MEMC Electonic Materials Defies Business Week Implications (WFR)

MEMC Electronic Materials (NYSE:WFR) is trading up sharply on earnings and guidance slightly above most estimates despite seeing shares hit by a Business Week article from the "Inside Wall Street" section today.  It notes that MEMC is one of the favored stocks with 12 of the 15 analysts who track the stock rating it a buy.  Shares had a rough day yesterday with a 4.7% drop to slightly under $60, but shares are currently up over 12% to almost $67 and just under its 52-week highs.

Business Week noted that it has risen from about $35 a year ago to $65 on Oct. 24. Business Week takes the stance that bad tidings may slow its advance. As a major supplier of polysilicon used for solar panels, it is benefiting from the shortage of polysilicon and the boom in solar energy after the price of polysilicon sales has doubled since 2004.

The article discusses a former bull who is now shorting the stock on a belief that there is a massive bubble developing because of substantial new capacity coming on stream in a couple of years and on the belief that polysilicon prices will plunge.  The article notes that big suppliers are already cutting prices on their long-term contracts.

There is actually some truth here that the supply constraints of 2005 and early 2006 are appearing to lift.  But the issue is that demand is still outstripping supply even in the future.  Polysilicon doesn’t really have speculators driving up the commodity prices like in oil.  As long as oil and energy costs remain high, solar is going to stay viable.  But what Business Week may be right about is that the easy money here off this has probably already been made.

Jon C. Ogg
October 26, 2007