Why the Sunshine in Solar Stocks? (STP, CSIQ, YGE, ENER, USO, BTU)

Suntech Power Holdings Co., Ltd. (NYSE:STP) closed its follow-on offering of 23 million ADSs on May 28th. The price per ADS was $12.50, and the company raised net proceeds of about $277 million.

Suntech shares hit a high of more than $16/ADS yesterday before closing at $15.44, nearly $3 more than the follow-on offering price. And virtually all solar stocks have risen nicely in the past week. Canadian Solar Inc. (NASDAQ:CSIQ) and Yingli Green Energy Holding Company Ltd. (NYSE:YGE) are up nearly 20%, and Suntech and Energy Conversion Devices Inc. (NASDAQ:ENER) are up more than 5%.

Why the run-up in price since May 22nd? After all, Suntech earned just $0.01/ADS in the first quarter on revenue of $315.7 million, and estimates for the current quarter are for EPS of $0.01 on $360.5 million in revenues. The others certainly weren’t much more impressive. All the solar players just managed to clear very low expectations. So what’s up?

The answer lies in the rise in oil prices. Crude prices have risen above $64/barrel, US Oil Fund ETF (NYSE:USO) is up more than 5%, and solar stocks are following along for the ride. The sentiment seems to be that demand for oil will translate into demand for energy from all sources. Even coal miner Peabody Energy Corp. (NYSE:BTU) has risen more than 7% in the past week. Even natural gas prices have risen above $4/thousand cubic feet on the futures market.

Rising energy prices may boost the stock market, but it is nearly equally certain that those same rising prices will kill a recovery in consumer spending if the prices rise too much. If consumers have to pay more for gasoline, they’ll spend less on everything else, including solar panels. Of course the US government could temporarily put some air under the solar makers, but that won’t last long.

The recent bull run in oil prices is most likely speculation, which makes the run-up in other energy stocks even more chimerical. Suntech is trading up more than 4% in the pre-market this morning, Canadian Solar and Yingli are up more than 2%, and Energy Conversion is up about 1%. Peabody Energy is also up more than 4%, while USO is up more than 2%.

Much of today’s run is likely due to the report that GDP didn’t fall as much as expected, and the rest is dollar-related. Because the economy is not as bad as it could be hardly seems like a reason to celebrate. Especially when oil prices could turn the celebration into a wake very quickly.

We have joked that in some sense solar companies (and other alternative energy players) are nothing short of leveraged moves against the price of energy.  Does this not fit that description?

Paul Ausick
May 29, 2009