone, the largesse that it will spread on its own companies should be “spectacular.” As I have stated in the past, Suntech Power (STP) is my favorite short-term play for Chinese solar stocks. In the past month, I have also become impressed with Trina Solar (TSL).

In the meantime, I am still net short FSLR. Today’s big move shifted the position to neutral, and I sold calls to get back to net short. Ever since FSLR hit my downside target of $130, I have been looking for reasons to get long. The downtrend that persisted up until last week was enough to convince me that FSLR is now likely to go even lower as on-going macro (and some company) issues continue to weigh on the shares over the intermediate term. In the meantime, the current bounce could carry FSLR back to $145-150 before topping out (convergence of the 50 and 200-day moving averages). For now, I am staying net short

Another solar name to watch is Energy Conversion Devices (ENER) as rumors were rampant today that Applied Materials (AMAT) is looking to acquire the company. At the time of writing, ENER has surged almost 30% on the news in what must be at least partially a short squeeze. Before the news, ENER was still making new 52-week lows and had around 31% of its shares sold short. I was fortunate enough to be in a position to buy calls today, but I sold out after the stock had hit “just” 15% on the day.

Be careful out there!

Full disclosure: long STP, net short FSLR, short ENER put spread