Is it a jinx to say that a sector has risen too much?  Sometimes, but the recent run up in solar shares ahead of earnings season is looking like many key names have much more than just good news priced in.  Solar stocks have gained on news that orders are coming in stronger than expected in many cases, but there was also a rising stock market that coincided with a general rise in oil over the last month.

The runs have been in some cases mammoth and the news flow is still positive so far this week.  Whether oil’s recent pullback continues and whether DJIA 11,000 can continue is one thing.  Whether the run up in key solar names can be sustained is another situation.  A flag may be here in First Solar, Inc. (NASDAQ: FSLR), and we have seen huge runs in LDK Solar Co., Ltd. (NYSE: LDK), JA Solar Holdings Co., Ltd. (NASDAQ: JASO), Canadian Solar Inc. (NASDAQ: CSIQ).  Even the Guggenheim Solar ETF (NYSE: TAN) has not been neglected.

Industry-giant and leader First Solar, Inc. (NASDAQ: FSLR) is part of the reason we have a flag on the run-up as a pullback in the sector leader can often signal that other gains may need a breather as well.  This is the industry leader and peaked at just over $151.00 on September 30.  Now shares are back under $140.00  and closed at $137.01 with a whopping $11.7 billion market cap.  Still, the low in August was close to $123.00 and even closer to $103.00 at the peak selling early in the summer months for nearly a 50% run from trough to peak.  The company’s raised solar production guidance seems to have been known ahead of time, but we still have no real revenue and earnings guidance.  Without that, all you can presume is that margins in the sector are likely still compressing.  With its last quarter cost running at $0.74/MW and still declining, it will be interesting to see what the company can add and if it was able to stave off any of the ongoing industry margin pressures.

LDK Solar Co., Ltd. (NYSE: LDK) recently surged after the China-based PV maker raised its third quarter outlook.  As far as the guidance, it was raised to $610 to $640 million from $570 to $600 million and its Q3 wafer shipments were hiked to 550-570 megawatts, more than 5% above prior targets.  Shares just this week have run from under $10.00 to nearly $11.50 before the 1.6% drop Tuesday to $11.14.  In short, this move up was a 52-week high, the stock was nearly $6.50 in August, and shares were down all the way under $6.00 in June.  Oil has risen, stocks have risen, and things have gotten better for the company.  The market cap is still only $1.4 billion, but this move in total represents nearly a 75% gain since August’s lows.

JA Solar Holdings Co., Ltd. (NASDAQ: JASO) has been a winner in solar PV cell products, in part on a recent deal to supply solar cells to none other than BP plc (NYSE: BP).  BP may be hated for its oil rig disaster in the Gulf, but BP is the king of solar when it comes to oil companies.  The Shanghai-based operation just hit a new 52-week high on Tuesday at $9.58, and that is over 160% above a 52-week low.  In August the stock was hitting $5.50 and the 1% drop on Tuesday still has the stock at $9.32.  The market cap is now $1.5 billion and amazingly its recently hiked guidance and hiked estimates still has the valuations low at under 10-times forward expectations.  Again, the issue to watch is margins just like it is in all PV cell companies tied to solar.

Canadian Solar Inc. (NASDAQ: CSIQ) has been a big runner, but there is a management change worth noting.  This week it said that it expect shipments of about 190 MW to 200 MW, with a gross margin of about 14.5% to 15.5%.  This is affirmed guidance but at the higher-end of prior guidance.  Unfortunately, the company also announced a CFO change with immediate effect.  The company might want to feel lucky that more flags were not raised over such a key management change despite a solid replacement being named and despite the ex-CFO staying on in an advisory capacity.  Watch the charts here as the stock may have hit a double-top here around the $16.50 mark.  Shares were down at $11.00 in August.  The big concern here in trying to call any top at all versus peers is that volatility is no stranger as the 52-week trading range is $8.99 to $33.68.  While the rise is muted to some of the smaller players, that recent move up comes to a 45% rise in two-months.

If you go into the smaller cap names, there are many other huge winners as well as the sector has been on fire.  Deals are being signed and orders are holding up and coming on better than expected.  Evergreen Solar, Inc. (NASDAQ: ESLR) ran up more than 27% to $0.92 on Tuesday on its new display and on new team members. Ascent Solar Technologies, Inc. (NASDAQ: ASTI) also ran over 23% to $5.66 on new modules being announced for remote power. Even the Guggenheim Solar ETF (NYSE: TAN) has participated in the keen rally.  The solar ETF was flirting with $7.00 back in August and the rise in component companies has lifted its shares to $8.75 today.  That tallies up to a 25% rise in a short period.

The end may not come immediately and it would not be safe to expect a sudden bubble burst.  Valuations used to be excessively higher than at the current time.  This is also a big week for solar energy as the “Solar Power International” conference is taking place at the Los Angeles Convention Center all week.  More deals from smaller and larger companies alike are probably assured throughout the week.  Orders are holding up even if industry-wide margin pressures are still present in a highly competitive solar market.

Calling a top in a hot sector is always a tough call and the first calls are often premature.  Momentum stocks can stay on fire for far longer than many guess and the valuations in the sector are actually not astronomical as they were back when we had an oil and energy bubble in 2008.  Solar stocks are often thought of as leveraged energy trades, so you know what happens to these when you get rising oil and a rising stock market.  By now you’ve also probably figured out what happens when those trends no longer act as a magnet.

JON C.OGG

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